Connecting state and local government leaders
States want to attract well-heeled remote workers.
This story was originally posted by Stateline, an initiative of the Pew Charitable Trusts.
For Joseph Hubbs and his girlfriend, Emily VanEpps, both tech workers in their late 20s, the pandemic offered a once-in-a-lifetime opportunity to hike and ski in Utah and California, and see beaches in South Carolina and Central America, all while working remotely. It was that or continuing to pay thousands in rent for separate Brooklyn apartments while under stay-at-home restrictions.
“Let’s not waste that money and sit in a tiny apartment all day,” is how Hubbs saw it. “It was a sudden ability to travel free of office obligations without any change to our core jobs.”
Justin Pyun, 33, was at a similar crossroads when his lease came up for renewal last year in San Francisco’s Mission District: $3,000 a month to stay in a shut-down city, worried about sharing tiny elevators and narrow stairwells with neighbors, or more freedom on the road.
“We said, we could do something a little bit smarter and enjoy ourselves more,” said Pyun, a structural engineer who decided to give up his lease and hit the road with his fiancée. Since their departure they’ve snowboarded in Denver and seen friends in Los Angeles. They’re now planning some hiking in Oregon and fly fishing in Washington state.
Both couples are still paying income taxes in their home states, a common arrangement that states may revisit after the pandemic. And both insist they worked hard to follow state and federal guidelines to keep themselves and others safe from COVID-19, even amid recommendations to avoid nonessential travel.
The couples were fortunate to have the money to travel. In the past year, the United States has seen historic increases in poverty, unemployment and hunger. Even before the pandemic, however, states were eagerly researching the potential benefits of attracting remote workers.
As some affluent, mobile professionals decamped from cities, states are dialing up the competition to attract them permanently. Many of those workers could bring more income to support local businesses, reverse some of the brain drain of rural natives moving to urban states and potentially become a source of income tax if they settle down.
The number of such digital nomads is impossible to capture.
“A year ago there were a lot of renters in high-cost urban areas, paying a lot of rent to be close to work and close to the amenities in the cities,” said Daniel McCue, a senior research associate at Harvard University’s Joint Center for Housing Studies.
“Then a lot of those amenities got shut down,” McCue said. “The entertainment and food venues were gone, and it didn’t look like it would be resolved anytime soon. When your lease comes up, why would you lock in for another year when you can wait it out?”
Some states, especially ones with declining populations in rural areas, have been proactive about seeking affluent remote workers. West Virginia is dangling free passes for recreation and a $12,000 housing subsidy to people who move there for remote work.
And Savannah, Georgia; Topeka, Kansas; and northwest Arkansas offer incentives to buy or rent a home there for remote work, seeing a chance to reverse a brain drain and lure higher-income residents. A Hawaii business group started a program to attract more remote tech workers to balance its tourism-dependent economy. Similar pre-pandemic programs in northwest Alabama, Alaska and Maine, and in the cities of Baltimore and Tulsa, Oklahoma, could gain momentum.
While those states and cities hope to lure permanent residents, they’re also seeing the advantages of more nomads such as Hubbs, VanEpps and Pyun—who may end up liking a more mobile lifestyle and continuing to pass through states to work remotely.
“I don’t see it happening now but looking forward, they will be asked to pay income tax in a place like West Virginia,” said Verenda Smith, deputy director of the Federation of Tax Administrators, a trade group for state tax officials.
Only six states have permanent rules that allow them to levy income tax on people who work in the state but live in another one. Massachusetts set up a temporary rule in response to pandemic teleworking.
During the pandemic many states passed emergency suspensions of rules that technically require anyone living there, even temporarily, to pay income taxes, according to Smith.
As those emergency rules expire over the next year, statehouses are likely to set permanent policies about remote workers, Smith said.
States already have been battling for decades over taxes for out-of-state commuters, and remote work has added a new twist. Companies that haven’t dealt with remote workers in the past might face new bookkeeping headaches to apportion tax withholding among various states, or even extra corporate taxes if states interpret the presence of an employee as a “nexus” or a branch of the company itself, Smith said.
