Working Remotely in Arizona

[tgaule]

I have been working remotely since March. My employer is based in LA. In July I moved out of the room I was renting in LA and relocated to Arizona. I still work for the employer. Do I file returns for CA & Arizona and split my salary based on the time in each state?  I did not change my address with my employer although my management knew I was working from Arizona and had moved out of LA - so my W-2 shows I was in CA for all of 2020

[TomD8]

"Do I file returns for CA & Arizona and split my salary based on the time in each state?"

Yes.  You must file a part-year resident return for each of the two states.  Your earnings as a CA resident are taxable by CA.  Your earnings as an AZ resident are taxable by AZ.  You became an AZ resident for tax purposes on the day you began living in your new home in AZ.

My answer assumes that your work after the move to AZ was 100% remote, and that you never physically worked in CA after you moved.  

[tgaule]

I have not returned to CA as we are still working remotely. May have to move back once we return to the office, but even if that happens it won't be until late 2021 or sometime in 2022. Plan on filing to state returns split by time in each state.  Still have CA tags, but assume that is not an income tax issue. 

[LenaH]

There are residency rules that have been changed due to Covid-19, which I think apply to you since you have been working remotely since March 2020. Per the State of California, when determining your filing requirement and residency status for 2020 California personal income tax returns, you should consider circumstances related to COVID-19.

Usually, if you are physically present in California for at least nine months you are presumed to be a resident of California for purposes of the California personal income tax.

However, actions you took related to COVID-19 should be weighed when evaluating whether to file a California resident return. Your actions based on COVID-19 may establish facts and circumstances that support a determination of whether you are in (or out) of California for other than a temporary or transitory purpose. 

Please consider the following determining factors which might be relevant:

• When the individual entered California
• Whether the individual remained in California after the COVID-19 period (and if so, how long)
• Whether the individual remained in California throughout the COVID-19 period
• Whether the individual provided COVID-19-related services in California
• Whether the individual cared for an at-risk family member or friend

From the information given, you stated that you planned to go back to California once the office reopens. It sounds like this is a transitionary move due to Covid-19. In that case, you would still have to file a resident California return with all the income being allocated to California. 

The other factor to this is whether or not you paid Arizona state income tax. You would then have to file a nonresident return if so. Otherwise, it is not an Arizona source income because you would not have telecommuted from Arizona if Covid-19 did not occur. 

If my assumptions are incorrect, then yes, you would file part-year resident returns for both states. 

@tgaule

[TomD8]

Per CA Publication 1031, CA's rule is:  "Any individual who is a resident of California continues to be a resident when absent from the state for a temporary or transitory purpose."

Page 6, https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

The taxpayer "relocated" to AZ in March of 2020, abandoning his home in CA.  So the question is whether that move was "for a temporary or transient purpose", or did the taxpayer intend to make AZ his new home?  Note that the taxpayer said that he "may" have to move back to CA, not that it was his intent to do so.   

If the move to AZ is intended to be permanent, the taxpayer files two part-year resident returns. 

Additionally, earnings from remote work actually carried out in AZ are AZ-source income per AZ Statute 43-104 (9), and are taxable by AZ.  

https://law.justia.com/codes/arizona/2018/title-43/section-43-104/

[tgaule]

LenaH, I appreciate your input. I should clarify a couple of points. I was actually visiting my parents when our office closed down in March 2019. I elected to work from their home, since the internet reception in the room I was renting was very poor. I only returned to CA for a couple of days in July to move out of the room I was renting. If I file 2 state returns, I will use the July date as the basis for my date of residence change.  I never gave HR a change of address, so my W2 reflects that I was in CA for all of 2020. I have now given HR a new address. I still have CA plates on my car since I renewed them last June. I do plan to change them before renewal time in 2021. Whether I return to CA depends on my company. I plan to stay with them, but they do have other employees who were working remotely before the pandemic, so they hopefully will agree to let me continue working remotely.

[DaveF1006]

Yes, I agree with TomD8 on this only because you are not certain on when or if you will return to California. In this case, you should file a California and Arizona state return.