For the patchwork of state income tax requirements to be resolved for traveling workers from other states, employers and payroll professionals should write their representatives in Congress, two proponents of a reintroduced bill to standardize thresholds for state tax liabilities said March 27.
The legislation (H.R. 1393, S. 540) reintroduced earlier this month has more co-sponsors in Congress than in previous sessions, so there is greater optimism for passage, said Elizabeth Malm, associate director of the Mobile Workforce Coalition, a group of organizations seeking more uniform tax requirements across states that have income tax laws.
Variations of the Mobile Workforce State Income Tax Simplification Act have been introduced in five other sessions of Congress without ever getting a full Senate review, although the proposal was approved twice in the House.
The latest version generally mirrors that of its predecessors: States would be prohibited from taxing most workers from other states for stays of up to 30 days a year, with exceptions. If a nonresident worker stays a 31st day, the work state would be able to retroactively apply taxes to those earnings, Malm said March 27 at the American Payroll Association’s 2017 Capital Summit in Washington.
The issue affects employers and employees the most, said Aziza Farooki, director of policy at the Council on State Taxation.
Nearly 500 million domestic business trips were taken in 2015, Farooki told summit participants as she referenced a study by the Global Business Travel Association and Ernst & Young.
A state looking for new or increased revenue streams views workers from other places as low-hanging fruit for collecting income taxes on earnings for work within the state. By increasing these collections, a state may avoid increasing some broad-based taxes on its own residents who have a say on such matters in the voting booth, Farooki said.
As Malm put it, “It’s easier to tax someone who doesn’t vote for me than those who do.”
Employers and employees are having to register and file in some nonresident states for little liability, Malm said, noting that those states need to process forms that often result in no tax liability because earnings thresholds were not met.
And states are getting better at identifying those traveling workers who fail to file and would be liable for taxation through technology-assisted audit techniques, Farooki said.
The legislation as proposed has been resisted by representatives from states that have high volumes of travelers, and thus more revenue to lose if a standardized solution is instituted. These include New York, Connecticut, California and Ohio, Farooki said.
This year already there are signs the resistance to such standardization is starting to break, based on the engagement by members of Congress, Malm said.
While other alternatives have been raised, without success, there needs to be a federal, national solution to this issue, Malm said as she promoted the Mobile Workforce Coalition’s website. There soon would be template letters and resources for lobbying Congress on the issue, she said.
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