EDIT: I’d like to add in purely talking about W-2 or 1099 income tax. There are various other arguments to be made about income from sources such as ownership in a corporation or partnership registered in a foreign state that I’ve no desire to get into, as that’s possible to work around by moving the entity.
I’d bet the question is gonna hinge on whether the office location of the work has been updated in company records. If your “office” is still on the corporate books in Taxachussets then you’ll have to pay.
Somewhat related, if you’re on the books as working out of their backyard, they will again demand a toll.
That's about as literally what corporate taxes should be going to as it gets.
I think you are right about employees. There needs to be some ID associated with state withholdings.
I think you are wrong if they are contractors. You just need to send the IRS the 1099 since there is no withholding done on money paid that way. The person receiving it plus the 1099 I send the IRS is enough for the IRS to confirm the income.
So it sounds like the workaround is that said MA company has to start a NH foreign entity, which I assume is all but free, and have that foreign entity pay the employees. That way they're "working remote" for a NH entity and sidestep all this nonsense.
But it's fair to say... why bother, just go back to using the rules you clearly understood to be fair which you were using earlier this year.
There are a decent number of companies that will let employees work from no-sales-tax states (FL, TX, NV, NH etc) without question, but for other states, if they do much business there but don't already have a "presence" there, then they'll have to start paying sales tax to that state on any business they do there.
https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.
Sales tax needs to be paid regardless of presence.
The most obvious artifact of 'where you set foot' is where you have your residence, and for taxation 'how long you're there per year' actually matters.
So if you spend > 1/2 of your waking life in Zone A, but sleep in Zone B ... well, it might make a little bit of sense to have some kind of tax regulation there, or not.
Because you get most services like water, roads, garbage, 'healthcare' where you 'reside' it's probably just easier to make it all about residence and that's that. But again, 'residence' is where you 'set foot the most'.
MA could charge an MA-based employer a payroll tax for out of state employees, but has no jurisdiction to charge the employees an income tax. A further legal theory is that it it would step on the federal constitutional power to regulate interstate commerce.
I live in ID and work remotely for a CA-based company, so I’ve got a personal interest in this if CA ever decided they wanted to pull a similar move.
Interested to see what the result would be if this got to the SCOTUS.
"Massachusetts previously allowed out-of-state residents who worked for Massachusetts-based entities to deduct whatever portion of their income was derived while working from home. In practice, this meant a worker who commuted four days a week but worked from home one day a week could reduce their taxable income by 20 percent."
So MA knew what was justifiable, and is now not doing it.
Based on this reading if I take my MA incorporated LLC and move to another state I'm still supposed to pay a chunk of income tax to MA? I guess for me it's easy enough to reincorporate in a new state or country, but it's clearly ridiculous to try to grab taxes out of what I'm already paying the place I actually live and the state I actually do work from.
And if you have a co-founder in a different state, chances are they'll have to do the same in that state.
I think the reason for a Delaware or Nevada LLC is on the registration fees, the organization aspect; the governance of the LLC -- it's easier to run, less regulation. Typically there's no way out of the taxes, because if your home state has taxes, they'll find a way to make you pay.
But that doesn't sound like the case here, I wouldn't be an employee which seems to be the entirety of this cash grab's justification.
Works that way everywhere. I’ve done planning on how to move my LLC used for odd jobs without having to get a new EIN just in case.
Wasn't there a big deal about amazon avoiding even paying sales tax when shipping goods to a state that they didn't have a physical presence in?
I have been assuming that providing a service to a client in another state while in MA would just be taxed in MA, the IRS certainly knows all about it but I don't know what business the other state would have given that I have no physical presence there.
With so many MA employee-but-NH-residents WFH since March, they will now qualify either as a part-year resident and pay the much smaller pro-rated amount under the part year residency rule, or if under the min-days nothing at all.
Predictably MA wants its tax $ and is now going after NH residents who it thinks would normally be working in MA even though they have been out of state.
Of course these NH residents don't get access to any of the services in MA, except for the roads they drive on to get to work (they likely buy their gas and Dunkin' Donuts in NH).
The employee would likely have to ask HR to stop MA tax withholding from paychecks (and could file the Form-1 NR/PY to get a refund at the end of the year).
Although I suppose not many people would have predicted back in March what was going to happen (at least to the point of changing their tax withholdings for the year).
My understanding is it all comes down to whether or not there is a 'nexus' and that can get some what complicated and states vary considerably as to what constitutes one for tax purposes.
I lived in NY and Worked in NJ. I had to pay taxes in Both.
NY and CT have had legal interactions about this. I think CT residents working in New York City don't pay NYC taxes but must pay state taxes.
https://www.hodgsonruss.com/blogs-Noonans-Notes-Blog,the-con...
If your working for a MA firm and they're paying your salaray and benefits, and there is no office in NH, do you effectively become a contract employee? Do you need a state to work in?
It’s unclear at this point whether New Jersey will let New York claim all this taxable income or whether New Jersey will try to claim it for itself (it needs the money too). The tax rates are pretty similar in both states but my preference would be for the money to go to the state I actually live in.
And NY will demand their taxes 100%.
That is google. They don't have to withhold that. IF google didn't withhold that state tax -- it would be impossible for NY to figure out how much it is owed. You can ask google to not withhold for NY with a HR meeting.
The issue with the current situation is that in principle I could be doing the work in New York (it doesn’t matter where I do it), but the office is closed and I don’t live in New York. So I have strong reasons for not doing my work in New York, but in principle I could be doing it there.
I guess there’s a further clause that you have to spend at least one day out of the year in New York to be taxed there, which unfortunately I have done (despite no longer traveling there for any work-related purpose).
But yeah, it's complex and it sucks and everything I know about it came from reading patio11's posts on it.
There exists a plethora of compliance problems which are worse than the actual taxation, for example the PFIC regulations which make it non-economic to do standard middle class investment abroad for e.g. a child's education. Advocates for Americans overseas are trying to get the PFIC and FATCA regulations overturned or get safe harbors expanded dramatically, but there exists a feeling in Washington that the only Americans who'd have bank accounts or mutual funds outside the US are "fat cats" (get it?) trying to abuse the tax system rather than pretty typical taxpayers with pretty typical life choices.
It's better in the sense that they aren't going after the employees' non-MA-related income, like real estate or investment income, but they would have no grounds to do that because these people are not MA residents.