I reside in CA and have recently been hired by a small MA based company. I am their first CA based employee. My role involves travel throughout the US for short business trips from my residence in CA.

My employer wants to withhold MA taxes and says that at the end of the year I should file a MA non-resident return get the money back from MA and then file a CA return and pay them.

I don't like this concept and what about things like CA disability and unemployment. Would I even be eligible for these benefits??

CATResident - your employer should definitely NOT be withholding MA taxes. Since you neither live nor work in MA, you do not owe MA a thing. It sounds like your employer is aware of that, but he doesn't want to deviate from his usual practice. Worse, if you go the route he suggested you will have to file quarterly estimated tax payments with CA throughout the year - otherwise you run the risk of being penalized by CA next April 2011 when you file your taxes and it becomes clear that you underpaid throughout 2010 - you will have to pay interest charges for the underpayment. So he is actually asking you to pay both sets of taxes, and get the MA tax back later. If he can't (or won't) withhold CA taxes like he should, then at the very least he should not withhold MA tax in its place.

Sorry, I don't know about the nuances of qualifying for CA unemployment or disability - that is a very good question! Perhaps you can call the CA tax franchise board and ask?