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    Wisconsin Lawyer
    October 01, 2014

    Super Commuting: Beware Double Taxation of Income

    Many Americans live in one state and work in a distant one. Current tax rules do not deal well with this circumstance and so these “super commuters” may face double taxation of their income, both by their state of residence and the state in which the income is earned.

    Thomas J. McAdams

    Super commuterMost Monday mornings, Patrice’s alarm goes off at 3:45 a.m. so she can get to Mitchell Field in Milwaukee by 5 a.m. After a two-hour flight to Charlotte, she boards a second plane to Greenville, N.C. She then picks up a rental car and drives to an office, where she is at her desk by 11 a.m. local time. On Thursday night, after the work day ends, the 1,000-mile journey is reversed.1

    And then there is Grace, who works as an engineer for a computer software company with headquarters in St. Louis. By agreement with her employer, she works remotely from her home in South Carolina (where her husband is a minister) two weeks out of the month by using her laptop and wireless service. The other two weeks she flies from South Carolina to Minneapolis at her employer’s expense to work on site with a client. Today, the possible combinations with a flexible work schedule and wireless technology seem limitless. When their particular projects are completed in a few months, both Grace and Patrice will move on to new projects, probably for clients in other states.

    These two work arrangements qualify Patrice and Grace for membership in an expanding club.2 Mitchell Moss, a professor at New York University, calls men and women who regularly work far from where they reside “super commuters.” He estimates there are approximately 1.15 million super commuters in the United States.3

    The number of super commuters appears to be growing for at least two reasons. First is the weak economy. The anecdotal evidence is that employers have become more tolerant of super commuting since the beginning of the recession in 2008 and the subsequent downturn in the housing market.4 With unemployment still high, taxpayers do not want to turn away work, even if it means having to spend considerable time out of town.

    The most basic notion is that all American citizens are residents of a state, which means there is no “stateless lifestyle.”

    The second reason the number of super commuters is increasing is improving technology.5 Where workers live is not as important as it used to be. Technology and travel improvements make it possible to live in one state and to work in a distant one. Although people have always traveled considerable distances for work, recent developments in technology – from wireless Internet access on planes and in airports to Skype, smartphones, and teleconferencing – have made super-commuting a possibility. Time spent in terminals and on trains and in planes often can be time to get work done. And soon, cell phone service may be widely available on airplanes. In addition, many types of positions offer the possibility of working remotely, which can mean from any place with Internet access.

    This article addresses the state income tax issues faced by “super commuters” when they live in one state and physically work in another. Many of these taxpayers do not realize the tax complexity they will encounter when they work across state lines. The article will also touch on the related issues confronted by individuals such as Grace who “work at home” for an employer located in another state.6

    The first part of this article discusses state income tax problems. The second part sets forth the rules that govern multistate taxation of individuals and the traditional solutions to the problem of double taxation. The third section contrasts the tax treatment of individuals and corporations. The last part discusses two proposed bills that might improve, but not eliminate, these tax problems. It is important that attorneys understand the issues their clients may face.

    The Tax Problems

    The interplay of three legal doctrines can cause tax trouble for super commuters. First, an employee’s home state has the right to tax all of the employee’s income.7 Second, the states where an employee physically works also have the ability, as “source states,” to impose an income tax on income earned within their borders. Third, the state where an employer is located might use a “convenience-of-the-employer test”8 to reach income earned in the employee’s home state.

    A related but separate problem is income tax withholding. Some states require withholding on the first day the nonresident taxpayer works in the state.9 Other states impose nonresident tax and withholding requirements after the taxpayer makes a certain amount or after the taxpayer works a certain number of days in the state.10 Some states have signed agreements in which they promise to not tax another state’s residents.11

    businessmen with jet packsGiven this tangled web, it is not surprising that taxpayers and their employers do not always get it right. Compliance can be difficult for a taxpayer; for example, a person working only a few days in each of 10 states over the course of one calendar year might be required to file 10 nonresident income tax returns in addition to a return in his or her home state.

    While many nonresidents’ filings likely report only a modest amount of income tax, the taxpayer must spend hours completing and filing the returns. Then, the taxpayer must figure out whether and how to get a tax credit in his or her home state to avoid double taxation. An average taxpayer probably wants to avoid hiring a tax preparer to make these modest-amount tax filings. Therefore, as a practical matter, many taxpayers do not have income withheld or file nonresident returns unless the employer compels them to do so.12

    There are penalties for making incorrect assumptions about filing and withholding. The statute of limitation for the government to assess generally does not begin to run until the taxpayer files a return.13 Further, states typically add substantial penalties and interest on unreported income after it is discovered. In Wisconsin, there is an underreporting penalty of 25 percent and interest retroactive to the time at which the tax should have been paid at either 12 percent or 18 percent.14 Thus, a tax debt can double within a relatively short period. If a given taxpayer were to have unreported income in several states, the financial consequences could be substantial.

