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It’s time for state lawmakers to wake up to the fact that we live in a mobile world–one where work is a verb, not a place. Sadly, short of federal intervention, most states aren’t likely to change their ways anytime soon. According to the Survey of State Tax Departments, thirty-five states currently have laws that could lead to double taxation if an employee doesn’t work in the same state as his or her employer.

What lawmakers don’t seem to understand is that laws that discourage mobility, discourage people from living there, businesses from locating there, and out-of-state businesses from hiring there.

Several large all-virtual employers already choose not to hire in states–such as California, West Virginia, and Rhode Island–where the regulatory environment makes it difficult to operate.

Where does the stupidity stop? If a plumber from Bucks County (PA) drives across the river to fix a leaky sink in Lambertville (NJ), does he have to file a New Jersey tax return? How about the Maryland accountant who spends a week on-site during a NJ company audit? What about an employee of a NY company who works from their NJ home on the weekend?

Workshifting strategies allow companies to hire the best and the brightest. They offer the disabled and those living in rural areas a way to increase their standard of living. They allow stay-at-home parents and caregivers continue to earn a living. They support the mobility needs of military families. And they provide the 80% of retiring Baby Boomers who want to continue working, a way to do so flexibly.

But double taxation isn’t the only burden for companies that operate in mobility-challenged states. Once you’re an ‘employer’ in a foreign state, you’ll need to make sure that one-day-a-month teleworker is in compliance with that state’s labor laws, workers compensation rules, ERISA regulations, and a rat’s nest of complex, expensive, and impossible-to-track / impossible-to-comply-with regulations.

The easy decision, of course, will be not to go there–literally and figuratively.

Now if I was in charge of economic development in one of those few states that ‘gets it,’ I’d be actively seducing companies with my 21st century tax laws. And I’d be luring the best and the brightest employees who choose not to be tethered to a cubicle for the rest of their life.

For those state legislators who continue to bury their collective heads in the sand, the wake up call may just come after taxpayers have left the commonwealth.

Additional Reading on Telecommuting and Taxes:

Why You Need to Know About the Telecommuter Tax Fairness Act

Telecommuting: Don’t Allow State Tax Issues to Disrupt the Connection

Photo Credit: shovelmonkey1

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  • http://www.howtovanish.com Bill

    Anachronistic tax laws are bad enough, but what is worse are some particularly aggressive states, like California, which demand income taxes on worldwide income from people domiciled there. The real problem is that it takes far less than most people would imagine to be domiciled there. It can happen if you essentially establish just a few connections. This means if you live in Nevada, where there are no state income taxes, and have a few minor connections which California claims makes you their domicile, you are going to be paying 9.55% of your entire gross income to California. But it also works the other way. If you have made a few good business decisions to workshift, you may also be able to escape high state income taxes because you no longer meet the definition of a domicle.