Telecommuters May Owe Extra State Taxes

marct22 writes "According to Cnet News, the US Supreme Court refused to hear an appeal by a Tennessee programmer who was forced to pay extra taxes because he was telecommuting to a job in New York. Apparently he worked in NY 25% of the time, which he didn't argue about, but the other 75% of the time he worked from home in Tennessee, which doesn't have income taxes. Also, it appears that right now, for those of us who live in one state and telecommute in another may be doubly taxed if both have income tax. There is a Telecommuter Tax Fairness Act in the Senate, but it has not emerged from committee so has not been voted on."

Comments

SSH? VNC?

[Short Circuit]

Don't tell me half the people here haven't used these tools...Work on a website in California? A chicago colo? Did you earn money for it?

...Do you owe taxes on it?

Re:SSH? VNC?

[TheOtherAgentM]

Seriously, I would owe taxes in a lot of states if this were taxable. Shouldn't you just tax a person in his place of employment if he is a remote worker?

Re:SSH? VNC?

[boldtbanan]

This has been tax law for ages. If you live in one state and work in another, whether driving over the state line to work in an office, or telecommuting in, you owe taxes in both states. That's why you make sure you register your residence in the same state as your job, for the purposes of taxes. It certainly doesn't help his case that he was physically in NY 25% of the time, although many states allow you to deduct taxes paid to another state on a given income from the amount you owe them.

This also opens up states to taxing foreign nationals who never leave their country of origin....for example if some guy in Finland SSHs in to NY to work on a project. He owes NY taxes, but will they ever be collected? Probably not.

Re:SSH? VNC?

[rosciol]

This has been tax law for ages. If you live in one state and work in another, whether driving over the state line to work in an office, or telecommuting in, you owe taxes in both states.

I'm not a tax expert, but I do know how my own taxes work and I'm pretty sure what you just said is not right. As a consultant, I work in many different states during the year, and my firm keeps track of how many of my billable hours are in each state. At the end of the year, I file taxes by state based on the time I was billable in each state. I do not pay taxes on that income twice. Considering we're one of the largest tax firms in the world, I tend to think we're probably doing it right.

This may or may not be relevant to a telecommuting discussion, but you're claiming the tax laws, which seem ambiguous regarding telecommuting, are the same for people physically traveling and that has not been my experience.

And his point is???

[Chocolate Teapot]

A guy plies his trade in a place where certain taxes apply and he has a problem with this? Since when did not having a physical presence in a place exempt you from from their laws? Really, as far as New York is concerned this guy is working in their manor and drawing an income from their economy and is therefore liable for their taxes. The fact that he does not actually shift his carcass over the the state line is irrelevant. Everyone expects free beer these days.

Re:And his point is???

[Angostura]

Speaking as someone who lives in London, UK, and is employed by a New York-based company, and pays UK taxes, I think I see a flaw in your argument.

Re:And his point is???

[grommit]

I think you're forgetting what those taxes are for. It may seem like it but taxes aren't there just to take your money. They're there for the government to provide services (such as roads, police, etc) for those people that make use of them, the residents. Hence, if you aren't a resident of a state and benefit in no way from the services that the government there provides, why should you be paying taxes to that government?

Re:And his point is???

[Laura_DilDio]

Screw that! Does he utilize any New York resources? Does he get the right to vote? No taxation without representation? Taxes paid while visiting in New York, or even taxes paid on wages earned while physically in New York are a little more understandable.

If they decide to tax this guy under the auspices that he is drawing an income on NY economy, then they should FULLY TAX all of the Indians who work at call centers for NY companies!

Re:And his point is???

[madajb]

That's the whole point of the Republic.
New York's laws stop at the New York border.
Tennesee's laws stop at the Tennessee border.

The fact that he did not "actually shift his carcass over the state line" (at least 75% of the time) is highly relevant.

-ajb

Serves 'em right!

[Shadow Wrought]

And no, I'm not bitter that they get to stay home while stand out in the cold, blustery rain. That has absolutely nothing, NOTHING, to do with it. OK, so it actually has everything to do with it, dagnabbit.

As it becomes more commonplace, congress will figure it out. They always do, right?

So does this mean..

[twiddlingbits]

Programmers working in India who are using Servers hosted in the USA to do development for a US firm will owe US Income Tax ;)

Re:So does this mean..

[magarity]

Parent is 'insightful', not funny.
 
Yes, they would, using the same logic as where the work is actually done whether it's from one state to another or one country to another. And to get you to pay it would probably be deducted up front and you'd have to file for a refund. Does India's equivalent of the IRS give a discount for income taxes paid to other countries like the US's IRS?

Re:So does this mean..

[CGP314]

Hell, I moved out of the US and trained as a teacher in England and now work at a school in London. Can anyone explain to me why I still have to pay income tax to the U.S. government when I don't use any of their services?


