APA Asks Congress to
Support Mobile Workforce Bill
By Alice P. Jacobsohn, Esq.
The Mobile Workforce State Income Tax Simplification Act (H.R. 1393, S. 540) was introduced in Congress on March 6 and voted favorably out of the House Judiciary Committee on March 22. The bill is the latest version to protect employers and their employees who travel for work for short periods of time from onerous nonresident state income taxes. Currently, 43 states and the District of Columbia levy a personal income tax on wages and partnership income.
During the House Judiciary Committee meeting, Chairman Bob Goodlatte (R-Va.) stated that the multitude of state nonresident tax laws only serves to "distract hardworking businesses with burdensome requirements." He emphasized, "When a small-business owner is faced with additional compliance requirements for employees working temporarily in different states, those costs can add up, hurting the growth of the business as a whole and penalizing success."
APA asked members of the House Judiciary Committee to support the bill. APA said, "This bill is essential to both employers and employees, small and large, public and private, union and nonunion, nonprofit and for-profit, and all others located in any state. The act provides for a uniform, fair, and easily administered law and helps to ensure that the correct amount of tax is withheld and paid to the states without the undue burden that the current system places on employees and employers."
APA serves on the steering committee of a coalition that has been pushing for the enactment of the legislation since 2007. In the intervening years it has twice been passed by the U.S. House of Representatives, most recently in 2016. More information is available online at www.mobileworkforcecoalition.org.
Need for Change
APA offered two reasons to support the legislation:
- Reducing burden through improved compliance capabilities: Because of the extreme complexity of state tax laws and regulations, compliance for many employers is practically impossible. A lack of adequate software systems, personnel, time, money, or other resources are some of the impediments that prevent compliance with these complex laws and regulations. Still other companies are simply unaware of the current legal framework and would be shocked to discover their own lack of compliance. Another reason for compliance difficulties is confusion about whether a business has formed a nexus for tax purposes in a state where the business does not have a physical presence or regularly provide services. Examples include when an employee travels to a state to offer a one-day seminar or a business sends employees to a state for a few days to assist in recovery from a weather emergency. H.R. 1393, S. 540 offers employers a common-sense approach to determining state tax liability that is appropriate to employers, employees, and states.
- Treating employees fairly: Currently, if an employee performs temporary services in another state without a threshold, but with a higher tax rate than that of the state of residence, that employee suffers an irretrievable increase in tax expense. This is especially true if the employee's home state does not have an income tax. Even when states have a very similar tax structure, the employee can suffer a significant cash-flow problem if the resident state does not allow a credit for the taxes paid to work states.
The House Judiciary Committee supported these reasons. Representative Hank Johnson (D-Ga.) stated that the bill will "help workers and small businesses across the country." He added that the legislation provides an easy-to-administer standard without overburdening employers and employees.
Representative David Cicilline (D-R.I.) noted that he supports the bill because it creates a uniform national standard. He cited data provided by Ernst & Young (now EY) and the Congressional Budget Office that the legislation would have a "net impact of less than a quarter of one percent" at the state level.Proposed Requirements
Provisions in the act include::
- Consistency with current law in which an employee's earnings are subject to full tax in his/her state of residence.
- An employee's earnings would be subject to tax in the states within which the employee is present and performing employment duties for more than 30 days during the calendar year (safe harbor provision).
- A workday is assigned to a nonresident state when any part of the workday is in that nonresident state, but a single day may be assigned only to one nonresident state.
- Certain uncommon types of employees, including professional athletes, professional entertainers, and some public figures are not covered by this bill and remain subject to state withholding laws.
- A new exemption was added for "qualified production employees." Qualified production employees working on a film or television production would not be eligible for the 30-day safe harbor against nonresident income tax withholding if their work was covered by a state's film incentive program. Under these incentive programs, production companies receive corporate tax credits, which are generally considered to be well worth the administrative burden imposed by the need to comply with state rules for withholding nonresident income taxes.
The proposed legislation is supported by Republicans and Democrats. Opposition comes from the Multistate Tax Commission and Federation of Tax Administrators along with a few unions that would prefer a 20- or 14-day threshold, exceptions for all high-income employees, and nonresident information return filing. Representatives John Conyers (D-Mich.) and Jerry Nadler (D-N.Y.) attempted to add a 14-day threshold and exception for high-income earners, but their proposed amendments failed to pass in the Judiciary Committee.
All of these alternatives were considered before the proposed legislation was developed. The 30-day timeframe was selected as a compromise to accommodate different states' approaches to nonresident taxes. The legislation relies on the number of days employees worked in a state, not their total yearly earnings, because wages are not always known in advance, especially for employees paid through commissions. In addition, employers require sufficient time to educate employees and ensure compliance. The legislation is intended to reduce administrative burden, not increase it though filing two sets of returns.
APA hopes that the legislation will become law this year. Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.