I mentioned yesterday a legal opinion from the state Department of Finance and Administration that said a computer programmer who lived in Washington state should pay state income tax in Arkansas for work done for an entity in Arkansas.

That opinion suggested this was a departure from past practice and others have taken similar notice.


One is Matt Boch at the Little Rock law firm Dover Dixon Horne, who blogs on tax issues.

With telework on the rise, the state taxation of remote employees has become a hot issue.  The Arkansas Department of Finance and Administration has published Revenue Legal Counsel Opinion no.  20200203 (Feb. 20, 2020), which adopts what is effectively a “convenience of the employer” test imposing income tax on remote, out-of-state employee income where the employee is working for an Arkansas-based office.  This policy marks an apparent reversal of the rule in DFA’s Individual Income Tax Regulation 1.26-52-202(c), which requires allocation of nonresident employment income based on where the work was performed.

Other commenters include:


The Journal of Multistate Taxation and Incentives, which questioned a number of points of the Arkansas opinion, concluding:

The convenience of the employer test has been controversial in the few states that have adopted it, or attempted to adopt it, as it creates serious federal constitutional concerns. Further, the test reflects poor tax policy, as it discourages teleworking generally, including during COVID-19 work-from-home orders.

Law 360’s evaluation by David Brunori was similarly critical. He said:


The Arkansas Department of Finance and Administration recently issued a legal opinion that is arguably unconstitutional and certainly represents terrible tax policy.

Among the justification offered by Arkansas for taxing the Washington programmer was the benefits received from the Arkansas employer. Said Brunori:

That is a laughable argument. If she calls 911, will the Arkansas state police send a patrol car? If she would like to attend the University of Arkansas, is she entitled to in-state tuition?

Brunori says several states have come up with varied schemes to evaluate whether a tax should be assessed on a telecommuter, but he doesn’t like the shape of Arkansas’s approach.

Rather than calling the department’s opinion outrageous, I will just call it wrong. Virtually every state takes the opposite position: It will not tax the income of a nonresident telecommuter.

And Arkansas is supposed to be the coding state. (Oops, don’t tell anybody about that Workforce Services computer work. Or the 23 cyber insurance liability claims the state has filed since November 2018.)