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.
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).
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.
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).
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.
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?
That's about as literally what corporate taxes should be going to as it gets.
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.
Sales tax needs to be paid regardless of presence.
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.
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.
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'.
Somewhat related, if you’re on the books as working out of their backyard, they will again demand a toll.
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).
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%.
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.
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.
(MA is relatively high state income tax and NH is zero.)
At least until MA learns CA FTB's techniques.
Gotta pay for stuff somehow, it's not the federal government.
They lost of course, because we could afford better lawyers.
"Taxachussets" isn't really that bad these days compared to, say, California in terms of taxes. But it's still a lot higher than NH which doesn't provide the level of services that MA does in general.
The public school systems around Boston are top notch. (A major point for employees with children). Major international airport down the highway another selling point.
NH amazon bid knocks Massachusetts (Its road/traffic, which pre pandemic was truly aweful...) but reminds Am amazon its close to our restaurants and universities.
The public schools where the rich are are great. Boston is ringed by rich suburbs. If your not rich enough to live somewhere with good schools MA schools are middling.
"Taxachussetts" is catchy, and MA is culturally liberal, so the perception sticks.
Then you get into the astronomical MWRA water & sewer rates and then to town garbage pickup charges etc. (in addition to the property taxes). Finally if the local fire department/tax payer funded ambulance ever gives you a ride to the hospital, expect a $1500/mile charge there.
It certainly can add up!
Also, local governments very much have a "wring out every cent we can" attitude. Places full of rich people who step in line tax the crap out of people. Places like New Bedford and Fitchburg know that if they charge people more than a token amount for trash they'll just be pulling it out of the river.
That's been present in every state I've ever lived in. Illinois even had a "here's a number to fill in if you don't want to calculate it."
Massachusetts has a lot of stuff wrong with it governmentally and culturally (none of which have much to do with where the state falls on a left/right axis) so nobody is gonna cut it a break when it comes to taxing people.
Yes, Arlington or Nantucket will be higher than both.
Up in Merrimack, Sullivan counties in NH, the tax rates are lower than Southern NH. Towns in MA like Lexington ($15/$1K) and Amherst ($21/1K) are ridiculous (and have high valuations).
(and no, $12K on a $400K house seems outrageous, that's like $30 per $1K)
I left CA about a year after a stock award and had to pay CA state tax for 3 years after leaving (but each year the rate would decline).
There's a serious WTF moment when you find this out, particularly when you pick up from CA and go to WA (a state without income tax).
Does the same thing happen along the NV CA border, where the income tax difference is even more extreme? 0% vs top marginal rate of 12.3%? My guess is no, otherwise NV border towns would be chock full of tech workers WFH'ing from a zero income tax state.
Having roots in NV myself, and knowing a number of friends who currently work at FAANG companies who’ve moved back, I’ve heard the typical salary cut corresponds roughly to the CA income tax they’d otherwise pay (~12%).
It isn’t similar to NH/MA, because it isn’t feasible to commute from NV geographically.
Well, the same thing happens for nonresident remote workers with CA employers: https://www.palmspringstaxandtrustlawyers.com/nonresidents-w...
> NV border towns
Aside from Stateline and Incline Village and other places around Lake Tahoe, towns on the NV side (really, either side, but the NV side is germane here) of the CA-NV border aren't exactly places that are attractive to live, and even those few aren't convenient commuting distance for the occasional office visit for the kind of WFH job where being close to the office in CA would matter, because the CA tech hubs aren't anywhere near the NV border. So, if you are going to work remotely out-of-state for a CA firm for tax advantage, you aren't especially likely to do it from an NV border town, as opposed to somewhere else in NV or an even more distant low-tax state.
Rules are different for contactors.
If they didn't, LAS would be the busiest airport in the country.
I cant imagine Massachusetts winning this.
(I also don't believe MA will win)
However, taxation without representation would be a bigger issue. How can MA tax someone who is a NH resident and isn't allowed to vote in MA?
- The shopping malls just across the border where MA residents don’t have to pay sales tax - just tolls (An employee at the Salem Apple store once divulged to me that it was the highest grossing Apple store in the world)
- The state run, tax free liquor stores just across the border that attract droves of MA residents
- The ease of procuring fireworks and weapons (the former illegal in MA, the latter far more difficult to obtain) just across nearly every border crossing
New Hampshire might to some extent have a valid point here, but it also feels like they won’t tolerate a taste of their own medicine.
I have no idea if it was dropped, is in limbo, or may actually happen.
In Canada, you pay federal income tax plus provincial income tax to the province of your residence. You also get services (e.g. healthcare) from the province of your residence.
If you live in one province but work (remotely or in-person) in another province, the company deducts taxes based on its own location. When you file taxes at the end of the year and indicate your province of residence, taxes get recalculated based on that and you either have to pay or get a refund. Taxes already deducted will automatically get transferred to the province of residence (it may be a bit different if one of the provinces is Quebec. In that case, some more manual intervention may be required. But the taxes owed are still calculated based on residence).
If you move your residence during the year, your residence as of December 31 are used for calculating taxes.
States have all the inefficiency of competing against each other for tax dollars, having to promulgate separate laws and regulations, school curricula, inefficiencies in sharing information, it goes on and on.
On the plus side (I'm trying to brainstorm) states enable (do they?) people to live in places with different ideals or laws, or standards of living? Is that true? Do people go somewhere to live because the state political/governmental structure is different from another? Does it protect or enable extremely conservative (or radical) communities that would be washed out to the average otherwise? Is it a protection against broad brush government that cannot know or correctly allocate funds and attention to small jurisdictions?
Other than to emphasize or give power to certain differences in population that were baked in long ago, what purpose do states serve? In a country where people move and work almost without boundaries? Why not delegate some of the finances / taxation / regulation functions to the federal government? Is it more effective at a local level?
Having Red and Blue come together is apparently not going to happen, and it's just getting worse and worse. Maybe the opposite is the way to go. A radical shift in power towards the states gives every subculture their own laboratory to live or die in. Liberal values can be protected in liberal states, and you'd see the opposite in conservative states.
Maybe we could stop fighting for the federal right to shove our ideologies down the throats of states that don't want them. Different places would do different things, and that would be alright.
But the pandemic should be a good example of the role state governments play. In this case with picking up the slack when the federal government is refusing to take action on a problem.