Flying through many states: which one taxes your pay

Federal law limits which States may tax air carrier crew pay: the State of residence, and a State with more than half of scheduled flight time.

The federal text we read limits which States may tax this pay. It says nothing about which State an employer should withhold for, so we do not answer that here. A payroll record is a fact about the employer's process, not a determination about where the pay may be taxed.

What the rules say

Which state may tax your pay

Which state may tax your pay — If the law treats you as an employee

Under 49 U.S.C. § 40116(f)(2), the pay of an employee of an air carrier having regularly assigned duties on aircraft in at least two States is subject to the income tax laws of only two jurisdictions: the State or political subdivision that is the residence of the employee, and the State or political subdivision in which the employee earns more than 50 percent of the pay received from the carrier. Air-carrier status is defined by 49 U.S.C. § 40102(2) and turns on undertaking to provide air transportation, not on aircraft size, scheduled service, or how an operation is described commercially. The subsection speaks of an employee and names no occupational role, so it draws no line between cockpit and cabin duties.

The measure of the pay prong is stated in § 40116(f)(1)(C): an employee is deemed to have earned 50 percent of the pay in a State or political subdivision in which the scheduled flight time in that State or subdivision is more than 50 percent of total scheduled flight time when employed during the calendar year. The threshold is more than 50 percent, so a share that reaches exactly one half does not meet it. Because the measure is a share of a single annual total, at most one State can exceed one half of it, and the statute states no method for allocating an amount between permitted jurisdictions.

Section 40116(f)(3) covers compensation paid by an air carrier in connection with authorized leave or other authorized absence from regular duties on the carrier's aircraft in order to perform services on behalf of the employee's airline union. That compensation is subject to the income tax laws of only the State of residence and the State in which the scheduled flight time would have been more than 50 percent of total scheduled flight time for the calendar year had the employee been engaged full time in regularly assigned duties on the carrier's aircraft. The prong is counterfactual by its own terms, and it uses the same more-than-50-percent measure rather than a separate one.

Section 40116(c) permits a State or political subdivision to levy or collect a tax on or related to a flight of a commercial aircraft, or an activity or service on the aircraft, only where the aircraft takes off or lands in that jurisdiction as part of the flight. That provision addresses taxes on a flight or on activity aboard an aircraft. It is not a wage-sourcing rule, and a takeoff or landing in a State is therefore no part of the test that decides which States may tax an employee's pay.

Which state may tax your pay — If the law treats you as being in business for yourself

Subsection (f) operates on the pay of an employee of an air carrier. A person carrying on a trade or business rather than performing services as an employee is outside its terms, and the retrieved federal text supplies no substitute limit for that person. Ordinary State sourcing law would govern instead, and no State sourcing law is encoded in this vertical, so no sourcing result is stated for a person outside the employee rule.

Residence and domicile

Section 40116(f)(2)(A) names the residence of the employee as a permitted taxing jurisdiction and does not define residence. Section 40116(f)(1)(B) defines only the word State, as a State of the United States, the District of Columbia, and a territory or possession of the United States. The content of residence is therefore supplied by the law of the State asserting it, and no single federal definition of residence applies across States for this purpose.

The industry word domicile describes the place a carrier assigns duty from. It is a fact about an assignment. The residence named in the federal text, and the domicile concept used in State residence law, are different ideas, and no retrieved authority treats an assigned base as residence, as a permanent place of abode, or as evidence of either. The federal tax-home concept is likewise separate: a tax home locates where work is centred and does not decide which State a person resides in.

What your employer withholds

What your employer withholds — If the law treats you as an employee

Section 40116(f) states which jurisdictions may subject pay to their income tax laws. The retrieved text contains no employer withholding duty, no registration rule, and no correction procedure. The withholding question is therefore unanswered by the federal authority retrieved in this phase, and it is not inferred from the sourcing limit.

Which State an employer reports and withholds for is a fact about that employer's payroll administration. The federal limit is expressed in terms of the jurisdictions whose income tax laws the pay is subject to, not in terms of payroll records, so a State appearing on a pay statement does not establish that the State may tax the pay, and a State absent from a pay statement does not establish that it may not.

What we are not saying here

Still being read

These are the questions we have not finished reading the authority for. They stay listed here until we have, and until then we do not state an answer.

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