Yes, that is a very good point. My employer is in Florida (no state tax) and I live in NY (state tax exists), so I am taxed by NY only. But it can hurt you if you live in Mass and work in NY. So it can be tough for people who physically cross borders too.

As for living in one state and working in another, it depends. I lived in PA and worked for a while in NJ, and those two states have a reciprocal agreement so that you only pay taxes in one of them. I think a lot of states that border one another have that kind of agreement, but I'm not sure.

I saw an article a while back that New York, in particular New York City was pushing for charging income tax for any telecommuter that does work for a company in their state.

This was a reaction to companies in New York getting sick and tired of having to pay very high premium salaries to local workers who on average are no better than workers elsewhere in the country.

If you can get a developer with 5 years of experience for 50k in the midwest, and an equally talented one in NYC for 85k, which are you going to pick provided they don't have to be on site?

The market can and does adjust itself for efficiency and the only way high cost places will be able to maintain their tax base as telecommuting becomes more accepted and easy is through direct government intervention which in this case would seemly limit competition, stifle innovation, and shrink the pool of qualified candidates since no one would willingly choose to be taxed twice.