-Colin

Re:So does this mean..

[rk]

For your perusal: Renunciation of U.S. Citizenship right from the State Department.

Note that this doesn't excuse you from prior taxes or other financial obligations in the US.

Why not tax me for working out of another state?

[ajdowntown]

This would be stupid. If this were true, then I would owe my left arm. Let me explain.

I worked as a flight attendant. I was based out of a nearby state. And very often, I would be sent to other airports to work out of there. So, could I possibly owe taxes in every state I worked out of?

I know this is telecommuting, but the idea is the same, I technically lived in one state and worked out of many others...

Stupid...

You're missing the point

[Crazy Man on Fire]

Taxes pay for the services that you use. Is this guy using the roads to get to work? Are his kids going to the schools? No! Why should he pay for that stuff? The taxes he pays in his home state cover this stuff in his home state. The people who live in the other state should be paying for those services provided there.

Re:You're missing the point

[Soko]

Besides, does this guy get to vote in New York State elections now? If not, it's taxation without representation.

Soko

Re:You're missing the point

[humina]

If you move to another country like India, you won't have to pay taxes in New York.

Re:You're missing the point

[iambarry]

If not, it's taxation without representation.
Lots of taxes are without representation. Non-citizens pay taxes, but don't vote. If you travel to another state and purchase goods you may pay sales tax, but not vote. I work in another state and pay plenty of taxes there, but can't vote there.

So, what's representation got to do with it?

He wants to earn money in New York (as they pay him in New York). New York wants to tax that money. The courts say New York has a right to tax income paid in New York. What's wrong with that?

Re:You're missing the point

[Loconut1389]

Another post says new york wants him to pay taxes on his full income.

I think whatever state the company your working for is in, despite your physical location, is the state who you should pay taxes to- for the time worked for that company only- and not have to pay it again in your home state.

Now here's a bonus question, I'm an independant contractor from Iowa, but my main client is out of california. I'm technically an employee of myself, but am receiving 'employment'/work from CA. Am I exempt from CA taxes? My tax man thinks so.

Fairtax

[ScoLgo]

This is why the US of A needs the FairTax.

It would do away with all this income tax malarkey. At least at the federal level. Once that happens, it's a good bet that individual states would follow suit.

Re:Fairtax

[Monkelectric]

Every tax proposal I see somehow provides extreme benefit to the extremely wealthy. Is the fair tax any different?

Re:Fairtax

[GreyWolf3000]

Define what you mean by "extreme benefit."

The extremely wealthy are always going to be the best off at the end of the day. They are, after all, the richest. Any tax system that would break that would break the fundamental laws of the universe. You can't have the extremely wealthy wind up poor after taxes, and vice versa

As far as a tax code going out of its way to help the extremely wealthy, well, all I have to say is that our graduated income tax in the US pretty much proves that we don't have such a tax code.

Re:Fairtax

[ScoLgo]

Yes. It really benefits everyone. It's best to read it for yourself, but here are some quick points...

1. The tax burden shifts from those who work to those who spend. This would now include tourists, drug dealers, prostitutes, children, retirees, etc...

2. You are only taxed on new goods. Sell your used computer, car, house, whatever, without worying about taxes.

3. Every head of household will receive a monthly 'rebate' check from the federal government to reimburse the taxes collected on basic necessities. The closer to the poverty line you are, the larger the check. For instance, a family of four living at the poverty line would receive a monthly check of $497.00, (estimated at the time the Fairtax book was written).

4. Every pay period, you receive your gross wages. No Federal Withholding, no Social Security withholding, no Medicare withholding. Those taxes are paid from the sales tax.

5. No more April 15th. It's just another spring day.

6. Outsourcing of jobs and finances will stop as the flow is reversed to what will become the biggest and best tax haven in the world.

So... do the rich benefit? Sure they do. But not at the expense of the middle-class or the poor. Our current tax system is almost completely broken and needs a major overhaul.

Oh, and sooner is better than later.

Re:Fairtax

[ScoLgo]

"People with money do not need to spend it. They make money with money and do not need to spend it so they get weathier."

I respectfully disagree.

People with money may not need to spend it - but they do spend it. How about all those huge mansions that celebrities buy? The cars they drive? The private planes they have?

The problem with income tax is that the government takes your money up front and gives you back a small portion without interest - if you don't owe more than they've withheld, that is. It's much, much more simple to pay as you go. The amount of time that millions of people spend preparing their taxes, keeping records, etc. could be put to better use, could it not?

Income taxes foster tax loopholes. Sales taxes do not.

Re:Fairtax

[Ken D]

The other problem with switching to a consumption based tax is that it unfairly penalizes anyone who has been saving their (income)taxed income for the future. First they paid income tax when they earned it, now they're going to pay consumption tax when they spend it?

