Non-resident State Income Tax Question

[stirlingtx]

My wife and I moved in 2007 from Utah to Texas. She remains employed by a Utah employer (she works in a virtual office) and I am now solely employed by a Texas employer, and, fortunately, Texas has no state income tax.

I know that she will continue to have her Utah income taxes withheld and that we will continue to pay them. My question: We file our federal taxes as a married couple filing jointly because of the tax advantages. Utah uses the Federal AGI as the basis for computing Utah State income tax owed. How can I "insulate" my Texas income from Utah, seeing as how Utah has no claim to it, yet still file jointly? Is there a way to do this, or will we now file separately and take the tax hit?

Thanks!

[John of PA]

File Utah return separate

If she lives and works in Texas, then when you do the Utah non-resident return, the income allocated to Utah will be zero, and you will get a refund for all the Utah tax withheld. It will not matter if the Utah return is joint or separate, as Utah income will be zero.

[BOB W]

Virtual office issues are a problem in NYS. NYS treats such an employee as working in NYS and taxes them as a non resident. I think many states are doing the same thing now.

[Zee]

What about Indiana?

I have a client that is a sales development executive for an IN firm. The client lives in FL and works from a home office. No activities are conducted in IN.

Indiana's Income Tax Instructions indicate a return must be filed for all income earned from Indiana sources. A 9/07 IN Info bulletin indicates income received from IN sources is considered IN income to nonresidents, except interest, dividends, royalties, and capital gains which are taxed by the state of legal residence. If a trade or business is conducted in IN, the income should be reported in IN. It also indicates Deferred compensation, accumulated vacation pay, severance pay, sick pay, and stock options are directly attributable to services performed, and are taxable where the services are performed.

The client's employer is not withholding IN taxes, and had an additional office in FL that was closed in Aug, 07 (although the client did not report to that office).

I'm hoping IN taxes can be avoided. Even though the wages were paid by her IN employer, no services are being performed in that state. The bulletin explains that deferred compensation, etc is taxed to the state where the services were performed.
I'd argue (maybe in vain) that since no services are performed in IN, the wages should be taxed in the resident state (FL). The inverse of the deferred compensation issue.

Does anyone have access to an IN tax case that might address this issue? I know I'm on "thin ice" here, especially with the closing of the other office in FL.

Post note:

In researching this a bit more, it doesn't look good. A bill, "The Telecommuter Tax Fairness Act of 2005" was re-introduced to Congress in March of 2007. It was designed to stop the practice of nonresident states taxing telecommuter's income. But, it seems to have "stalled". I sure hope it gets going and passes. This is an onerous tax which could result in double-taxation for some. It appears that NY is the most aggressive state on this issue.

There is an online petition that can be signed online supporting the passage of this Act but it only has 500+ signatures. I doubt that's enough to influence anyone in Congress to act on it. I signed it. Here's a link, if anyone is interested in helping "nudge" this along.

http://www.petitiononline.com/totp02/petition.html

[joanmcq]

MA has an allowance

Part of the MA code says that telecommuters performing services for an MA company out of state are not considered to be MA source income and are not taxed as such. The example even cited a 'de minimus' case of an employee being in MA only for a two week training course not being considered to have performed any services in MA. As far as I know, only NY has claimed telecommuters are taxed by where the company was located, rather than where the employee performed the services (which was why the case was such a big thing). You need to read the Utah statutes closely to determine if she is considered to be working in Utah.

[Zee]

Part of the MA code says that telecommuters performing services for an MA company out of state are not considered to be MA source income and are not taxed as such. The example even cited a 'de minimus' case of an employee being in MA only for a two week training course not being considered to have performed any services in MA. As far as I know, only NY has claimed telecommuters are taxed by where the company was located, rather than where the employee performed the services (which was why the case was such a big thing). You need to read the Utah statutes closely to determine if she is considered to be working in Utah.

The IN statutes aren't very clear, but in discussions with several IN CPA's most seem to agree that in the absence of services performed in IN, wages paid by an IN company to a Fl domiciled employee shouldn't be taxed by IN. I sure hope that's right...that's what I'm going to suggest. No IN return. No IN tax.