AICPA Backs Bill that Would Give State Income Tax Relief to Nonresident Workersby
The American Institute of CPAs (AICPA) is urging lawmakers to pass legislation that would simplify state income tax requirements for employees who work multiple days per year outside the state of their residence.
In a written statement for the record of the June 2 House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law hearing on several bills, including HR 2315, related to nexus issues, the AICPA said it strongly supports the bill.
“We believe the bill provides relief, which is long overdue, from the current web of inconsistent state income tax and withholding rules that impact employers and employees,” wrote Troy Lewis, CPA, chair of the AICPA Tax Executive Committee.
HR 2315 would limit the authority of states to tax certain income of employees for employment duties performed in other states. More specifically, the bill prohibits states from taxing most nonresident employees (there are exceptions for certain professions, such as athletes and entertainers) unless the employee is present and performing employment duties for more than 30 days during the calendar year.
In addition, employees would not be subject to state income tax withholding and reporting requirements unless their income is subject to taxation.
“Having a uniform national standard for nonresident income taxation, withholding, and filing requirements will enhance compliance and reduce unnecessary administrative burdens on businesses and their employees,” Lewis wrote. “In addition to uniformity, HR 2315 provides a reasonable 30-day de minimis exemption before an employee is obligated to pay taxes to a state in which they do not reside.”
Rep. Hank Johnson (D-GA), who introduced HR 2315 with Rep. Mike Bishop (R-MI), said the legislation “simplifies the tax code” and is “pro-growth.”
“If signed into law, it would not just simplify the tax burden, but protect workers and businesses – large and small – from the costs of compliance with the hodgepodge of 50 different tax systems, thus enhancing investment and productivity,” he said in a statement on May 14. “HR 2315 will vastly simplify the patchwork of existing inconsistent and confusing state rules. It would also reduce administrative costs to states and lessen compliance burdens on consumers.”
Although states have specific thresholds in place for the amount of time a nonresident employee must work in the state before being taxed, there is no uniformity across the states, according to an article by Jessica Watkins of Bloomberg BNA. Some states, like Colorado, will tax any income earned within the state if an individual has worked there at least one day. Others, like Hawaii and Arizona, have much more generous requirements, only requiring withholding for work that exceeds 60 days. Other states do not use a time requirement at all; rather, taxation is based on a specific dollar figure earned while in the state.
Johnson provided the following example: If an Atlanta-based employee of a St. Louis company travels to headquarters on a business trip once a year, that employee would be subject to Missouri tax, even if her annual visit only lasts a day. If this same employee travels to Maine, her trip would only be subject to tax if it lasts for 10 days, or 15 days if she travels to New Mexico on business.
“The bill that Rep. Bishop and I have introduced would fix this problem by establishing a uniform law that would ensure the correct amount of tax is withheld and paid to the states without the undue burden of the current dysfunctional system,” Johnson added.