States Want To Tax You - Even If You Just Work There Electronically

My good friend, David Ingram, has just sent out an email newsletter in his CEN-TApede series about "when do I have to file a State tax return?" and then he called me to discuss it. Most of the newsletter item is also available on his web site too.

You see I'm the one who turned him on to the situation of one unfortunate fellow who, in 2009 got a tax bill for 100% of his 2008 New York state taxes despite the fact that he lived in Arlington, VA. and telecommuted 60% of the time from home to his employer's offices in New York and his accountant had (reasonably) filed for only 40% of his income to New York, with the other 60% to Virginia. 

More recently, New York has been going after all manner of people who telecommute to businesses in New York, and after business who just have a "business nexus" (aka a rented warehouse or some other relatively minimal presence) to get corporate taxes and employee state taxes for work done on systems there, even remotely.

David called me because he recalled that one of my customers has rented computer service in New York and he was strongly suggesting that both my customer and I stop doing any work on that remote computer as fast as possible because in his opinion it is only a matter of time before New York (and other states are following suit by the way) started considering any electronic presence as a right to tax the business or individual.

This does not bode well for the server hosting industry in these states. It also does not bode well for the "cloud" computing industry in general as I can foresee them being told to keep track of when and where various businesses' applications actually run, even though they could theoretically run in many places at the same time and move from server to server at almost any time - such is the technology behind cloud computing.

As for me and my customer - I'm in the process of migrating them off the server to one hosted here in good old Vancouver, BC. The US in general and New York in particular loses, and Canada and BC win. The pricing here is a bit more than there, but at least if we're going to pay tax it will be to the same government we already deal with.

How about you? Are you potentially liable for taxes back for the past 10 years for work you've done remotely and/or having a "business nexus" through the hosting of your company (or personal) business computing in New York?

richard