For now, the pandemic emergency makes taxation nitpicking unlikely, said Smith, who has lived outside her home state of Virginia for the past year, caring for fragile parents in western Kentucky while working remotely and maintaining her house in the suburbs of Washington, D.C.
“For people who were able to work remotely, many started to wander off during the pandemic and worked where they were able to work, which was not necessarily the state where they had been working in the office,” Smith said. “Every employer is basically facing this same scenario.”
Hubbs, who works for a management consultant in New York, has clients facing the uncertainty of state tax consequences once the pandemic is over and states consider more enforcement or new rules.
“Some states have laws that say, ‘You work here for X days and you owe us taxes,’” Hubbs said. “There’s a concern that someday there will be a day of reckoning.”
It would be wise for traveling workers to keep good notes, said Kim Rueben, director of the state and local finances initiative at the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution in Washington, D.C.
“If you’re in one place for more than 60 days, I would keep really good records of where you are because that state might say, ‘We think you live here. You might owe us some money,’” Rueben said.
The states that are most aggressive about seeking out workers, Rueben said, are California and New York, which have always faced issues with people trying to avoid state taxes by establishing residences in places such as Florida or Nevada with no income taxes.
There are some clues those states look for: People working for New York businesses with children in remote classes in the state aren’t likely to get away with claiming out-of-state residence for tax purposes.
“They do this mostly to make sure somebody didn’t just buy a second house in Florida and start claiming residence there to avoid [New York] taxes,” Rueben said. “You should pay taxes where your home is. Home is where your heart is. Home is where your kids are. Home is where your stuff is.”
“Stuff” is a challenge while living on the road. Hubbs and VanEpps put most of their clothes into a New York storage facility and have stopped off to exchange winter and summer wardrobes as they move from ski country in Utah to beaches in South Carolina and Costa Rica, said VanEpps, who works remotely for Adobe.
There were health concerns as well: The federal Centers for Disease Control and Prevention discouraged nonessential travel, even domestically, during the pandemic and some states last year set up checkpoints and quarantine rules to check interstate spread. And without a permanent address, of course, travel is a constant for mobile workers.
“Does travel spread COVID? Yes, but it depends on the activities people participate in,” said Dr. Leana Wen, an emergency physician and visiting professor of health policy and management at George Washington University’s Milken School of Public Health in Washington, D.C.
“If people are choosing to leave crowded urban areas and to visit family and friends but always do that responsibly, with testing, quarantining and avoiding high risk settings like indoor bars, this is unlikely to have worsened the pandemic,” Wen said, adding that vaccines change the picture entirely.
Hubbs said he and VanEpps constantly had the pandemic in mind, researching rules for destinations and observing quarantine guidelines. Return trips to New York required a negative test and quarantine, for instance, and lacking access to tests in Florida, they stayed alone in a condo for two months, leaving their residence only to use a boat alone. Hubbs got a one-dose vaccine two months ago, but VanEpps is still unvaccinated.
Pyun and his fiancée were vaccinated recently, and he said they always wore masks, kept 6 feet away from others and got tested before meeting family and friends outdoors. Overall, despite some anxiety, they were more comfortable on the road than in their San Francisco apartment, where they worried about older neighbors sharing narrow stairwells and elevators.
“Our travels almost always involved driving ourselves to the next destination for outdoor activities,” Pyun said. The vaccines, he said, “relieve a lot of anxiety, but we will still be following the same protocols.”
Even on the road, remote work is still work, the travelers insist. A one-week trip to see a friend’s wedding in Charleston, South Carolina, in October was frustrating, Hubbs recalled.
“Charleston was the point we realized, we still have to work all day. By the time you’re done it’s dark and you just paid $200 to stay in this hotel and you barely saw the city,” Hubbs said. “You’re spending a lot of money to be in this expensive place where you just look out the window.”
Generally, the couple was able to save money by shuttling among friends and family around the country, including Utah, Florida, New Jersey and upstate New York, sometimes coordinating with other friends also working on the road and for tech companies.
Overall, VanEpps said, remote work gives a refreshing sense of freedom.
“I would love to stay remote,” she said. “The option to just get up and leave whenever is just the best feeling. You can just do whatever you want as long as it fits in with your work schedule.”
Tim Henderson is a staff writer at Stateline.