THE PROBLEM IS TAXING INCOME AT ALL:

In late February, Arkansas became the latest state to institute a so-called "convenience of the employer" test. In doing so, it joined states like Pennsylvania, New Jersey, Nebraska, and New York.

The concept of a "convenience of the employer" test is as elegantly simple as it is insultingly illogical. New York, for example, requires employees whose office is located in New York but who work remotely for any period of time to prove that such remote work could not have been performed in their office. If the remote work could have been done in the employee's New York office, the state treats it as work performed in New York for tax purposes.

Of course, there are very few reasons why a remote worker absolutely has to work remotely. Most do so because of the convenience of spending time with family, to make living situations outside of major urban centers feasible, or to avoid lengthy commutes (such as the notorious one into New York City, for example). Remote work subject to "convenience of the employer" tests, therefore, usually incurs tax liability in the state with the test.

The taxpayer falling afoul of this rule may be surprised to discover that they are liable for income taxes to two states for their period of remote work, as the state where the work was actuallyperformed will claim income taxes as well. As a result, these rules can cause unsuspecting taxpayers to get caught between two aggressive tax departments.

Taxpayers who moved to a state with no income tax to do remote work can also find that income taxes follow them nonetheless. The case that led to Arkansas's adoption of a "convenience of the employer" test involved an employee that worked in Arkansas before moving to Washington State (a state with no income tax) to do the same work remotely. Because of Arkansas's "convenience of the employer" test, this employee found that, despite living on the other side of the country, Arkansas still demanded taxes on their income.

Tweet   @brothersjudd