If I work out of my house in a different state that I am paid from do I have to pay taxes in that state. Example: I work for a company in Alabama but my office is in IN

No.  You file a tax return in your resident state where you live and work regardless of where the company is located.

Example:  Taxpayer works in their home as an employee for Company X.  Taxpayer lives in IN and Company X is located in AL.  Taxpayer files all income with their resident state of PA even if there is training in another state for a short period.  If there was any state tax withholding in error for AL, they would file a return for a full refund with no income taxed to that nonresident state.

State tax law always refers to "domicile" when determining residency.

• An individual may have many residences, or physical dwellings in which he resides, but can have only one domicile, or that permanent residence to which he intends to return. A review of states residency requirements show that 28 states use some definition of domicile to determine if a taxpayer is a resident.

However, there are several states that take the viewpoint that if your location is not a job requirement, then you are considered as if you worked at the office you are supporting.  PA and NY aggressively pursue telecommuters if the location of work is for the taxpayer's convenience rather than required by employer.  See:  <a rel="nofollow" target="_blank" href="http://www.journalofaccountancy.com/issues/2009/jun/20091371.html">http://www.journalofaccountancy.com/issues/2009/jun/20091371.html</a>