The American Institute of Certified Public Accountants has endorsed legislation that would create a uniform national standard for state withholding of nonresident income tax, claiming that the legislation would be especially helpful to small businesses, as well as larger businesses.
The bill, H.R. 3359, known as the Mobile Workforce State Income Tax Fairness and Simplification Act of 2007, would limit state or local taxation of the compensation of any employee who performs duties in more than one state or locality to: (1) the state or locality of the employee's residence; and (2) the state or locality in which the employee is physically present performing duties for more than 60 days.
The term "employee" for purposes of this legislation is defined to exclude professional athletes, professional entertainers, and certain public figures, such as those making speeches and other public appearances.
Similar legislation was introduced in the last Congressional term but it never passed out of the House.
"We need a simple and uniform system governing how states apply taxes to nonresidents doing business in their states," said James Metzler, AICPA vice president - Small Firm Interests. "Recordkeeping can be voluminous under the current regulatory scheme."
Metzler said that the AICPA statement submitted to the House Judiciary Subcommittee on Commercial and Administrative Law for the hearing record on H.R. 3359, outlines the difficulties businesses face.
Now, Metzler explained, 41 states impose a personal income tax on wages and partnership income, and those states have many different tax requirements regarding the withholding for income tax of nonresidents. Further adding to the complexity, he said, is that de minimis exemptions are not handled uniformly and a number of states have reciprocity agreements with other states that exclude taxation of residents of those states that have signed the reciprocity agreement.
Metzler said businesses and accounting firms do a great deal of business across state lines and that many businesses and CPAs are negatively affected by nonresident income tax withholding laws.
The Federation of Tax Administrators has issued a statement to oppose H.R. 3359, indicating that "it represents a substantial intrusion into state authority and sovereignty and will cause significant disruption to state tax policies and the revenue systems of some states." The Federation of Tax Administrators (FTA) is an association of the principal tax and revenue collecting agencies in each of the fifty states, the District of Columbia, New York City, and Puerto Rico.
You can read the complete text of the legislation.