@TomD8 No, I meant CA, it's simply the reverse read of the regulations. By the way- none of this was decided definitively because SCOPUS didn't hear out the New Hampshire vs. Massachusetts case.
When an employee informs their employer they are working in another state, if the other state is a convenience rule state, the employer is only required to withhold in the state in which it requires the employee to work. In this case it would be California. While the person may have been a resident of MA, CA has a much higher tax rate. So there wouldn't have been MA withholding purely based on residency. Principally it has to do with the fact that a state cannot be both a physical presence and convenience rule state. In New York we call this the "reverse convenience rule".
As an example, if you are a NYS resident, working remotely from your home in NYS, for a CA based employer- those are CA workdays under NYS law. Doubtful there is any guidance to this point yet related to MA, but I am sure there is case law or other guidance in one of the 5 pre-existing convenience rule states.
Full disclosure- I think its more likely than not that the employer is just afraid of the CA FTB and residency concerns during the pandemic, and that's more likely the reason for the withholding. However, that doesn't mean that there isn't a position here that the taxes are in fact due to CA, not MA. Given CA has a four year SOL and MA a three year SOL, I'd try to get further guidance from CA FTB on how it plans to treat this. Last thing you want to do is include as MA income, the SOL closes, and then audited by CA with no recourse for a credit in MA. Just my thoughts.
Kristine L. Bly, EA Private Client Services / Residency / Tax Controversy
Partner, Cohen & Company
