When People Become Stateless
I was just commiserating with a friend and colleague about tax issues we have faced as remote workers. Like me, he is also a veteran. As a veteran, you learn about tax issues stemming from state residency from the day you take your oath. It starts early.
When I enlisted, lo these many years ago, I was an Illinois resident. Since childhood, I had always considered this fact an indelible mark that would follow me throughout my life. I was born in Illinois, would return to Illinois, and likely end up in the local cemetery next to mom and dad at the end of this journey. What do you mean you could change your state – just like that?
I was once stationed in Texas. This move was after a stint in San Antonio for basic training, technical school in Wichita Falls, followed by three years at an upstate New York bomber base. When I got reassigned to the base near Lubbock, I found having New York plates on one’s car was ill-advised. I once took my wife to a local rodeo and we came out to find or car had been used as a spittoon by some locals. So, I took the advice of my NCOs and went down to city hall to become a paperwork Texan. It was cathartic. I could change.
In addition to being able to blend in at the rodeo parking lot with Texas plates, there were legal advantages that accrue to military members from Texas as well. The big one was the lack of any state income taxes on my meager E-5 pay. Processes like voting, tax paperwork, and vehicle registration were all fairly simple to follow and military members were treated well.
When I showed up at Town Hall in Lubbock to switch my loyalty to the Lone Star State, I met two ladies who would play an important role in my life for many years: Dixie and Margaret. It was a slow day in city government when I first walked in, so I had fun chatting with these helpful public servants and they got to know the goofy kid from Illinois. I got a Texas drivers license and voter registration in my adopted state. Little did I realize then how often we would speak.
I was reassigned many times after my initial meeting with Dixie and Margaret. A federal law passed in 1935 allows active military members to retain their state residency irrespective of their current duty posting. I kept my Texas state residency up until my retirement – even when it caused us problems. I had police pull me over more than once in an effort to ticket me for out of state plates (the cop saw I was living in a small town neighborhood). Dixie and Margaret mailed me a wallet-sized memo on the Soldiers and Sailors Relief Act of 1935. I had to pull it out on several occasions to show police or credulous state and federal officials. Every new state or new car purchase required a quick call to Dixie and Margaret for paperwork. They were my lifesavers for over a decade.
When I retired while living in Maryland, I could no longer pull out that magic wallet card. I now had to register my vehicles locally and pay state and local taxes. If I thought this would at least be simpler, I was mistaken. Within a few years, I was maintaining a residence in North Carolina, a pied-a-terre in northern Virginia, and was working in both the District of Columbia and Virginia with teaching assignments in California. In just one year, I had to pay SEVEN taxing jurisdictions their scrape of my income. It was infuriating.
I asked a tax professional what I could do to manage this better. Wasn’t state residency straightforward? Why could California tax me on the few shekels I could attribute to my teaching assignments in La Jolla? She laughed. Weren’t you in the military? Do you remember that law from 1935? State residency is a debatable and fluid concept for people like you and every state you visit will eye you for potential revenue. She then went on to explain how even in death, states may take your estate to court to get a piece of whatever you leave behind.
I have now maintained my main residence in North Carolina for over 20 years, yet I certainly don’t feel like a local. I am only a resident here because this is where we were living when we got tired of moving our crap from state-to-state and town-to-city. I can chauffer you around DC or Manhattan, and large parts of London, but need Waze to find anything in nearby Raleigh. I live in a small community, but I know people in Japan and London better than my next door neighbors here. I only know the mayor of my town from a recent mailing I received. I couldn’t pick him out of a line-up.
The United States is an exciting experiment in distributed government. We are a Constitutional republic with fifty separate competing entities providing laws and justice for the people within their borders. Yet we see the concept of state residency becoming more difficult to manage. The pandemic has only accelerated this dynamic change and not always for the better.
I was lucky to perform remote work before it was really popular. Many companies are reevaluating and expanding their use of remote workers in light of recent events. They are being confronted with a growing set of problems because of it. If I am hired by a company based in San Jose and I live in rural Kansas, can I expect Silicon Valley wages? If I am hired with the knowledge I will be working from rural Kansas, is the company acting ethically in paying me less based on the cost of living where I live as opposed to simply evaluating the services I perform for them?
One of the other key problems we are seeing was highlighted in the recent presidential election. Our voting laws are centered on our “legal residence.” But legal residence is becoming far more fluid in a society where people can travel cheaply far and wide. Affluence allows many to maintain more than one “home” – often in another state or even another country. If you dig deep within the tens of thousands of pages of IRS regulations, you’ll be able to find definitions of what constitutes a legal residence, but there are legal and extra-legal loopholes large enough for nearly anyone to attempt to employ.Perhaps the most significant concern is the loss of local influence. I am reminded of that beautiful painting by Norman Rockwell he called Freedom of Speech. It depicts a working class man, political agenda stuffed in the pocket of his worn leather jacket, standing up in his local town hall to state his case before the town representatives. He is surrounded by older, well-dressed attendees. He is nervous, but needs to speak of his concerns. We are quickly losing that element of American civic life as we move to a stateless society of mobile technology careers and remote schooling.
As the family is the basis for societal structure, local politics have historically fed our broader state and federal legislative system. That process has eroded as politicians, national media, and society at large have tended to focus on presidential contests, Supreme Court justice appointments, and senatorial races. This has resulted in zany celebrity candidates, muckraking journalism, and style over substance. For the time being, the evolving national experiment will continue to move toward an all-powerful, centralized government and a dwindling, apathetic local activism. I am not sure our stateless citizens are well-served by this model.