Yes (and this is very high level, so feel free to PM if you want to discuss further) - the general rule is you’re taxed on where the work is performed, not where the product ends up or where the beneficiary of the work is located.
For example, when I was at a Big 4 accounting firm, I had clients all over the country. However, given that I was in tax, most of the work I did was out of the Boston office, so the work I did for a client in California did not make those wages subject to CA tax. However, there were two years where I was constantly in New York (every other week for 18 months) and because I was spending so much time there, I was deemed to be a NY non-resident for tax purposes, and my wages were subject to NYS taxes specifically for that time in which wages were earned in the state. The Firm grossed up my wages and paid the tax there on my behalf, essentially (as you correctly note) apportioning my wages between the two jurisdictions. When we filled out our time sheets, you entered the client you were working on, where you were doing the work, and the time spent on that, just like most other professional services firms (law, engineering, architecture, etc).
What MA is trying to do is say that because the employer or finished product is in MA then those wages are subject to MA tax. Because the pandemic has pushed so many people to work remotely, and in many cases in other states, those wages are no longer subject to MA tax and the state is trying to fill that revenue shortfall with this bill. It’s bullshit, and if challenged, would most likely be rejected in court as it’s the opposite of what every state does as well as the general tax treaty that’s the foundation for all of the treaties we have with other countries.
Let’s use a simple international example: You want to have a website built for your business. Assume your company is newly formed and doesn’t have a lot of extra cash, so you look for lower cost options and determine that you have 2 options - pay someone from India to come to your place of business and build a website for you, or you can pay someone to build the site from their home in India. Further assume the person hired is not a US citizen, whose permanent residence is in India, has no permanent establishment or nexus in the US through other activities, is deemed to be an independent contractor, and your office is in NH where individual income isn’t taxed. Also assume there are no tax treaty provisions that reduce or alter tax rates and provisions. We’re trying to keep this example simple.
If you hire the person to come to the US and work from your office, he’s subject to a 20% automatic withholding on wages paid to that person. Further, if that person wanted to get that 20% back (or some portion thereof), he would have to file a US tax return. However, if you hire the person who does everything remotely, those wages are not subject to the automatic withholding provisions.
Again, the above is the most watered down and simple example I could come up with right now. There are any number of actual items that may impact the above scenario if it really happened. Essentially, MA wants to treat everyone as though they’re working in the local office, regardless of where the work is actually performed. That’s just not going to pass the smell test if challenged in court. Rather than putting people in limbo, NH is trying to address the problem legislatively.
It‘s been a long day, so I’m sure there’s something I’ve left out, but the above is a high level explanation. Again, feel free to PM if need be.
CG
www.nhpr.org
![[rofl]](/xen/styles/default/xenforo/smilies.vb/013.gif "ROFL [rofl]")
