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United States businesses have welcomed the introduction into the Senate of a bill, the Mobile Workforce State Income Tax Simplification Act, which would simplify tax reporting requirements for those workers who are employed in multiple state jurisdictions.
States currently have widely varying and inconsistent standards regarding the requirements for employers to withhold income tax and for employees to file personal income tax returns when traveling to a state, where they are non-resident, for temporary work periods.
Employees who travel outside of their state of residence for business purposes are thereby subject to onerous administrative burdens because, in addition to filing federal and resident state income tax returns, they may also be legally required to file an income tax return in every other state into which they have traveled, even if they were there for only one day. Similarly, employers are required to incur extraordinary expenses in their efforts to comply with the states' widely divergent withholding requirements for employees' travel to non-resident states for temporary work periods.
The House of Representatives passed, on a bipartisan basis, a similar bill earlier in 2012, but a companion piece of legislation was not discussed or offered in the Senate at that time. The proposed bipartisan Senate bill, introduced by a group of Senators led by Sherrod Brown (D –Ohio) and John Thune (R – South Dakota), now looks to rectify that situation.
Under the Mobile Workforce State Income Tax Simplification Act, an employee's earnings would only be subject to tax in the state(s) within which the employee is present and performing employment duties for more than 30 days during a calendar year.
"This common-sense legislation will help simplify and standardize tax filing for employees and employers that conduct business in multiple states," Brown said, while Thune stressed that "employees and employers shouldn't be burdened with complex tax reporting requirements because jobs in the modern economy involve work in multiple states."
"Our legislation," Thune added, "would establish a clear 30-day threshold test for state income tax purposes, preventing individuals from having to sort through the complicated tax reporting burdens from the multiple states where they travel for work. This legislation will greatly simplify state income tax filings, is fairer to those residents in states without an income tax, and should help to encourage tax compliance."
The proposed bill is supported by over 250 organizations and business groups. For example, National Retail Federation Vice President and Tax Counsel Rachelle Bernstein commented that "the current morass of state laws dealing with state income tax burdens for workers on business travel outside their home states creates confusion and undue compliance burdens for both employees and employers. This burden can be particularly onerous for the retail industry. Buyers for both large and small retailers frequently travel out of state to visit vendors or attend trade or fashion shows."
Christina Crooks, Director of Tax Policy for the National Association of Manufacturers, also confirmed that "manufacturing requires flexibility and a mobile workforce, (whose) work can often take them around the country, crossing state lines to engage in routine repairs, upgrades and other tasks." The proposed bill "could help ease the tax burden currently plaguing American manufacturers simply because their employees travel outside of their home states on work assignments."
In addition, Barry C. Melancon, President and CEO of the American Institute of Certified Public Accountants, expressed support for the bill as a measure that "strikes a balance between interests of the states in taxing work done within their borders and the needs of businesses to be able to operate efficiently. It will ensure that the primary place(s) of business for an employee are where that employee pays state income taxes."
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