When It Comes to Taxes, Being Tracked Can Be a Good Thing

This article is part of our new series of Currents, which examines how rapid advances in technology are changing our lives.

Two months ago, Jeff Sheu, a private equity manager, moved from San Francisco, where he had lived for nearly 20 years, to Summerlin, a suburb of Las Vegas. During the home pandemic, he realized he no longer needed to be in a city where real estate was expensive, taxes high, and the quality of life changed after marrying a young child.

And since vaccinations were available and business travel resumed, he could live in a place he liked as long as he could get on a plane to work.

“I love California, but over time the cost of living got exorbitantly high,” said Sheu, who was born and raised in the state and attended the University of California at Berkeley. “I grew up separate from California.”

Moving out of a city for more space in the suburbs is a fairly common destination. It often marks a point of maturation for Americans with young children who appreciate reputable schools over nightlife.

However, given the state Mr. Sheu had left and the high compensation from his work, he feared that his departure would not go smoothly. As the managing director of a private equity firm, he’s just the type of high earner that California doesn’t want to lose. When people leave in its tax bracket, the state will likely screen them to make sure they have really left.

With the filing deadline approaching May 17th, individuals who have moved to another state or work remotely will need to be extra vigilant with their tax documents. For Mr. Sheu, this means an app on his smartphone that constantly tracks him with the help of location services. Whatever privacy he sacrifices he gains in peace, knowing that he can show exactly when and where he was in a particular state should the California tax authorities come after him.

Tax hungry states are not too happy with large taxpayers leaving. Enter the need to meticulously keep track of where you are all the time.

“As part of the move, there is a checklist of things to do like changing your voter registration,” said Atlanta-based Sheu (having been in Tampa, Florida, and Philadelphia for the past 36 hours when traveling was for work). “Then keep track of your days. You can use Excel, but when I get a request from the tax authority, it is only in Excel. You could argue that I have something with fat fingers. But I’m never separated from my phone. It feels like a pretty undeniable way to keep track of where I am to me. “

Tax apps like TaxBird – which Mr Sheu uses – and TaxDay and Monaeo were developed years ago with a different goal: to help largely affluent retirees avoid a tax burden when they return to their second home in a high-tax country. But since the pandemic sent people home and freed them from an office, these apps have become relevant for professionals who want to work wherever they want to live.

These apps work on a subscription model and are inexpensive. For example, TaxBird costs $ 34.99 per year. After a 90-day free trial, TaxDay charges users $ 9.99 per month. Monaeo is more geared towards high earners and has more options for its service: $ 99 per month or $ 999 per year.

“We’ve seen our no-ad app quadruple over the past year,” said Jonathan Mariner, founder and president of TaxDay, who was self-audited while working for Major League Baseball in New York but living in Florida. “If people are concerned about privacy, you probably have a dozen apps on your phone that are tracking you and you don’t even know it.”

People who use the apps understand that their location is being tracked, and the apps confirm in their privacy statements which data is used and which is not. Monaeo describes exactly how the data is cataloged – city, state, and country, but without specific locations. It also says in advance that it will not share any data. (All three apps are vigilant in this regard.)

Each tax app has different levels of accuracy and functionality for uploading receipts. However, they all meet the basic requirement to prove your location to a tax authority. When it comes to filing taxes, users download reports detailing where they have worked with varying degrees of specificity, from a simple day count to more detailed location information.

“It became a controversial issue between states over the past year,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. “The question is, what does it mean when your employment is in another state in the virtual world? In the physical office world, it was easy. “

With hundreds of millions of dollars at stake, states in need of revenue will not let the money go without a fight. “This can get as messy as you can imagine,” said Dustin Grizzle, tax partner at MGO, an accounting firm. “States will say, ‘Hey, you’re only using Covid to have the ability to work remotely.'”

One thing is clear: the pandemic has actually extended this type of tax debate to middle-income people who wish to live elsewhere. At the center of the debate is a magic number: 183 days – half a year plus one day – the time most states use to determine whether a person has been elsewhere for tax reasons. (There are exceptions: Ohio residents only need to live outside of the state for five months.)

However, residence is something you need to explain; It is not something that can be determined by traveling. For many workers the problem will be where their employer says their office is.

David R. Cohen, an attorney focused on complicated litigation, had been away from his home in Ohio for decades. He and his wife rented a place in Naples, Florida during the pandemic and realized there was no reason to return to Cleveland in the winter. After renting, he bought a house in Naples a few months ago.

“Covid has proven that anyone can work remotely,” said Cohen, who uses TaxBird. “It was then that I started thinking about a residence down here.”

His incentives went well beyond the weather: he argued that most of his cases involved multiple jurisdictions, so he was either traveling or working from home.

This type of shift has been a concern of some states. There is currently a tax dispute between New Hampshire and Massachusetts that could end in the Supreme Court. The central question: where do people work for tax purposes if they are not allowed to enter an office in another state?

When the pandemic started, Massachusetts issued guidelines saying that if you normally worked in an office in that state, you would still have to pay income tax there even if you worked from home. New Hampshire challenged this by filing a lawsuit.

“There’s a strong argument that the pandemic should change something,” said Eric Bronnenkant, head of tax at Betterment, the financial advisory app. “But one of the things I worry about is if the Supreme Court falls on the Massachusetts side, other states will say that the Supreme Court has given its approval. That will make taxing remote workers more complex. “

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