[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
MOBILE WORKFORCE STATE INCOME TAX SIMPLIFICATION ACT OF 2011
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, COMMERCIAL
AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
H.R. 1864
__________
WEDNESDAY, MAY 25, 2011
__________
Serial No. 112-56
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
66-542 PDF WASHINGTON : 2011
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Courts, Commercial and Administrative Law
HOWARD COBLE, North Carolina, Chairman
TREY GOWDY, South Carolina, Vice-Chairman
ELTON GALLEGLY, California STEVE COHEN, Tennessee
TRENT FRANKS, Arizona HENRY C. ``HANK'' JOHNSON, Jr.,
DENNIS ROSS, Florida Georgia
[Vacant] MELVIN L. WATT, North Carolina
MIKE QUIGLEY, Illinois
Daniel Flores, Chief Counsel
James Park, Minority Counsel
C O N T E N T S
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WEDNESDAY, MAY 25, 2011
Page
THE BILL
H.R. 1874, the ``Mobile Workforce State Income Tax Simplification
Act of 2011''.................................................. 3
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Commercial and Administrative Law.............................. 1
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Subcommittee on Courts,
Commercial and Administrative Law.............................. 9
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Member, Subcommittee on
Courts, Commercial and Administrative Law...................... 10
WITNESSES
Jeffrey A. Porter, Owner, Porter & Associates, CPAs, Huntington,
West Virginia, on behalf of the American Institute of Certified
Public Accountants
Oral Testimony................................................. 12
Prepared Statement............................................. 15
Patrick T. Carter, Director, Delaware Division of Revenue,
Wilmington, Delaware, on behalf of the Federation of Tax
Administrators
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Joseph R. Crosby, Chief Operating Officer and Senior Director of
Policy, Council on State Taxation, Washington, DC
Oral Testimony................................................. 31
Prepared Statement............................................. 33
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Courts, Commercial and Administrative Law...... 52
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 56
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Member, Subcommittee on Courts, Commercial and
Administrative Law............................................. 57
Letter from Allan J. Stein, Vice President-Associate General
Counsel, and Melissa W. Sheik, Vice President-Federal Affairs,
American Insurance Association (AIA)........................... 58
Letter from William Dunn, CPP, Senior Manager of Government
Relations, American Payroll Association (APA).................. 60
Letter from Keith G. Butler, Senior Vice President, Tax, Duke
Energy......................................................... 63
Letter from Jana L. Haynes, Director of Taxes, Hormel Foods
Corporation.................................................... 64
Letter from Robert Melendres, Chief Legal Officer & Corporate
Secretary, International Game Technology (IGT)................. 66
Prepared Statement of Lockheed Martin Corporation................ 67
Letter from Mary Ellen Peppard, Manager, Government Relations, NJ
Chamber of Commerce............................................ 69
Letter from Nancy L. Miller, Assistant Treasurer, Unisys
Corporation.................................................... 70
Submission from the Council On State Taxation (COST), and the
American Payroll Association (APA)............................. 71
MOBILE WORKFORCE STATE INCOME TAX SIMPLIFICATION ACT OF 2011
----------
WEDNESDAY, MAY 25, 2011
House of Representatives,
Subcommittee on Courts,
Commercial and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:27 p.m., in
room 2141, Rayburn House Office Building, the Honorable Howard
Coble (Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Gowdy, Franks, Cohen, and
Johnson.
Staff Present: (Majority) Travis Norton, Counsel; Johnny
Mautz, Counsel; Allison Rose, Professional Staff Member; Anne
Woods Hawks, Professional Staff Member; Ashley Lewis, Clerk;
(Minority) Norberto Salinas, Counsel; and James Park, Counsel.
Mr. Coble. Ladies and gentlemen, good to have all of you
here, by the way. And I have been told that there is a vote on
now, and I have furthermore been told that it may last as long
as an hour, an hour and a half.
And I apologize to you all for that, but I think with that
in mind, our best bet is to just stand in recess until that
last vote is taken.
Staff will be here to advise the hearing room attendees
what will happen. So I apologize to you for that, but best-laid
plans of mice and men, you know, sometimes go awry.
So if you all will just stand easy and see you in an hour,
an hour and a half. And meanwhile, we will stand in recess
until that time.
Thank you.
[Recess.]
Mr. Coble. I apologize to you all for the untimely delay.
Thank you for your patience, and we will get underway here as
soon as another Member shows up.
Thank you.
[Pause.]
Mr. Coble. We will come out of recess and reconvene, and
again, thank you all for your patience.
And before I give my opening statement, I want to take the
liberty of extending a sincere happy birthday greeting to the
distinguished gentleman from Memphis, and I will not divulge
the age, but he is still a young man.
Mr. Cohen. Thank you, thank you, thank you.
Mr. Coble. Ladies and gentlemen, on the way back to
Washington, D.C., this past weekend, I looked around in the
airport back home and saw a number of business travelers
getting ready to board airplanes, leaving North Carolina to
perform work in another State. This occurs practically every
day in America, involving every State in America.
