By Deanna C. White
On May 14, Barry C. Melancon, CPA, CGMA, president and CEO of the American Institute of CPAs (AICPA), issued a statement urging the House of Representatives to pass legislation this week that would establish a uniform national standard to govern the withholding of state income taxes for nonresident employees.
"The AICPA urges all members of the US House of Representatives to vote for H.R. 1864, Mobile Workforce State Income Tax Simplification Act of 2011", Melancon said in the statement. "The measure would streamline tax withholding compliance requirements for employers and for their employees who work in multiple states."
H.R. 1864 is scheduled to be voted upon on Tuesday, May 15.
"We currently have numerous state income tax withholding laws and varying de minimis exemption periods that make compliance extremely difficult and time consuming", Melancon added. "This bill would enhance compliance by instituting a uniform rule for employees who work for more than thirty days in any one state outside their resident state. The change would make state income tax withholding easier to administer and would help ensure that states and local jurisdictions get the taxes they are owed."
According to Melancon's statement, the AICPA has strongly supported enactment of the bill. In April, the AICPA signed a coalition letter to House Speaker John Boehner and Minority Leader Nancy Pelosi to request that H.R. 1864 be considered by the House, citing the strong bipartisan support for the bill. The coalition represents more than 495 businesses and organizations that support the bill.
The AICPA testified in favor of the bill at a May 25, 2011, hearing by a subcommittee of the House Judiciary Committee and in November and wrote members of the House Judiciary Committee encouraging them to approve the bill so it could be considered by the full House.
According to Brady King, AICPA director of congressional and political affairs, H.R. 1864 includes several key components designed to alleviate the burden the current state income tax withholding system places on traveling employees and their employers.
King said H.R. 1864 would:
- Provide for a uniform and easily administered law for traveling employees and their employers, establishing a national threshold of thirty days.
- Ensure the correct amount of tax is withheld and paid to the states without the undue burden the current system places on employees and employers.
- Simplify the patchwork of existing inconsistent and confusing state rules.
- Reduce administrative costs to states and lessen compliance burdens on consumers.
- Establish provisions for the use of time and attendance systems (not mandated unless in use by the employer), which would also provide protection for honest mistakes by the employer and a reduction in audit risk.
- Align the more than forty-one different rules and obligations imposed on nonresident employees and their employers.
- Provide an opportunity for greater compliance because of the certainty and consistency of minimum withholding rules across all states, thus encouraging the free movement of personnel within the marketplace.
Larry Evans, tax technical resource leader of Fargo, North Dakotaâbased Eide Bailly, LLP, said when one studies the theory and application behind H.R. 1864, it's simply "hard to be against" the bill.
"From my standpoint this is a good deal. It makes good business and economic sense for both sides of the aisle", Evans said. "Just from the administrative perspective, streamlining compliance requirements for people who work in different states will remove a tremendous burden from the taxpayers and the states themselves."
Evans said he believes H.R. 1864 will also allow for greater accuracy with compliance rules, and although the new rules could as a result of planning bring more revenue into the home state, the benefit of the new rules to an employer would be the bright line test of the thirty days.
That bright-line test would allow the employer to better plan the days employees spend in nonresident states so that they can save more administrative costs by limiting days in nonresident states to deal with only the resident state tax rules, Evans said.