Re:Fairtax

[SeattleGameboy]

Only problem is that percentage of poor people's income spent on buying goods (necessary goods like food, clothing, etc.) is MUCH higher than rich people's income spent on buying goods (even when you factor in $35 million for Gulf Stream Jet).

Why should poor people pay more (in relative scale) than rich?

Even if you can address the equality issue, when you are rich, you have multitude of ways to avoid paying it.

Let's take the Gulf Stream example.

Let's say income tax has been replaced by 30% sales tax on everything you buy. "Well, no problem", says the rich. He just buys the Gulf Stream in France instead of US.

Let's say you somehow close that loop hole (I don't know of any easy ways), "well, no problem" says the rich. He creates a charitable organization which goes out and buys the Gulf Stream tax free and leases it back to the rich guy for pittance.

There is no tax system that cannot be gamed by people with resources to game it.

Re:Fairtax

[khallow]

A fairer scheme would be a tax on assets. After all, wealthy people and businesses are really the ones who benefit from government above all others. So they should be the ones who pay for government services that protect their wealth. And such a tax is not regressive unlike this sales tax (incidentally the so called "rebate check" is just a kludge that doesn't change the fundamentally regressive nature of the tax).

Also, this aligns government with the preservation and increase of wealth in its citizens. After all, under your current scheme, government has a strong incentive to increase spending on new goods in order to increase tax revenue. OTOH, if they can only tax assets, then they have a strong incentive to increase the value of assets in order to increase revenue.

This scheme also drives up the cost of goods and services and makes the cost of taxation less transparent to the end user. That adds economic inefficiency to the system and hides important information from the citizen (namely, how much of your money went to government?).

Ironically the Military is the Reverse

[LexNaturalis]

If you're in the military you can choose your "state of residence" and that's the state that you actually pay taxes to, not the in the state that you work. Florida is a brilliant choice because there is no income tax. So even if you live in New York, you won't pay New York income taxes. I find it somewhat ironic that a telecommuter pays taxes in New York without actually living there whereas a Military officer would live there and not pay taxes.

Caveat: This might have changed in the past 4 years, but I know in 2001, that's how it worked. The military has been, as of late, cracking down on people who claim non-tax states as their home while having no plans of ever actually living in that state or having any ties in that state.

Re:Ironically the Military is the Reverse

[HardCase]

Even more interesting, some states, including Idaho (my home state) do not tax income that is not made within the state. So, when I was stationed in Rhode Island and California, I did not pay income tax to either of those states. But since I did not make my money in Idaho, I didn't pay them, either.

When I was in California between 1992 and 1996, the legislature passed a law defining what qualified a person as a resident of California. If I recall correctly, the criteria were any two of home ownership, driver's license and (I think) a certain time of continuous residence. The net result was that most military members would end up being California residents (according to California) and would have to pay income tax, even if their official state of residence was elsewhere (and where they were also paying income tax). The DoD pounced on that very quickly and it was successfully challenged in court.

-h-

Re:Is this a new issue?

[Red Flayer]

"What about people who live next to state lines? Surely there are other cases where people live in one state and work in another."

Yup. I live in NJ, work in NY. Pay income taxes to NJ, NY, Federal Government. If they reinstate the commuter tax in NYC, I will also pay income tax to NYC (I did until about 4-5 years ago). Pay sales tax in NYC to the city, the county, and the state. Pay sales tax in NJ to the state. Pay property tax to my municipality in NJ. My wife pays gas tax in NJ -- I take mass transit (but still pay for roads via taxes).

The way I see it, people should pay income tax in the state that they earn the income, not the state in which they reside. If my home state wants to tax me for simply importing cash into their state, that's a problem -- since import taxes between states are illegal in the US. Besides, when I spend cash in NJ, they get to tax it then.

How does this apply to DC?

[b0bby]

It's always been my impression that this type of thing wouldn't fly, that you were just taxed in the state you live in. For an example around me, DC would dearly love to tax commuters from MD & VA who pour into the city every day yet provide no direct taxes. Every time DC tries to implement such a commuter tax, they're shot down. I didn't realize that states could do this - I assumed that if you lived in CT and worked in Manhattan, all your income tax would go to CT. Guess I was wrong.

Huh?

[Chocolate Teapot]

I also live in London, and I think we both know the difference between Income Tax and Council Tax. Nobody is asking this guy to pay for local amenities. However, after doing a bit more Googling, I think that the issue is not that he is being asked to pay Income tax in new York for his telecommuting, but rather that he is being asked to pay that tax on his full income, without regard for where he earns it.

Hmmm....

