Legality of MA collecting income tax from out-of-state residents working from home?

A converse data point …

I too travel for a living, but stay only briefly in (or over) any given state. By some Federal statue we’re explicitly exempt from any attempt by those at-work states (or counties or cities) to tax any part of our earnings.

It’s also common that folks in this business live on one state and their work is based in a different state. e.g. I am based in MIA and live in FL, but probably 40% of my fellow MIA pilots live elsewhere than FL.

We’re all taxed based on where our permanent residence is. So somebody flying all around the US based from MIA but living in NJ will be paying NJ tax on their whole W2. Dumbass.

Clearly tax is one of those things that starts out with some logical connection to reality, then quickly gets twisted up with issues of policy, of lobbying, of fairness, and of innumerable special cases because humanity is complicated. So it's useful to try to seek underlying logic, but that only takes you so far. The rest is arbitrary details.

For darn sure this is one of those elephants that feels different depending on which part you’re stroking. Eww!

Don’t know how it will turn out but all the states are going to be hard up for money and looking to get it any way they can. For people who were paying state tax before we were cursed then it’s not actually a new burden on them, but people tend not to look charitably upon such a situation. And this has been going on all along I believe, just not in practice by every state and with not as many people WFH across state lines. And because of the very complexity of the situation perhaps courts will just take a pass on this one.

I Am Not A Lawyer.

However, as far as I understand the issue is a giant mess of complicated tax laws. For starters, there are payroll taxes which are assessed on employers, and income taxes assessed on employees regardless of whether or not the employer withholds the funds. There can be complicated jurisdictional issues depending on what state the pay is “issued” and where the employee resides. State legislatures tend to assume that employees reside in-state.

As far as whether MA will be able to do this? No clue.

Looks like this case will be heading to the Supreme Court as NH is suing MA over the taxes.

That scenario seems quite strange to me. I lived and worked in Jakarta, Indonesia for several years on a project administered by a consulting firm headquartered in Maryland. Some careless person in their finance division, rather than find out where I actually lived, filled out my W-9 with a code that meant I lived in Maryland. I did not notice this.

Then one day I was found by a collection company. Turns out that Maryland understandably thought I owed them taxes, since their records showed me as a MD resident with taxable income. I had no idea any of this was happening. They eventually turned my file over to the collection company that tracked me down in Jakarta.

That was not a fun process - the people you reach when you call a collection company to explain that they have made a mistake pretty much assume you are lying scum and that’s how they treat you from the moment you call them. But they did agree that if I had not actually been a MD resident I did not owe any taxes. I had to submit proof of this, of course.

That wasn’t easy, but it was do-able. I put together a meticulous accounting of every residency permit I had been issued by the Government of Indonesia and sent it to them. That was over 5 years ago, and they haven’t bothered me since.

The US taxes all citizens even if they have no US income and haven’t lived there for years. I know one woman who has never lived there, but her father was American. She should (but doesn’t) file US tax returns.

In Kansas City, our payroll withheld state tax according to whether you lived in Kandsas or Missouri. If you moved from KS to MO during the year, you had to file in KS to get your refund, and file in MO to pay for the whole year.

It meant nothing, that the company was domiciled in Utah and doing business in Kansas. Workers were fully tax liable to their state of residence on Dec 31.