Will State Income Taxes on Telecommuting Put a Damper on Geographically Dispersed Application Development?

My friend just showed me a an article from the Nov 1, 2005 Wall Street Jornal, Page D-1 entitled "Telecommuters May Face New Taxes." Apparently, the US Supreme Court, by not choosing to review a case, will let stand a New York decision to tax the income of a Tennessee man who was working for a New York-based company via telecommuting. He was only in New York 25% of the time but was taxed on 100% of his income. (This may also be an issue with Tennessee not having a state income tax.)

I think the impact of this decision (or is that non-decision?) will be huge! If you've got a team of programmer spread around the country, will your software project team members soon be facing new state income taxes? Will staffing decisions on new projects now have to consider which state tax telecommuters? Will talented programmers quit because of sudden cuts in take home pay? What about all those global teams? Will states start trying to collect taxes from non-US citizens doing application development work from places like India, China, Brazil, and the Phillipines?

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