For workers have come to Montana to work remotely but have retained their residence in another state and have not become Montana residents, the question is whether any part of the remote worker’s income is taxable in Montana. The answer is yes.
For non-resident or part-year residents working in Montana, the worker is subject to Montana income tax on a percentage of the workers income that is determined to be Montana sourced income.
Montana Income Taxation of a Nonresident. There is imposed upon a nonresident working remotely in Montana a Montana income tax computed “as if the nonresident were a resident during the entire tax year, multiplied by the ratio of Montana source income to total income from all sources.”[1] “Montana source income” is broadly defined and includes, in the case of a wager earner, “wages, salary, tips, and other compensation for services performed in the state or while a resident of the state . . . .” While there is little by way of decided cases applying the definition of Montana source income, arguably the salary a remote worker earns while working from Montana is subject to Montana’s income taxation formula. The worker must compute the total income from all sources and be taxed in Montana on the ratio of Montana source income to total income.
For example, the total income of the taxpayer is $100,000 and $10,000 of this income is Montana source income earned working remotely in the state of Montana. The taxpayer would compute the Montana income tax on the total income, typically at a marginal 6.9% rate, and then pay 10% of that tax to Montana since Montana source income is 10% of the total income.
Montana Income Taxation of a Part-Year Resident. Montana income taxation of a part-year resident is taxed in the same manner as a nonresident. The part-year resident is taxed on a percentage of total income. That percentage is determined by the percentage of Montana source income to total income.[2]
Practice Point. It is uncertain whether the Montana Department of Revenue has a “de minimus” rule so that a worker who works remotely only a minimal time in Montana must calculate tax for the wages earned by working remotely for only a short period of time in the state. Otherwise, wages earned while working in Montana are subject to Montana income tax.
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. § 15-30-2104(1).
[2] ARM § 42.15.110.