Multi-State Income Tax Guide

Domicile vs statutory residency

Two different residency concepts, both can apply. **Domicile** is your true, fixed, permanent home, where you intend to return. You have exactly one domicile. Changing it requires both physical relocation AND intent (voter registration, driver's license, doctors, social ties, mailing address, will). **Statutory residency** is purely mechanical: spend 183+ days in a state AND maintain a permanent place of abode there → you are a statutory resident, taxed on worldwide income, regardless of domicile. New York audits this aggressively: calendar tracking, EZ-Pass logs, credit card geolocation are routinely subpoenaed.

Income sourcing, where-performed vs market-based

Two main paradigms for non-resident income: **Where-performed** (older, traditional): Wages are sourced to the state where physically worked. A consultant in Texas who flies to California for 5 days has 5/220 of their wages sourced to CA. **Market-based** (newer, dominant for services/intangibles): Income sourced to where the customer/market is. A Texas consultant serving a California client → California-sourced regardless of physical presence. Used by CA, NY, MA, IL, and most large states for services and IP royalties. For business apportionment, single sales factor is the trend: payroll and property factors no longer weighted in most large states.

Convenience-of-employer doctrine

Five states (NY, CT, PA, NE, DE) say: if you work remotely from another state for an in-state employer, your income is in-state-sourced unless the remote work is a necessity of the employer (not the employee's convenience). New York's 'convenience' standard is brutal: a Florida resident working from home for a NYC employer pays NY tax on every remote day unless the employer requires the work be performed in Florida, preferring to live in Florida is not enough. Connecticut, Pennsylvania, Nebraska, and Delaware apply variants. Reciprocity agreements (PA-NJ) and state credit rules partially mitigate, but the home state's credit-for-taxes-paid is limited to its own effective rate, so a CA resident telecommuting to NY (NY ~10.9% top, CA ~13.3% top) gets a credit but still pays the higher of the two.

Credit for taxes paid to other states

Every state with an income tax allows residents a credit for income taxes paid to other states on income that is also taxed by the residency state, preventing pure double-taxation. The credit is limited to the LESSER of: • Tax actually paid to the other state, OR • Resident state's tax on the same income at its effective rate. This means moving from a high-tax to a low-tax state does NOT save tax on income still sourced to the high-tax state: the credit fully absorbs it from the low-tax side.

Reciprocity agreements

Sixteen interstate agreements let residents file only in their home state for wages earned across the border. Notable: • PA ↔ NJ, IN, MD, OH, VA, WV • DC ↔ MD, VA • IL ↔ IA, KY, MI, WI • MI ↔ IL, IN, KY, MN, OH, WI • Others, varies Reciprocity covers wages only. Self-employment income, business profits, and capital gains are NOT covered. File Form W-4 with the appropriate state exemption (e.g., NJ-165, PA REV-419) with the out-of-state employer to suppress nonresident withholding.

Statute references

• Convenience-of-employer (NY) — 20 NYCRR §132.18(a); Zelinsky v. Tax Appeals Tribunal, 1 N.Y.3d 85 (2003)
• Statutory residency (NY) — N.Y. Tax Law §605(b)(1)(B)
• California ABC residency — Cal. Rev. & Tax Code §17014
• Credit for taxes paid — Each state's own credit statute; see Comptroller v. Wynne, 575 U.S. 542 (2015)
• California AB-5 ABC test (PE-relevant) — Cal. Labor Code §2775