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House Passes State Tax Simplification Bill

by Mike Godfrey,, Washington

18 May 2012

The United States House of Representatives has passed, on a bipartisan basis with a voice vote, a bill which would simplify tax reporting requirements for those workers who are employed in multiple state jurisdictions.

The proposed legislation, the Mobile Workforce State Income Tax Simplification bill, was introduced by Howard Coble (R – North Carolina), Chairman of the Judiciary Subcommittee on Courts, Commercial and Administrative Law, and Hank Johnson (D – Georgia), its Ranking Member.

States currently have widely varying and inconsistent standards regarding the requirements for employees to file personal income tax returns when traveling to a state, where they are non-resident, for temporary work periods, and for employers to withhold income tax on employees who travel outside of their state of residence 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 travelled, 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.

In his statement to the House, Coble said: “Currently, forty-one states tax the wages earned by a non-resident for work performed there. I do not take issue with the right of those states to impose an income tax, but I am concerned that the disparity of tax rules among those states is hurting small businesses and stifling economic growth.”

“The bill we introduced,” he added, “establishes a clear 30-day threshold for tax liability and employer withholding. Under the bill, states remain free to set any income tax rate they choose. Tax simplification will allow workers and employers to predict their tax liabilities with accuracy and expend fewer resources researching the nuances of each state’s tax law.”

Under the legislation, an employee’s earnings would still be subject to tax in the state(s) within which the employee is present and performing employment duties for more than 30 days during the calendar year.

Barry C. Melancon, President and CEO of the American Institute of Certified Public Accountants, expressed support for the bill as a “critical step toward balancing and streamlining onerous recordkeeping and reporting requirements for workers who are required to file non-resident personal income tax returns because they work temporarily outside their home state”.

Joseph Henchman, from the Tax Foundation, has also welcomed the proposed legislation, pointing out how current state practices “disrupt interstate commerce and falsely suggest that business travellers earn their income in travelling states and not from the home office".

"Because of the tax credit for taxes paid to another state, this just shifts money around the country, toward states with the most aggressive rules. We're hearing more and more stories about state tax departments auditing travel records,” Henchman observed.

However, while the Mobile Workforce State Income Tax Simplification bill passed through the House on a bipartisan basis, a companion piece of legislation has yet to be discussed or offered in the Senate, so its future there is uncertain at this time.

TAGS: individuals | compliance | tax | business | tax compliance | commerce | law | employees | legislation | United States | individual income tax

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