Working Two Different States

[Edsel]

This is a topic for which much has been discussed and I don't know if anything is settled or not. 

I have a customer with Alabama employees, and is wanting to hire an employee from Texas to work from home.  The question is "What state is his wages reported?"  Of course Texas has no income tax so that is one complication that doesn't have to be considered.  But this is only one employee and there are 10 in Alabama.

The advent of "working from home" has brought state tax problems everywhere.  One classic case involved a man living in NY while his employer was in NJ.  This brought a lot of attention and don't know if it ever got settled.  One solution, attempting to be "safe" and not requiring interpretation was to "Let each states courts determine the taxability."

This doesn't really work.  Each state is greedy and wants all the money.  I'm told some state taxing authorities in the northeast hate each other.  I had a conversation with one in Rhode Island, who told me it will be a cold day in h___ when we have reciprocity with Taxachusetts.  After exploring the matter further, I found out the Tax rates in Massachusetts were relative benign compared to RI.  The initial ruling in the NY/NJ case was that the New York courts ruled that all the wages were taxable to New York and didn't care how the NJ courts ruled.  The New Jersey courts ruled all the wages were taxable to NJ and didn't care how the NY courts ruled.  Neither state wanted to give the worker "credit for taxes paid to other states" which is usually available for venue workers.

So the doctrine of "let each state court determine the taxability" doesn't really work.

Should my Alabama employer open up a Texas payroll for this guy?

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[Lion EA]

You'll have to visit the web sites for both states to read up on their definition of state-sourced income.  With Texas in the mix, I'm betting Alabama says the employee is under the control of an Alabama employer!

[Lee B]

The answer is yes , your client has a Texas payroll, workers comp and liability insurance responsibilities.

39 minutes ago, Lion EA said:

You'll have to visit the web sites for both states to read up on their definition of state-sourced income.  With Texas in the mix, I'm betting Alabama says the employee is under the control of an Alabama employer!

Lion, this is a different issue.

[Medlin Software, Dennis]

The taxation (who, if anyone, gets the state tax bite) is the EASY part...  How it gets withheld/paid, some get it correct, some do not, but the states will eventually get theirs.

The employer will absolutely initiate nexus in the employee's state, since the employee's home also becomes their place of business.  This is the part many ignore or are unaware of.

Must ensure things such as all required labor posters displayed, liability insurance naming the new location (all of the usual workplace liability issues), UI for the new state, WC covering the new location, etc.  Employer may want to create a written handbook covering the workplace rules (awkward, but wise).  If it were me, I would only consider it if there is a dedicated space, probably a room (not a desk in a shared room). If there is a product, or samples, and they are not appropriate for children to handle for safety reasons, a policy for the product or access should be considered...

The employee also has to consider what they give up, such as privacy (employer can certainly visit the work space, maybe at any time), subject to things like payroll audits at their location, personal insurance for business use of home, and so on.

[Abby Normal]

I would consider the option that this work from home person is an independent contractor.

[Edsel]

2 hours ago, Abby Normal said:

I would consider the option that this work from home person is an independent contractor.

Abnormal, this is the best of all ideas, except the company is a federal contractor and the Texas guy has to be an employee.  Thanks.

Don't expect any realistic solution from the State of Alabama or Texas.  They both fashion arguments to have this guy.

[mircpa]

It depends in which state ultimate services are being provided. If employee works in TX then TX is the state for payroll purpose.