[porcupine8]

My husband lived in NC for five years as a grad student, but his "legal residence" was in Colorado where his mom lives, for various reasons. He paid income tax both in NC and CO, even though he was only in CO once or twice a year to visit family - HOWEVER, both states let you deduct taxes paid to another state when you were figuring what you owed, so he didn't really wind up paying that much (if any) more than usual. (Aside from the fact that NC has a pretty high income tax.) I forget the exact way it works, but he definitely didn't have to pay full taxes to both states.

Of course, if TN has no income tax, I guess there would be no credit for it on this guy's NY taxes. *shrug*

Re:The system works!

[mcrbids]

There is no worse tyranny than to force a man to pay for what he does not want merely because you think it does him good

Sounds good, but just rediculous when you think about it. Examples of "worse tyranny":

1) Force a man to pay for something he does not want because you think it will hurt him.

2) Force a man to pay for something desired by the ruling class, to hell with whether or not it hurts him.

3) Force a man to sit and rot in prison, unable to even distract himself from his misery with work routines because he disagrees with the ruling class.

4) Force a man to occupy a particular position in society, with no hope or opportunity of improvement or self-betterment.

5) .... I could go on, and on, and on, and on.

PS: I'm a populist libertarian.

Re:Maybe it's your definition of tyranny

[JesseL]

While it's true that the "no worse tyranny" quote is a bit strong on the hyperbole (why does everybody nitpick what constitutes 'the worst tyranny' rather than addressing its point? I'm gonna hafta get a new one.), I think that what you take for petty technicalities are simply an expression of most libertarians uncompromised belief in their principles. What good are principles if they are easily compromised?

I think you'll also find that libertarians are very well focused on solutions to the problems of "murder, mayhem, and general starvation and deprivation." Most libertarians see these issues as symptoms of the larger problem of misguided gorvernment mismanagement.

Representation

[antizeus]

So, what's representation got to do with it?

Taxation without representation was one of the big gripes that the American colonists had with England, their mother country at the time. The crown was increasing taxes on the colonists to help raise funds that were depleted during the French and Indian War, but was not giving them representation in Parliament.

A couple hundred years later, we like to believe that the ideals expressed during the founding of the country are still important, so a complaint such as this is likely to appeal to a US citizen that has even the slightest knowledge of history.

Stupid public policy

[einhverfr]

The problem I see though is that you could live in one high-income-tax state and work in another. This could effectively double one's taxes in extreme cases. Now, of course if you are a consultant and your own business, then the tax situation gets easier. So this is good for freelancers and bad for employees.

And with the attmept at the moment to take away the state tax deduction from one's income tax, this could get even messier.

It also seems to me that this could continue to accellerate offshoring trends...

Re:Missing the point!

[bnenning]

100% of taxes levied against businesses are paid by their customers or the company will go out of business.

They can also be paid by employees via lower wages, or stockholders via lower profits. Your central point is correct though: every tax is ultimately paid by a human being, but that's not obvious to most people which is why politicians like to "tax" businesses.

Re:Good news for ending offshoring? No, not really

[DrLlama]

Okay, it's not flamebait but it is misleading. The middle and bottom in the US pay significantly more than an equitable share of taxes.

The low 50% of wage earners earn less than 2% of the total income in the US, meaning that the top 50% of earners are not pulling their weight.

More to the point, the top 10% of earners earn _way_ _way_ more than 10% of the income, (I believe it's on the close order of 90% but I can't confirm it) yet pay way less than the correct proportion.

Re:Good news for ending offshoring? No, not really

[ShieldW0lf]

So, the real question is: Why is it fair that I pay a much larger portion of my wages than someone making less than me?

I'm not going to say it is or isn't fair, but there is a case to be made for the fact that when you're making such a dramatic amount more than your fellows, it's not because you were doing such a dramatic amount more work, it's because you managed to get a setup going where you're being paid for other peoples work, and you're getting a higher return on the infrastructure than others because you've got all your underlings using it to make you money. As in, I'm only using and relying on the infrastructure for my own use, but Bill Gates is using and relying on the infrastructure for the many thousands of people who work daily to earn him his money. It's not as cut and dried as that in most peoples cases, but the fundamental principle is the same. You pay more because, at the end of the day, it doesn't matter fair or not, if control over the wealth is concentrated in a few hands, those few hands are going to have to feed the machine that gives them that wealth whatever it needs or they won't continue to have it.

Re:Taxes?

[Stephen Maturin]

Disclaimer: I am not a Tax accountant, but I AM an Expat
It's also exempt from Income Tax. I think you also have to be on an overseas payroll. If you're on the payroll of a US company, they still take out FICA/Medicare.
HOWEVER, you MUST be out of the US 330 out of a 365 day period. For example, if I leave the US on 01-NOV-2005, then until 01-NOV-2006, I can only be in the US a total of 35 days, or else I owe taxes on that 80,000. There's a form you fill out with your employer (I think its form 679... I just did mine for 2006) that will keep your employer from deducting any taxes on the first 80,000.