David R. Agrawal (UC Irvine) & Xinyu Chen (Michigan), State and Local Tax Policy in a Time of Telework (Dec. 23, 2025), available at SSRN

State and local tax systems are constrained by the geographic location of individuals and economic activity. The rise of telework weakens this linkage by decoupling a worker’s state of residence from the employer’s location, creating new challenges for the design of personal income taxes, corporate income taxes, and unemployment insurance. Using Census data, we show that teleworkers are significantly more likely than non-teleworkers to relocate to lower-tax states and, through such migration, achieve significantly larger reductions in their state and local fiscal burden. Motivated by this evidence, we evaluate alternative principles for sourcing labor income for tax purposes to the place of residence, the place of work, or the place of the employer-highlighting the efficiency, equity, and administrative tradeoffs each entails. We further discuss how the rise of remote work fundamentally changes the state and local corporate income taxes, property taxes, and sales taxes and unemployment insurance. Taken together, our results suggest that telework is likely to reallocate state and local tax bases away from larger, more agglomerated jurisdictions toward smaller and more geographically remote ones, with important implications for subnational public finances.