I currently live in California, so it's a no-brainer that I owe state income tax on my Adsense earnings.
But if I moved to, say, Maine, would I still have to pay CA income tax?
I've read the California FTB site about this, and it says if you're a non-resident (i.e., living in Maine), you only pay on "California source income" which it seems to be describing as wages, not 1099 earnings. But it only talks about 1099 earnings earned within California, like if you flew to California to consult with a company for a few weeks. Of course you would owe that, but if I never set foot in California?
In my view, the "earning" is only occurring in Maine, so I wouldn't owe California state taxes. It's actually that Google is choosing to do business in Maine, not that I am doing business in California. I'm only doing business with Californians, which increases what Google owed California in corporate tax and is therefore good for California.
Interestingly, the Amazon controversy may shed some light here. When California was pushing Amazon to collect CA sales taxes, they had to argue that Washington-based Amazon was "doing business in California" because that's the law on when you must collect sales tax. So they argued that just having affiliates working here (mostly from their homes) constituted Amazon doing business "in California." So it should work the same way for income tax - otherwise, no one in any state should pay income tax on their Amazon earnings because Washington doesn't have a state income tax.