    Brief Summary of Multistate Individual Taxation

    Several rules and concepts apply to interstate taxation of individuals. 15 Some of the basic ones are outlined below.

    First, the most basic notion is that all American citizens are residents of a state, which means there is no “stateless lifestyle.” For example, the Wisconsin courts have continually rejected taxpayer claims that residency for tax purposes has ended. In Baker v. Wisconsin Department of Taxation, an attorney attempted to retire to his summer home in Michigan and began spending considerable time there. Family and business considerations, however, got in the way of some of his plans, and he wound up in a prolonged tax dispute with the state of Wisconsin.16 For its case, the state pointed to the fact that Baker’s family maintained a house in Milwaukee, even though he had renounced his Wisconsin residency. Ultimately, the Wisconsin Supreme Court upheld the tax.

    It is difficult to cut tax ties to a state of residence. As Baker discovered, a substantial drawback to taxation based on historical residency is that courts typically determine residency by weighing facts and circumstances, sometimes years later. Further, the court expressed skepticism concerning the testimony of taxpayers, noting that while admissible, such testimony is “self-serving.”

    Tom McAdamsTom McAdams, U.W. 1987, L.L.M. (taxation) DePaul 1997, is a Milwaukee County Circuit Court judge. He previously was a commissioner for the Wisconsin Tax Appeals Commission.

    Second, there is the related idea that a person can be a resident of only one state at a time. That conclusion, however, has failed to convince the U.S. Supreme Court that there is any due-process violation when two states tax a decedent’s estate.17

    Third, residency for tax purposes continues until a taxpayer acquires a new state of domicile. This concept can lead to some surprising results, including that a state could retain the ability to tax even in a situation in which the taxpayer has not been in the state for many years. In Campbell v. Wisconsin Department of Revenue,18 in 1975 Campbell bought a sailboat, left Wisconsin, and embarked on a career of sailing the eastern seaboard of the United States and the Bahamas. He argued that he was not subject to Wisconsin income taxation for 1980. Even though he set foot in Wisconsin only during December 1980, the tax commission held that Wisconsin nevertheless had the ability to impose an income tax on him for 1980.

    Fourth, residence-based taxation is premised on the idea that residents of a state have a special relationship to their home state, so the home state may tax its residents on income regardless of where it is earned. As the U.S. Supreme Court wrote in Shaffer v. Carter, “[e]njoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government.”19

    Fifth, while “fundamental principles” allow a state to tax a nonresident, the source state has a more limited taxing authority than the home state. Source states may tax only the income that is earned in the source state. The Supreme Court wrote in Shaffer that a state’s jurisdiction to tax nonresidents “extends only to their property owned within the state and their business, trade, or profession carried on therein, and the tax is only on such income as is derived from those sources.”20

    Traditional Solutions Are Inadequate

    Taxpayers generally do not like the idea that more than one state can tax their income. Historically, this concern has been ameliorated by home states in two different ways. First, the home state might offer a credit for taxes collected by a source state. Second, nearly a third of the states (mostly east of the Mississippi River) have entered into reciprocity agreements under which they agree not to tax another state’s residents.21

    These solutions, however, are imperfect for super commuters such as Patrice and Grace. Most states grant credits only to “source” income taxes paid, and the states have differing definitions of what is source income.22 More fundamentally, this solution is flawed because the credit granted, usually by the state of residence, is not required by the U.S. Constitution. In other words, the state granting the credit could repeal the credit provision at any time. As to reciprocity, Wisconsin has agreements with only four other states: Illinois, Indiana, Kentucky, and Michigan.

    The Rules for Businesses are Different: People are Not Corporations, Too

    If our super commuters were a multistate business, the U.S. Constitution would provide protection from being taxed more than once.23 In particular, the Due Process Clause requires that a state not tax income earned beyond its borders, and the Commerce Clause limits taxes to income that is “fairly apportioned” to the taxing state. To illustrate, assume a business earns 40 percent of its income in Wisconsin and the remaining 60 percent in Minnesota. Both states can tax some of the business income, but neither state can tax 100 percent of the income. In fact, the states have developed relatively sophisticated apportionment formulas and schemes to tax only the income that can be “reasonably attributed” to that state.

    If our super commuters were a multistate business, the U.S. Constitution would provide protection from being taxed more than once.

