The House passed bipartisan legislation Tuesday to bring tax relief to workers employed in more than one state.
The bill, passed by voice vote, was co-sponsored by Congressmen Howard Coble, R-N.C., and Hank Johnson, D-Ga., and was supported by many groups, including the National Taxpayers Union and the National Association of Manufacturers. It has also been one of the legislative priorities of the American Institute of CPAs since it was introduced last May (see AICPA Backs New Worker Tax Simplification Legislation and AICPA Presses for Passage of Mobile Workforce Bill).
H.R. 1864, the “Mobile Workforce State Income Tax Simplification Act of 2011,” establishes a 30-day threshold for tax liability and employer withholding. The bill would establish a uniform national standard governing the withholding of state income taxes for nonresident employees.
“The diversity of state income tax laws places a significant burden on people who travel for work and their employers, many of which are small businesses,” said Coble. “Currently, 41 states tax the wages earned by a nonresident 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.
“For example, some states require a nonresident to pay income tax if he or she works in that state for just one day,” he added. “Other states do not collect tax until the nonresident works for a certain number of days in the jurisdiction. Small businesses must expend considerable resources just to figure out how much they must withhold for their traveling employees in 41 different jurisdictions. Employees are also confused about when their tax liability is triggered and in which states they must file a tax return.”
Coble noted that under the legislation, states would still remain free to set any income tax rate they choose, but the bill would nevertheless provide tax simplification.
“Tax simplification—on both the federal and state level—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,” said Coble. “The money they would have spent hiring accountants and tax lawyers can then be spent on creating meaningful jobs and growing the economy.”
There has been no companion piece of legislation offered in the Senate yet, according to Coble’s office, so its future there is uncertain at this time.
AICPA president and CEO Barry Melancon applauded the bill’s passage in at least one chamber of Congress. “The House’s passage today of H.R. 1864, the Mobile Workforce State Income Tax Simplification Act of 2011, 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,” he said in a statement. “The bill would establish a uniform requirement that non-residents would have to work in a state for more than 30 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.
“The AICPA strongly supports H.R. 1864, and we thank the many state CPA societies from across the country who wrote to their members of Congress in support of the bill,” Melancon added. “We also thank Representative Howard Coble, a Republican from North Carolina, and Representative Hank Johnson, a Democrat from Georgia, for their leadership in successfully steering this legislation through the House. We urge the Senate to pass the bill.”