Surprise! Some states may claim that simply having an employee telecommuting from that state qualifies your business as ‘doing business in that state.’ in the past, a business had to have offices in the state to qualify, but in the Internet age that’s all getting blurred, and in the slow economy, economically weak states are getting more aggressive and creative in discovering new revenues. According to this WSJ post, the only appropriate answer is to have the telecommuter resign and form a consultant service provider relationship with invoices and the like.
I can attest that this is an effective solution, as all of the people who’ve ever worked for Brockmann & Company were contracted in this way. The contractor took on responsibility for taxes and the firm avoided the adminisative burden of payroll, workers compensation, medical and social security tax collection and benefit calculations. Workers knew what they got paid, and the administrators deducted the labor costs from revenues directly.