Update: Remote Workers and Local Taxes

Update: Remote Workers and Local TaxesBecause of the conditions imposed by the pandemic beginning in 2020, many states announced waivers to companies impacted by mandatory work-from-home pronouncements. Some states used emergency powers to expand taxation to encompass work-from-home employees in localities other than their normal work location. Ohio, Missouri, and Pennsylvania have all addressed the issue recently.


Schaad v. Adler1 was one of the five cases filed in the Ohio Supreme Court by the Buckeye Institute challenging the constitutionality of Ohio’s emergency-based local income tax system that extended municipal taxing authority.2 The question in these cases was: Is it constitutional for the work of employees, who were forced to work from home by state orders, to be deemed to be working and taxed in a city other than where the work is performed?

Prior to the pandemic, Josh Schaad of Blue Ash, Ohio, worked offsite for his employer and, in years past, had requested and received proportional refunds for his work performed outside the city limits of Cincinnati. When House Bill 197 was passed by the Legislature, all work performed elsewhere because of the health emergency was deemed to have been performed at the employee’s principal place of work for the purposes of levying income taxes. This change resulted in Mr. Schaad’s municipal income taxes increasing even though he had spent less time at his main office location in Cincinnati.

In 2021, the Ohio Legislature enacted House Bill 110 (HB 110), which sunset the temporary withholding provisions after December 31, 2021, and allowed employees working remotely to claim refunds of tax paid to the principal-place-of-work municipalities, including tax that was withheld by their employers, for days that the employee worked elsewhere during 2021. HB 110, however, did not expressly apply the refund provisions for employee personal income tax to 2020.

The Buckeye Institute filed a lawsuit on behalf of Mr. Schaad requesting a refund of 2020 taxes and challenging House Bill 197, Ohio’s emergency-based income tax system that deemed work he performed at his home to have been performed in the higher-taxed office location of Cincinnati for the purposes of taxation.

After being rejected at trial court and appellate court, Schaad’s appeal was accepted by the Ohio Supreme Court on the following three propositions of law:

  1. Section 29 of HB 197 is incompatible with Due Process and this Court’s Angell-Willacy line of decisions interpreting the Due Process requirements for municipal taxation.
  2. The General Assembly cannot authorize municipalities to engage in extraterritorial taxation.
  3. The General Assembly’s authority to pass “Emergency Laws” under Article II, Section 1d of the Ohio Constitution does not expand its substantive constitutional powers.

In a split decision,3 the majority opinion rejected the taxpayer's primary argument that Section 29 of HB 197 violated the Due Process Clause of the US Constitution, finding that the federal constitutional provisions govern interstate taxation and not intrastate taxation. It was also noted that the United States Supreme Court has never applied federal constitutional limitations to purely intrastate taxation. The majority also concluded that Section 29 of HB 197 did not violate the Home Rule provision of the Ohio Constitution. This provision limited the employees’ cities of residence from taxing the same income taxed by the primary workplace cities for employees working remotely.

It was stated in the dissent, however, that, “The General Assembly lacks the power to compel Cincinnati to collect taxes on income earned or received by a nonresident while working outside the city limits.” Another dissenting opinion stated that the United States Supreme Court has never ruled on whether Due Process protections apply when a city tax is extended beyond the city's boundaries. The second dissent also expressed the view that “this court has recognized that there is a role for federal due process to play in matters of municipal taxation.”


On another local tax front, beginning on September 30, 2024, proposed Missouri House Bill 1516 specifies that the City of St. Louis shall not continue to impose an earnings tax on any work or services performed or rendered through telecommuting or otherwise performed or rendered remotely, unless the location where such remote work or services are performed is located in the city. The bill creates a cause of action for a taxpayer who is denied a refund for taxes paid for work or services not performed or rendered in the city. This bill is similar to last year’s House Bill 589, but with more time to consider the bill this year, it might just pass the Senate. Opponents of the bill note that the city earnings tax accounts for approximately one-third of the city’s general fund revenue and may be difficult to replace.


Pennsylvania passed Act 32 that provided for withholding rates for earned income tax (EIT) purposes. The withholding rate is determined by comparing the employee’s resident EIT rate to the employee’s work location EIT rate and withholding at the higher rate. Philadelphia, however, is not covered under Act 32 and applies a ”convenience of employer” rule. If employees of Philadelphia-based employers choose to work from home outside the city, their wages for work performed remotely are subject to Philadelphia wage tax.

There are some circumstances where remote work will not be subject to Philadelphia wage tax:

  • If the employee is merely assigned to the Philadelphia location but reports there less than twice per year and does not have a dedicated workspace or the option to work at the location;
  • If the employee is working remotely as an accommodation under the Americans with Disabilities Act; or
  • If the employee is unable to find adequate childcare.

Other State Remote Worker Developments

It is possible that New York’s neighbors—Connecticut and New Jersey—may mount a challenge to the New York “convenience of employer” rule that has plagued remote workers since the 1950s. This rule requires remote workers in other states to be taxed on income in New York if they work out of state for New York employers, for their own convenience. This rule has been unsuccessfully challenged previously by a law professor who resided in Connecticut and worked remotely during the pandemic. Now the two neighboring states are changing the rules by establishing tax credits to their residents for challenging New York on taxes required to be paid to their nonresident state.

Although in the past, the US Supreme Court refused to review a case in the New Hampshire/Massachusetts dispute4 on the same issue, challengers believe that the only way to end this issue between the states is through the Supreme Court.

Future Consequences

Remote work will continue to pose challenges to employers and employees. The presence of employees working in states other than their office location presents several tax implications to employers now that many of the waivers issued during the pandemic have expired. Besides withholding tax issues, many employers might now be determined to be conducting business activities in new states, creating income and sales tax nexus. With the current shift towards flexible work locations, these issues could become more significant.

1 Schaad v. Alder, 2022-Ohio-340.

2 House Bill 197.

3 Schaad v. Alder, Slip Opinion No. 2024-Ohio-525. Ohio Supreme Court, February 14, 2024.

4 New Hampshire v. MassachusettsOrig. No. 154.

Ryan Authors:

Mark L. Nachbar

Mary Bernard

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at