This is what happens when you let programmers instead of tax experts set up the payroll process. In states where there is no reciprocity agreements, the work location state requires income tax withholding and unemployment insurance by the employer. Intuit should trust the employers to know what their obligations are for withholding and paying state taxes and allow them to select an option that states, "DO NOT WITHHOLD TAXES OR FILE THIS STATE".
This was an option under Payroll Settings until recently. Intuit should bring this back.
