As W.E. Hickson’s proverb goes, “if at first you don’t succeed, try, try, try again.” At the end of February, Senators John Thune (R-S.D.), Sherrod Brown (D-Ohio), and 31 Senate co-sponsors reintroduced the Mobile Workforce State Income Tax Simplification Act of 2019 (S. 604). Similar legislation has been introduced in every Congress for more than a decade, having passed the House on a voice vote but failing to receive a vote in the Senate.
The legislation would establish a 30 day de minimis presence threshold before a state or locality may require employers to withhold or report wages paid to nonresident employees working temporarily in a state other than the employee’s state of residence. Similarly, no nonresident state income tax obligation could be imposed directly on an employee if the de minimis threshold in the nonresident state is not satisfied. Employers and employees alike find the burden of nonresident state income tax compliance on temporary work assignments challenging. Employers struggle to track employee work locations for withholding and reporting purposes, and employees chafe at the compliance burden associated with filing nonresident state income tax returns, especially for those states that require returns for working only one day in the state. Although the proposed bill applies in the employment context, the relief does not apply to employees working as professional athletes, professional entertainers, qualified production employees, or certain public figures.
The legislation establishes a uniform standard for determining the number of working days that would apply to all states. An employee is considered to be present and performing employment duties within a state for a day if the employee performs more of the employee’s employment duties within such state than in any other state during a day. If on the same day, the employee is present and performing employment duties in a resident state and only one nonresident state, the employee is deemed to have performed his or her employment duties in the nonresident state − the legislation does not incorporate a de minimis standard for time spent in the nonresident state. The portion of the day during which the employee is in transit is not factored in when determining the location of an employee’s services for the employer.
The proposed statutory language allows employers to rely upon a good faith estimate by employees of where they anticipate they will work for the employer for an upcoming year. Employers may rely upon the employee’s annual estimation even if the employer subsequently records or maintains data in the regular course of business that contradicts the employee’s estimation. However, an employer that maintains a time and attendance system that tracks the location of employees on a daily basis must use the system to determine whether the employee satisfies the 30-day threshold for related withholding and reporting obligations. This requirement presumably precludes reliance on employee estimates by professional services firms that maintain time entry systems with location codes for billing purposes. The proposed language also includes an anti-abuse rule that precludes an employer from relying on an employee’s estimate if the employer knows the estimate is intentionally erroneous or there is collusion between the employer and employee to evade tax.
The establishment of a uniform 30-day standard for employees working temporarily in nonresident states would greatly simplify the assortment of rules currently applied by the states and ease compliance burdens for employers and most employees. Further, the standard would allow for the taxation of employees working in a nonresident state for a longer period of time. The passage of Mobile Workforce State Income Tax Simplification Act of 2019 would be a welcome development for many employers.