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I work for a company based in Massachusetts but I work off site in Connecticut. I rent an office to work from in the town where I live because I don't have adequate space for a home office.

Recently, the town tax appraiser became aware of my existence and concluded that I am a taxable business. The result was they decided I personally had $9000 worth of taxable business assets and sent me an assessment notice. That number is ridiculously wrong but I don't want to dispute amounts. I don't believe I'm taxable at all.

A phone call to the tax assessor's office resulted in the conclusion that my only option is to file an assessment appeal.

Well, my appeal would be something along the lines of "I am not a business. I'm just an employee paying for office space and I'm therefore not taxable."

But when I plow through the CT tax statutes, I can't find the definition of who is actually taxable as a business. There's just too much law there.

How can I figure out whether my intended defense works? Paying for legal advice will certainly be more expensive than the taxes involved, so that's not an option.

  • Why don't you just ignore the assessor and, if/when taken to the court for "tax evasion", present your perfectly valid defense? – Greendrake Feb 16 '19 at 3:48
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    @Greendrake Tax evasion is a jailable offense, I would not recommend ignoring it until it's a problem, even if you have a defense. – Ron Beyer Feb 16 '19 at 3:50
  • Are you an employee of this company, or a contractor? Do you pay for the office or does your employer? Who owns the equipment in the office? – Ron Beyer Feb 16 '19 at 4:36
  • @RonBeyer I'm an employee of the company, not a contractor. I pay for the office. The company owns the computer I use for my job and I own a desk, chair, and bookcase. – Carey Gregory Feb 16 '19 at 5:35
  • I would refer the issue to your company as they will have the paperwork required to show your employment and will probably be able to provide legal help. – SJuan76 Feb 16 '19 at 11:28
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Offices are normally rented by businesses, so for the tax appraiser, your situation would be quite out of the ordinary. They appear to be stone deaf to the idea that an office may be rented not for business purposes, and so they lump all office renters together. If they do not want to hear you, all you can do is to keep evidence that:

  1. You are an employee;
  2. You attempted to tell them that you are not liable for the tax because you are not a business

— and present that should they ever attempt to prosecute you for tax evasion or similar.

Specifically, do:

  1. Keep your employment contract, communication with your bosses telling you what to do and records of them paying your taxes;
  2. Send a formal letter (not an appeal) to the tax appraiser explaining the situation

Should the issue ever be escalated, they will not be able to prove that you were a contractor/business (let alone beyond reasonable doubt), and you will be able to recover costs associated with this headache.

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  • Deducting the rental expenses as an unreimbursed employee expense might also improve the credibility of the claimb that this isn't a business. Plus it might reduce OP's income tax burden. – phoog Feb 17 '19 at 5:34
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    @phoog Employee expenses are no longer deductible under the 2018 tax bill. – Carey Gregory Feb 20 '19 at 5:26
  • @CareyGregory thanks for bringing that to my attention. – phoog Feb 20 '19 at 18:18
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Some of the comments above point you in the right direction. Your town tax office got it right, but also wrong: what's really happening probably, is that your MA employer (not you) is conducting business in CT, likely without filing first for what is known as a Certificate of Authority. Your employer also has to file CT state and local (your town, in this case) tax returns and pay whatever taxes are due. From your employer's point of view, you and your office constitute a branch office in CT.

The fact that you pay the rent for the office doesn't change this answer, although it may make your personal tax return situation more complicated (because of questions about the deductibility of employee business expenses). Assuming that your employer's tax adviser (and if it doesn't have one, it should...) agrees with the analysis, your employer should pay directly for the cost of the office (if necessary, by reducing your compensation by the amount of rent).

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    What makes you think that the employer is conducting business in CT? – Greendrake Feb 16 '19 at 22:18
  • Each state has its own laws for determining when a foreign corporation (or any entity) is conducting business in it, so in this case you'll need a CT lawyer to tell you what the rules are, but generally, the MA corporation (1) maintains an office in CT and (ii) has payroll in CT (and possibly other indications of conducting a local business). My sense is that in most states those 2 things would be more than enough to be considered engaged in business. – Jack Fleeting Feb 17 '19 at 11:15
  • The employer is a 17 billion dollar multi-national corporation, so I'm pretty sure they have tax advisors. They have a sales office in the state so they would also have a CoA. Employee business expenses are no longer deductible beginning in the 2018 tax year. – Carey Gregory Feb 19 '19 at 22:47
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    @CareyGregory Even if the company is doing business in CT, a private person renting office space on his own account for the purpose of performing remote work for an employer does not seem to be a business. That the employer does business in Connecticut while the employee is working for its Massachusetts office may have some bearing on labor law and taxation, but I don't suppose it makes the employee a business. As far as I can see, it appears that you are renting the space for your personal use. – phoog Feb 20 '19 at 18:25

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