ROWLAND: States claim right to tax work done elsewhere

By Kara Rowland (Contact) | Monday, August 11, 2008

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Many people are complaining about the prices they're paying at the pump for gasoline - a circumstance that would seem to naturally lend itself to an increased call for employees to save money by telecommuting.

But, in addition to the data-security risks discussed here a week ago, it turns out there's another possible downside: the threat of paying income taxes to two states.

Thirty-seven states assert a right to tax workers who telecommute to a company in that state from another, according to a 2006 survey of state tax policies by the Bureau of National Affairs. Some of the states allow employees to apply a credit for the taxes paid in their state while others make a distinction between whether the work is performed off site out of necessity or out of the "convenience of the employer."

Opponents describe the practice as a "telecommuter tax" and say it's unfair.

"Even when states grant their resident telecommuters a credit for taxes they pay the employers state on their home state income, telecommuters may suffer," said Nicole Belson Goluboff, a New York-based lawyer who has written a book on telecommuting law. "When the tax rate in the employer's state is higher than the tax rate in the home state, the telecommuter must pay the higher rate on his home state income."

According to supporters of telework like Ms. Goluboff, working from home is "an essential tool for reducing employee fuel consumption and our dependence on foreign oil."

In addition, supporters argue it boosts opportunities for older and disabled Americans, including veterans, and helps U.S. companies reduce administrative costs.

New York's "convenience of the employer" rule, which those involved say is applied more aggressively than other states, was challenged in court in two instances, most recently by Manohar Kakar, a former New Jersey resident who did work at home for a computer consulting firm in Manhattan. The state concluded that all the work he performed at his home in New Jersey was subject to New York taxes. Even though he spent an estimated 45 percent of his time in 2000 working from New Jersey, 100 percent of his income was taxed by New York.

The U.S. Supreme Court had earlier declined to hear an appeal of a similar case brought by a Tennessee resident who was audited.

So what is a telecommuter to do? Well, both houses of Congress have bills pending that would prevent states from double-taxing telecommuters. The "Telecommuter Fairness Act of 2007" would require nonresident taxpayers to be physically present for work in a state in order to be taxed on the income. Both bills are stuck in committee.

Fun with market research

Hitwise, the Web-tracking firm, recently took a look at some of the popular modifiers used by Americans searching the Web and the most popular phrases that include those terms. Not surprisingly, Hitwise analyst Heather Hopkins identifies some of the most popular modifiers as "free," "cheap," "discount," "prices," "deals" and "used."

Phrases new to this year's list: "free porn," "free porn videos," "cheap gas," "discount cigarettes," "cell phone deals," "laptop deals" and queries about oil prices.

cSend e-mail to krowland@washingtontimes.com

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