crazy quilt of laws governing state income taxes for
"road warriors" — residents of one state who
work in another — can make tax collections a
nightmare. Yet states don’t necessarily favor
streamlining the system under a proposed federal law.
way it works now, states have varied standards for
requiring workers to file personal income tax returns
when those employees work for periods of time in a state
where they don’t live. The rules also dictate how
employers withhold income tax for those employees.
states, like New York, carefully monitor out-of-state
workers; other states are less vigilant about it,
according to the Council on State Taxation, or COST, a
trade association for multistate corporations.
states have a "first day" rule, which means if
you set foot in a state you don’t live in and work
there for one day, you owe that state income tax. Other
states have varying periods of time when the nonresident
income tax kicks in, ranging from 10 days to 60 days. To
complicate things further, some states do not assess the
income tax on a time-worked basis; rather, they assess
it on an income-earned basis starting at a floor of
anywhere from $300 to $1,800 a year, according to COST.
would like to see a streamlined standard for withholding
and collecting income taxes on nonresidents and are
backing federal legislation that would make all state
tax rules conform. COST officials say it’s a nightmare
for businesses to keep up with the different
problem is people who travel to other states for work. I
travel to 20 or 30 states a year," said Doug
Lindholm, president and executive director of COST.
"Half of the states, the requirement is that as
soon as I work in that state I owe them a personal
income tax return and the company has a withholding
responsibility. It’s a ‘gotcha’ waiting to happen.
Very few people comply with it, and very few companies
comply because they don’t know where their employees
are all the time."
B. Hevener, an attorney with the Washington, D.C., firm
of Morgan Lewis who specializes in interstate tax
issues, said many companies are developing software that
can handle the myriad state laws regarding "road
warrior" workers. But the complexity of all the
rules makes it difficult to keep track, she said.
you go to a state, you could be taxed, or if you stay
there one minute, you could be taxed," she said.
"If you land in a state and check your BlackBerry,
some states say, ‘Yeah, that’s work.’ How much of
a day is ‘work?’ Is attending a conference?
Attending an awards ceremony?"
said some states are more aggressive, noting New York
and California as examples. She characterized Minnesota
and Pennsylvania as states that "look" into
workers from other states. Others are less interested.
have attempted to ease the situation in a couple of
ways. Reciprocal agreements among bordering states can
eliminate the problem. Maryland and Virginia, for
example, have reciprocity, which means a Virginia
resident who works in Maryland does not have to pay
Maryland income tax. The District of Columbia, due to
its unique nature as the seat of federal government and
attractiveness to out-of-state workers, has reciprocity
with all states.
have also developed model legislation through the
Multistate Tax Commission that would cover the income
tax treatment of nonresident workers. This legislation
would not require an employer to withhold income tax on
a nonresident employee who works in the state for no
more than 20 days. And the nonresident is not required
to pay income tax on those earnings.
the legislation only applies to workers from states with
no income tax or from states which have agreed to the
model legislation. So far, only North Dakota has
implemented it. Since no other state has signed on, this
option does not appear to have wide appeal.
model legislation does not include professional sports
figures, whose contracts generally spell out taxation
issues since they play games in many states in the
course of a season, experts said.
the "Mobile Workforce State Income Tax
Simplification Act," pending in Congress, the
amount of time a worker has to work in a state to be
liable for income taxes in that state would be
standardized at 30 days. Once that threshold is passed,
the state’s income tax laws governing amounts owed and
withholding requirements would apply. The congressional
bill provides that an employee’s earnings are subject
to tax in the states where the work is being performed
and could be credited against the worker’s income tax
liability in his or her home state, which is the way it
STORY CAN END HERE)
the Mobile Workforce legislation, New York state would
lose big — in excess of $100 million annually. Some 15
percent of the state’s income tax revenue comes from
have many nonresidents who work in New York and pay tax
dutifully in the course of their employment in New
York," said Cary Ziter, a spokesman for the state
Department of Taxation and Finance.
New York has a 14-day rule when the income tax
withholding triggers, the federal legislation with its
30-day trigger would hurt New York greatly, Ziter said.
revenue loss would be greater than the revenue impact on
all other states combined," he said. The new
exemption would increase the state’s total loss to the
equivalent of six work weeks, he said.
estimates that New York would lose only $45 million,
after taking into account its presumption that
executives would avoid New York under the new law,
could lose about $15 million a year, according to H.D.
Palmer, spokesman for the California Department of
Federation of Tax Administrators also is opposed and has
passed a formal resolution against it. The group said
states are best suited to determine their own tax laws.
They also said the legislation would disproportionately
hurt some states, such as New York.
think that it can be crafted to still provide protection
but not cause a revenue disruption, particularly to New
York state," said Gale Garriott, the group’s
executive director. "Of course, there’s always a
reluctance on the part of our members to accept federal
said, there is an understanding that there is a
patchwork quilt here. If the states that are mostly
affected would be in agreement with something, the
members would not be terribly offended by what those
states would agree to."
federal bill passed the House last year, but the Senate
didn’t act on it. In November, Sens. Sherrod Brown,
D-Ohio, and John Thune, R-S.D., reintroduced similar
legislation, saying it is time to end a system which
means employers and employees "face up to 41
different state income tax reporting requirements that
vary based on length of stay, income earned, or