    Almost all states that tax corporations use some variation of a three-factor formula to approximate the income attributable to that state.24 The factors generally include sales, payroll, and property, and the goal is to estimate how income should be divided. Each factor represents an asset thought to generate income. Several states adjust the weight given to each factor, and it is common to double the sales factor. In a broad way, however, there is a consensus on how to apportion multistate business income. Importantly, there is no dispute that the Constitution requires apportionment.25

    While home states have apportioned corporate income for years, they do not apply apportionment rules to the taxation of their residents.26 The home states’ resistance to apportionment probably has several bases, but a prime suspect is that because traditionally, few individuals earned their income in another state, the home states have not had to apportion. The rise of telecommuting and the shift to a service economy might change that dynamic. An increasing number of workers structure their employment much like Patrice and Grace, working for an employer in another state and at least occasionally from a home in another. In those situations, determining which state, or states, properly can claim the income tax revenue becomes a difficult question.

    Proposed Federal Laws

    Consistency and clarity in this area undoubtedly are worth pursuing. Taxpayers and tax professionals should not have to guess where to file. Further, two states taxing the income of an average worker just seems wrong. Understandably, in a federal scheme, states will have different rates of taxation and differ in what they tax, but the present situation is unnecessarily complicated. In theory, more clarity, and perhaps more compliance, could be achieved two main ways.27 First, the states could come to an agreement.28 Second, Congress could intervene.There are currently two separate bills inCongress to deal with these thorny issues.

    The Mobile Workforce Tax Simplification Act (the 2013 Bill) sets uniform standards on the taxation of nonresidents29 and on withholding. The summary report issued in connection with a previous version of the 2013 Bill makes the following case for why the legislation is needed:

    “[T]he complex patchwork of state income tax withholding laws creates an unnecessary administrative burden on small business employers – America’s job creators – who must comply with nonresident states’ withholding laws on account of wages their employees earn in the state.

    “Even in the case of an employee who resides in one State and works throughout the year in another State, State and local tax withholding and reporting can be very complicated. The employer has to verify the employee’s State of residence, check whether the two States have a reciprocity agreement, analyze the tax laws of both States, and likely withhold tax for both States and prepare a form W-2 for both States.

    “The diversity of state income tax laws means that large public companies and their auditors must invest a significant amount of time ensuring that the company has withheld correctly for each employee at great expense to the firm.”30

    The highlight of the 2013 Bill is that a state can tax a nonresident’s income only if the taxpayer works in the state for more than 30 days. Unfortunately, once that threshold is crossed, super commuters such as Grace and Patrice get little or no relief.

    Another problem with the 2013 Bill is that it allows states to retain a convenience-of-the-employer test. A separate bill, however, the Multi-State Worker Tax Fairness Act of 2014 (the 2014 Bill), attempts to address that omission.31 Introduced on Feb. 25, 2014, the 2014 Bill prohibits a state from taxing a nonresident for any period in which the individual is not physically present in or working in the state or from deeming a nonresident to be present in or working in the state on the grounds that 1) the individual is present at or working at home for convenience, or 2) the individual’s work at home fails any convenience-of-the-employer test or any similar test. Some observers argue that the two bills together will not eliminate the tax problems for super commuters, and that additional legislation is needed to simplify both nexus and apportionment determinations.32

    While it is too early to tell the fate of the 2014 Bill, earlier versions of the 2013 Bill have failed to make it through the last three congressional terms. lists the 2013 Bill as having a 50 percent chance of passage, and two main obstacles have stopped it from passing in previous Congresses. First, New York’s senators have opposed the 2013 Bill because of its perceived adverse effect on their state’s revenues. Second, legislators often oppose tax bills that impose a federal solution.


    Technology upgrades and a weak economy are causing an increase in the number of Americans such as Patrice and Grace who live in one state and work in a distant one. Current tax rules do not deal well with this circumstance and could lead to double taxation. Neither reciprocity nor granting a credit for taxes paid solves this problem. There is a need to have tax rules that reflect the changing nature of the economy and the growth in “super commuting.”


    1 For more examples of “super commuting,” see Bloomberg Businessweek, Super Commuters Take the Morning Plane, Feb. 23, 2012 (discussing Karl Sparre’s weekly commute from Boston to Philadelphia, which served as one of the inspirations for this article); USA Today, Charisse Jones, Sour Economy Gives Rise to Extreme Commuters, Aug. 16, 2012 (discussing Becky Casey’s weekly commute from Chicago to New York City); and What Exactly are “Super Commuters” and Do They Get Any Tax Breaks?,” by Dan Macy, Feb. 29, 2012.