The American workforce is more mobile in the 21st century
than it has ever been. Nonetheless, a patchwork of State income
tax laws place a significant burden on people who travel for
work and their employers, many of which are small businesses.
Currently, 41 States tax the income earned by nonresidents for
worked 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, in many instances, damaging
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 1 day. 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.
Such wide variety among State income tax laws is
unnecessarily cumbersome. Many nonresidents who file a tax
return in a State end up getting all of their tax refunded to
them. In those cases, all of the time and energy that employees
and small businesses spend figuring out where the taxes are
owed and filling out income tax returns is ultimately wasted.
On May 12, I introduced H.R. 1864, the Mobile Workforce
State Income Tax Simplification Act, along with the gentleman
from Georgia, Mr. Johnson, a Member of this Subcommittee who
has worked on this bill previously.
The bill we have introduced would establish a uniform
Federal framework for State income tax liability. It would
simplify State income tax rules for employees and employers by
requiring that a nonresident employee perform work in a State
for at least 30 days before tax liability or employer
withholding is triggered. States would then remain free to
impose any tax rate they choose.
Small businesses are the engine that will drive the
American economy. Tax simplification at both the Federal and
State levels will allow small businesses to predict their
liabilities with accuracy and expend fewer resources
researching the nuances of each State's tax law. The money they
would have spent hiring accountants and tax attorneys can then
be spent in creating meaningful jobs and growing the economy.
I look forward to hearing from our distinguished panel of
witnesses today and in working with Mr. Johnson furthermore to
enact a Federal framework for State income tax simplification.
I am now pleased to recognize the distinguished gentleman
from Memphis, the birthday boy, Mr. Cohen, for his opening
statement, at which time I will then recognize Mr. Johnson.
[The bill, H.R. 1864, follows:]
__________
Mr. Cohen. Thank you, Mr. Chairman.
I appreciate your recognition and your greetings and your
birthday greetings. Every birthday is a good birthday.
Mobility has long been the lifeblood of the modern American
economy. Entire metropolitan areas depend on regional
workforces where workers regularly cross State lines. Indeed,
in my home city of Memphis, we buttress Mississippi and
Arkansas, and lots of folks work in those States by automobile,
and others fly through our great hub airport to other places in
the country and do business.
Businesses rely sometimes on their most skilled employees
to travel, spend extended period of times away from home to
work on projects. For such employers, skills and expertise are
essential. FedEx sends folks all around the country all the
time, doing work for FedEx and coming back.
States, meanwhile, have a legitimate interest in taxing
income earned within their borders, including income earned by
nonresidents. Unfortunately, this sometimes leads to some
confusion regarding when and where a nonresident is required to
pay income tax and under what circumstances an employer is
obliged to withhold such taxes and report relevant tax
information to the relevant government agency.
H.R. 1864, the Mobile Workforce State Income Tax
Simplification Act of 2011, which should have a simplified
title, is designed to address these concerns. The bill would,
among other things, allow a State to impose income taxes on
nonresidents when the nonresident is present and performing
employment duties for more than 30 days during the calendar
year in which the income was earned.
The bill also clarifies employers' withholding and
reporting obligations by specifying that an employer may either
rely on an employee's determination of the time the employee
expects to perform duties in a given State or use data from a
time and attendance system which tracks where an employee
performs duties on a daily basis in order to determine the
liability obligations that that person might have to that
particular governmental jurisdiction.
My home State of Tennessee has no State income tax and has
a very regressive tax code. But that is neither here nor there.
So it does not stand to lose in any particular way if this
legislation were enacted, as some other State's taxing
authorities assert with respect to their States.
I think this legislation, if enacted, would have at least
some positive impact on the Tennessean residents who work
outside Tennessee for 30 or fewer calendar days in a given tax
year, as they could avoid paying State income taxes altogether,
and one of the reasons why some people do come to Tennessee and
live besides the wonderful artesian water that we have, the
barbecue, the basketball, and the hills in east Tennessee, and
the other splendid activities, especially the people and those
that live in the 9th District.
This bill could also provide some useful clarification for
Tennessee businesses that depend on sending employees out of
State. I applaud the proponents of this bill for amending its
language from the language originally introduced back in the
110th Congress, when I was a cosponsor, specifically in
response to the concerns raised by the States.
Most significantly, the original language required the
nonresident employee work more than 60 calendar days before a
State could tax that nonresident. The revised language, as
noted, reduces that threshold by half to 30 days.
My understanding is the States and the proponents of H.R.
1864 are very close to an agreement on this matter, and the
only remaining major sticking point appears to be the
appropriate threshold number of days. I have been told the
States are pushing for a 20-day threshold. That difference
between 20 and 30 is not insurmountable. It is 10, just into
double figures. So that could be worked out, I feel confident.
This Subcommittee has considered this issue for more than 4
years now. I strongly urge the States and other interested
parties to reach a consensus on this matter soon. I would like
to see the consensus worked out soon so this can be a very
strong bipartisan bill where I work with my colleague who
wishes me birthday greetings as a co-prime sponsor and see that
this bill does become law and save burdensome work and make my
accountant, Michael Uiberall, who e-mailed me today, happy.
