I came across this interesting story about a Tennessee resident having to pay New York State Income Tax. (Story here
.) In prior years, he paid tax based on 25% of his income, since he travelled to New York 25% of the time.
This is an interesting quandry, and parallels the debates of paying sales tax on goods purchased on the internet. New York's argument is that they deserve to collect tax in a situation where the individual chooses to live outside of New York, but be employed within New York; a common example is a New Jersey or Connecticut resident commuting into New York. They have to pay income tax, so why not telecommuters?
The problem that were facing with telecommuters, internet sales tax, P2P file sharing, and a host of other things are that the laws, as they were written, simply do not work. Laws are created to protect people (of course), but also to ensure fairness and equity.
I'm no expert on where all the tax dollars go (insert wise crack here), but I can take a guess: government, public works, etc. I won't make an argument as to whether or not residents should be taxed, or how much they should be taxed. The State's argument is: New York provides the job, the resources for that job, the employee should pay the taxes like any other person who commutes into New York.
I've heard a few interesting points on this story:
1. Do outsourced employees in [insert country here] pay State income tax? (I suppose very few are full time employees, and are covered under different tax laws -- which brings up another point: if this individual were a contractor or LLC, would this change his tax liability?)
2. Does this mean he must pay New York City taxes (where the job is located, including a commuter tax)? I don't think so (but I could be wrong).
3. Any number of taxation without representation arguments.
Forgetting all this, the core of the issue is: what is fair and equitable? Would it be fair to propose that a telecommuter, who has obviously no interest in New York (in this case), virtually no impact on resources, public works, government, etc., should be taxed at a different (and significantly less) rate? (Versus a New Jersey resident who commutes into New York, as this person's situation is just different and, frankley, is also from New Jersey.) :)
Paying no tax at all would seem to be a bit of a loophole, much like everyone skirting sales tax on out of state internet purchases (though we are supposed to report those).