    2 The general rule is that for income tax purposes, expenses for transportation between a taxpayer’s residence and his or her workplace are nondeductible. As to Patrice and Grace, their respective employers pay their travel expenses. They file as married individuals and have not chosen to form any type of business entity.

    3 Employees who travel shorter distances for work than super commuters are sometimes called “road warriors.” The tax issues facing “road warriors” when they cross state lines are similar to those facing super commuters. See The Mobile Workforce Bill: Addressing “Road Warrior” Compliance, State & Local Taxes, Jamie Yesnowitz, Dec. 1, 2012.

    4 Bloomberg Businessweek, Super Commuters Take the Morning Plane, Feb. 23, 2012.

    5 USA Today, Charisse Jones, Sour Economy Gives Rise to Extreme Commuters, Aug. 16, 2012.

    6 According to NBC News, 10 percent of Americans work at home one day per week. (Feb. 25, 2013.) The chief executive at Yahoo, Marissa Mayer, created a stir in the fall of 2013 when she ordered all employees who were allowed to work at home to return to the office. N.Y. Times, March 2, 2013. The International Telework Association and Council estimates that the number of wage earners who work exclusively from home has increased to roughly 17 million from 5.5 million a decade ago. According to a Madison newspaper, nearly one in seven American Family Insurance employees work from home. See (March 13, 2013).

    7 Forty-one states and the District of Columbia levy broad-based personal income taxes. Jerome Hellerstein & Walter Hellerstein, State and Local Taxation, 929.

    8 New York, for example, has a convenience-of-the-employer rule (contained in 20 N.Y. Codes, Rules & Regs. § 132.18(a)), which provides that days worked from home are treated as New York work days unless the nonresident employee worked outside of New York by necessity. The other states that use this test are Delaware, Pennsylvania, and Nebraska. For more information on how states apply the convenience-of-the-employer test, see The Convenience of the Employer Test: Why We Should Reconsider the Critique of New York’s Tax Apportionment Scheme, 72 Alb. L. Rev. 789 (2009), and Brian C. Borie & Nicole Belson Goluboff, The “Convenience of the Employer” Rule and The Telecommuter Fairness Act: New Meaning to “Reach Out and Touch Someone,” 20 Prac. Tax Law. 55 (2005).

    9 Yesnowitz, supra note 3.

    10 Id.

    11 Id.

    12 Id.

    13 See Michael I. Saltzman, IRS Practice and Procedure (1991), Chapter 5, Statutes of Limitations; I.R.C. § 6501(a).

    14 The Wisconsin Department of Revenue’s website states that “[i]nterest at the rate of 18% per year is charged on the balance of tax due,” (last updated Aug. 21, 2014). See Wis. Stat. sections 71.82 and 71.83 for more complete information on applicable interest and penalties.

    15 Certain groups, including military members, airline pilots, and retirees, have special rules that will not be addressed here. Members of the military are protected from residency filing requirements by the Soldiers and Sailors Civil Relief Act of 1940.

    16 Baker v. Wisconsin Dep’t of Taxation,246 Wis. 611, 18 N.W.2d 331 (1945). The facts in Baker are complicated and only summarized briefly herein. Further, Baker’s tax residency was in issue before the court on several occasions.

    17 Guaranty Trust Co. v. Virginia, 305 U.S. 19, 23 (1938).In Complete Auto Transit Inc. v. Brady, 430 U.S. 976 (1977), the Court narrowed the Shaffer rule, holding that a state income tax on nonresidents is valid only if the tax is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state.

    18 Wis. Tax Rptr. (CCH) ¶ 202-210 (WTAC 1983).

    19 Schaffer v. Carter, 252 U.S. 37 (1920).

    20 Id. at 57.

    21 Yesnowitz, supra note 3.

    22 Id.

    23 Morgan L. Holcomb, Tax My Ride: Taxing Commuters in Our National Economy, 8 FLTXR 885 (2008).

    24 Id.

    25 Id.

    26 Id.

    27 The other possibility is that a decision from the U.S. Supreme Court could impose more uniformity. For a discussion of the constitutional issues, see Kathryn L. Moore, State and Local Taxation: When Will Congress Intervene?, 23 J. Legis. 171 (1997).

    28 To date, only North Dakota has passed legislation substantially in line with the 2013 Bill.

    29 The 2013 Bill does not cover certain highly compensated employees such as athletes, professional entertainers, and public figures who give speeches.

    30 Available at (last visited Sept. 2, 2014).

    31 For a more complete analysis of the two bills, see Bloomberg BNA, State Tax Reform: The Modern Solution to Keep Workers Mobile and Businesses Resilient, Nicole Belson Goluboff.

    32 Id.

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