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By Jason Mast
A House-passed bill standardizing rules for taxing nonresident workers will face stiff opposition from large states that stand to lose millions in revenue, an original co-sponsor of the Senate companion bill told Bloomberg BNA.
“I don’t know if it can pass standing alone,” Sen. Sherrod Brown (D-Ohio) said June 21. He didn’t speculate on what the bill could be paired with, adding, “there is no timeline.”
Under the Mobile Workforce State Income Tax Simplification Act ( H.R. 1393), which passed the House by voice vote June 20, a state can only levy and collect income tax on residents or people who work within the state more than 30 days in a calendar year. A Senate companion bill ( S. 540) with identical language was referred to the Finance Committee and was the subject of a June 14 hearing before the Small Business and Entrepreneurship Committee.
The proposal is one of several bills designed to update states’ taxing power in an increasingly interconnected economy. Lawmakers once talked about passing it in conjunction with so-called e-fairness legislation allowing states to tax digital sales from out-of-state vendors. However, e-fairness proponents say their bill has fallen by the wayside while mobile workforce gathers modest steam.
“It looks like right now they have bigger fish to fry,” said Jason Brewer, spokesman for the pro-e-fairness Retail Industry Leaders Association. “Could there someday be a compromise in the Senate? Anything is possible, but I wouldn’t bet the farm on it.”
Mobile workforce legislation would institute a first-time national framework for states taxing nonresidents working in-state for brief periods. Proponents say it simplifies a confusing patchwork of state laws that make it difficult to comply for employees and small businesses operating over state lines. But the bill has received pushback from a handful of states—most notably New York— that stand to lose tens of millions of dollars.
According to the Congressional Budget Office score, the House bill would result in a collective net loss of $78 million for states in 2020, the first full year the bill’s changes would go into effect. States with large employment centers close to a state border stand to lose more—New York faces a loss between $55 million and $120 million, according to state and industry sources cited by the CBO. States bordering large employment centers, such as New Jersey, are projected to capture more revenue because they will have to give fewer tax credits for out-of-state work by residents.
“It’s no secret that the mobile workforce act has a fairly high-placed opponent, and that is Senator Schumer, the minority leader,” said Mark Nebergall, president of the Software Finance and Tax Executives Council.
The offices of Sen. Charles E. Schumer (D-N.Y.) and Sen. Kirsten Gillibrand (D-N.Y.) didn’t return multiple requests for comment. Brown pointed to New York’s tax regime as one of the principal reasons the bill is necessary.
“Each tax year it only gets harder for all the accountants and all the business people that spend three days a month in New York,” Brown said. He added that most members of Congress are behind his bill, but it still faces opposition from large states.
The primary industry group advocating for the legislation, the Mobile Workforce Coalition, is trying to get 60 co-sponsors on the Senate bill before approaching New York’s delegation, said Maureen Riehl, executive director of the coalition. The group is primarily composed of trade groups and businesses that operate in multiple states.
They now have 46 co-sponsors—25 Republicans, 20 Democrats, and one Independent.
“We’re more positive than ever,” Riehl said, noting that the House has never passed a mobile workforce bill so early in a session. Similar versions of the House bill passed in 2016 and 2012, only to die in the Senate.
After the House passed mobile workforce legislation this year and in 2016, groups working for e-fairness legislation assailed what they called a missed opportunity to adapt the tax code for the growing digital marketplace.
“There was sort of a recognition by the states that one bill would lead to less revenue, one would lead to more revenue, and it was seen as a smart compromise for different groups that wanted both bills for different reasons,” Brewer said of pairing e-fairness legislation and the mobile workforce bill.
States are increasingly challenging the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which prohibits states from imposing sales tax collection obligations on vendors without an in-state physical presence. Brick-and-mortar stores and states, cash-strapped and eager to recoup tax revenue from retail sales, have for years argued Congress should enact legislation that permits cross-border taxation on sales. However, legislation introduced in prior years stalled.
Competing proposals have surfaced again this session. Rep. Jim Sensenbrenner (R-Wis.) introduced the No Regulation Without Representation Act of 2017 (H.R. 2887), which in part would prohibit states from imposing sales tax collection burdens on remote businesses. Lawmakers presented the Marketplace Fairness Act of 2017 (S. 976) and the Remote Transactions Parity Act of 2017 (H.R. 2193), in the Senate and House respectively, both of which would extend states’ taxing authority over out-of-state sellers. The House bills remain in the Judiciary Committee, and the Senate bill has received one hearing.
E-fairness advocates said that the bills authorizing interstate taxation lost a bit of urgency after the poster child for digital sales, Amazon, agreed to collect tax in all 45 states that have sales taxes. However, they said that legislation is still necessary, particularly because Amazon doesn’t collect tax on third-party sales facilitated through their marketplace platform.
Legislation broadening states’ taxation in the digital age has also faced hurdles with congressional leadership. Many single out House Judiciary Chairman Bob Goodlatte (R-Va.) as the primary roadblock for e-fairness legislation. His committee has jurisdiction over the bills—none of which have moved to the House floor for a vote.
Goodlatte has voiced concerns with previous marketplace fairness proposals, and is now co-sponsor of Sensenbrenner’s 2017 “keep Quill” bill. In recent years, he pushed discussion drafts of an alternative digital tax proposal—the Online Sales Simplification Act, a hybrid origin-based system that generally would base the taxation of remote purchases on to the seller’s location, but set the tax rate according to the consumer’s location.
However, President Donald Trump may have signaled support for allowing states to collect digital sales tax in a June 28 tweet: “The #AmazonWashingtonPost, sometimes referred to as the guardian of Amazon not paying internet taxes (which they should) is FAKE NEWS!” It’s not clear what Trump was referring to with “internet taxes.”
Max Behlke, director of budget and tax at the National Conference of State Legislatures, told Bloomberg BNA at the time that his organization was “excited” Trump wants to address e-fairness and looks forward to working with him.
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