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Live in one state but visit another for business? Beware

Posted by Cheryl Costa  March 25, 2010 10:00 AM

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Q. I live in Massachusetts but work in another state one or two days per month -- what are my tax obligations?

The answer to this question may surprise you -- anyone who lives in one state but travels to another state to conduct business activities likely owes state income taxes in the state to which they traveled.  If you did business in ten states last year, you could be on the hook for filing eleven state income tax returns this year.

According to a recent New York Times article, these tax laws have been in effect for decades but they generally weren't actively enforced.  In the past, only very highly compensated individuals (think professional athletes playing games -- "conducting business" -- in other states) had to worry about income tax obligations in other states.  Now, everybody has to worry because revenue department personnel from many states are looking for ways to increase revenues and they want to collect all the taxes they are possibly entitled to.

So how does this work?  If you traveled to another state for business meetings once per month, that state could tax you 12/250th of your annual income.  (The calculation assumes 250 working days per year.)  On the bright side, you can deduct the income taxes paid to the other state.  However, you would still bear the burden of preparing multiple state tax returns.  If you traveled to 15 different states, you might be required to file 16 state income tax returns. 

And finding people who work in many states is now easier than ever.  The NY Times article discusses a case where an auditor saw that an employee had been reimbursed by his firm for a trip to California but had not paid income taxes in the state of California. 

On a practical basis, it doesn't appear that individuals who made a single (or very limited) business trip(s) have to worry about these policies, but if you are a highly compensated professional and you travel on business frequently, you should consult a tax preparer to learn more about how these rules might apply to you.

 

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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