For a worker fleeing the big city in the face of the COVID-19 pandemic or just looking to live the good life in Montana, remote working-at-home in Montana has some great lifestyle benefits. However, there are state income tax ramifications for both the worker and the employer. The remote worker is often subject to Montana income taxation as either a Montana resident or as an earner of Montana-sourced income for the time the worker worked in Montana as a nonresident or part-year resident.
However, the company for which the worker is employed may also be subject to Montana income taxation, even if the company does not have any physical presence in Montana or even any other remote workers in the state.
Multi-state companies doing busines in more than one state become subject to Montana income taxation under several ways.
Apportionment factors. Income of a unitary, multi-state company is apportioned to Montana for state income taxation through the use of three factors: property, payroll, and receipts.[1] Therefore, if there is a remote worker living and receiving wages in Montana, the employee’s corporation may be subject to Montana corporate income tax, even if the company doesn’t have an office in Montana since the state looks at property, payroll and business receipts.
Separate Accounting. A corporation that is not unitary and is able to separate out the business income and expenses attributable to business operations in Montana may be taxed under a separate accounting of Montana income and expenses. However, if the company records are not sufficient to permit a proper segregation, the company is subject to taxation and apportionment of income to Montana.[2]
Practice Point. A company with no ties to Montana other than a worker living in Montana and working remotely may subject the company to Montana corporate income tax due to the payroll apportionment factor alone. While the amount of tax may be de minimus, the corporation may still be compelled to file a Montana tax return and undertake the administrative burdens of complying with the Montana corporate tax code.
About the Author. Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal, state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] Mont. Code Ann. § 15-31-101
[2] Mont. Code Ann. § 15-31-301(3).