By Deanna C. White
On May 15, Barry C. Melancon, CPA, CGMA, president and CEO of the American Institute of CPAs (AICPA), issued a statement in support of the US House of Representatives for passing H.R. 1864: Mobile Workforce State Income Tax Simplification Act of 2011. The bill would establish a uniform national standard governing the withholding of state income taxes for nonresident employees. The bill passed by voice vote May 15, 2012.
"The House's passage today of H.R. 1864 is a critical step toward balancing and streamlining onerous recordkeeping and reporting requirements for workers who are required to file nonresident personal income tax returns because they work temporarily outside their home state", Melancon said in the statement.
Melancon said the bill would establish a uniform requirement that nonresidents would have to work in a state for more than thirty days before becoming subject to out-of-state income taxes. The uniform standard would improve compliance and still guarantee that state governments could collect the taxes owed to them.
According to Melancon, 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, wrote members of the House Judiciary Committee encouraging them to approve the bill so it could be considered by the full House.
Also on May 15, Melancon stated",We urge the Senate to pass the bill."
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 as well as 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 many different tax requirements of forty-one states regarding the withholding for income tax of nonresidents by setting a national threshold of thirty days or more before liability to withhold and pay taxes.
- 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 Dakota-based 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.