Evolving Discontinuities in The State Taxation of Income from Remote Work

Kirk J. Stark

National Tax Journal, 2026, vol. 79, issue 2, 433 - 463

Abstract: An important legal question for state income taxes concerns the sourcing of income from the cross-border provision of services. Are taxing rights assigned to the state where services are performed or the market state where those services are received? Focusing on four simple, illustrative cases involving the application of state income taxes to remote workers, this article presents a rough schema for understanding alternative sourcing rules and how those rules have changed over time. While place of performance sourcing has long been the dominant approach, many states now tax certain nonresident service providers based on the location of their employer or other purchaser of their services. As a result of these changes, sourcing rules today vary not only from state to state but also by the type of taxpayer, with market sourcing becoming the norm for sourcing service income of corporations, pass-through entities, and sole proprietors. The durability of this shift is clouded by pending litigation in New York (by remote employees) and California (by remote independent contractors) challenging the constitutionality of state departures from place of performance sourcing. The article considers how the resolution of these legal controversies could influence the future of state taxation of income from remote work.

Date: 2026
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