[Laughter.]
With that, I would surrender the balance of my time.
Mr. Coble. I thank the distinguished gentleman from
Tennessee.
Normally, we restrict opening statements to the Chairman
and the Ranking Member. But in view of the distinguished
gentleman from Georgia's activity in this bill, I am pleased to
recognize Mr. Johnson for his opening statement.
Mr. Johnson. Thank you, Representative Coble, my good
friend.
And happy birthday to you, happy belated birthday to you.
I am pleased to work with you in the 112th Congress on the
Mobile Workforce State Income Tax Simplification Act of 2011,
H.R. 1864. This is an important bill that will help workers and
businesses, large and small. I have been working on this bill
since I was a freshman in the 110th Congress, and I am pleased
to have introduced it this Congress with you.
We live in an ever-increasing mobile economy. Every day,
thousands of Americans travel outside of their home State on
business trips for brief periods of time. Many States have
their own set of requirements for filing nonresident individual
income tax returns that most Americans are not aware of and
don't understand.
For example, if an Atlanta-based employee of a Chicago
company travels to headquarters on a business trip once a year,
that employee would be subject to Illinois tax, even if his
annual visit only lasts a day. However, if that employee
travels to Maine, her trip would only be subject to tax if her
trip lasts for 10 days. If she travels to New Mexico on
business, she would only be subject to tax if she was in the
State for 15 days.
The Mobile Workforce State Income Tax Simplification Act
would fix this problem by establishing a fair and uniform law
that would ensure the correct amount of tax is withheld and
paid to the States without the undue burden of the current
dysfunctional system.
Consistent with current law, H.R. 1864 provides that an
employee's earnings are subject to full tax in his or her State
of residence. In addition, this bill would only subject
employees who perform employment duties in a nonresident State
if they work in that State for more than 30 calendar days.
At a time when more and more Americans find themselves
traveling for their jobs, this bill is a common-sense solution
that helps workers who are employed in multiple jurisdictions
by simplifying their tax reporting requirements.
We are all aware there is a problem, and this bill is the
solution. It not only simplifies the system, but makes it fair
for people who work in multiple jurisdictions, and it assists
businesses as they comply with complex tax laws.
In an economy that is beginning to recover from the
devastating recession, this bill makes sense. After 3 years of
championing this issue, I appreciate this Subcommittee's
interest in this legislation. I would be remiss not to
recognize former Representative Chris Cannon of Utah, who was
the original proponent of this legislation, and he entrusted it
to me. And now I am working with Mr. Coble to get it done.
So I look forward to working with all of you to move the
bill through Congress and to the President's desk for his
signature.
Thank you, Mr. Chairman, and I yield back.
Mr. Coble. Thank you, Mr. Johnson.
And we had the distinguished gentleman from South Carolina,
Mr. Gowdy, was with us, and I presume he will be back.
Before we hear from our distinguished panel, the gentleman
from Tennessee just said to me, he said, ``Howard, I hope you
can give me these greetings 20 years from now.'' Twenty years
from now, Mr. Cohen, I will probably be in sweet Beulah land,
or at least I hope that is where I am.
Mr. Cohen. Mr. Chairman, I hope not, and I doubt it. In the
New York Times today, I read about a lady who I wish I would
have married. It was one of the mistakes, I have made some
mistakes with women before. I should have married this woman.
She died at 104 with a half billion dollars. [Laughter.]
Mr. Coble. Well, maybe I won't be in sweet Beulah land.
[Laughter.]
But it is always good to hear that.
Good to have our distinguished panel with us. I will give
you a little background about each of them.
Mr. Jeffrey A. Porter is the founder and owner of Porter &
Associates, CPAs, a local firm in Huntington, West Virginia,
which concentrates in the providing of tax planning and
business advisory services for small to medium-sized
businesses.
Today, he is testifying on behalf of the American Institute
of Certified Public Accountants, a group in which he has been
active for over 20 years. He is currently serving as a member
of the Tax Executive Committee for a second term.
Mr. Porter is a member of the West Virginia Society of
CPAs. He holds a bachelor's degree in business administration
from the Marshall University and a master of taxation from the
University of Tulsa.
Mr. Patrick Carter currently serves as the director of the
Delaware Department of Revenue. His testimony today is on
behalf of the Federation of Tax Administrators, a group he
currently serves as president. As director, he oversees a staff
of 200 who are responsible for the administration and
enforcement and collection of the personal and business income
taxes for the State of Delaware.
Prior to becoming director, Patrick served as the deputy
director of the Delaware Division of Revenue from 1994 to 2001.
Prior to his public service, Mr. Carter was a CPA in the
private sector. He received his MBA in finance from Indiana
University and his bachelor's degree in accounting from the
University of Delaware. He is a member of the Delaware Society
of CPAs.
Mr. Joseph Crosby is the chief operating officer and senior
director of policy at the Council on State Taxation, or COST,
here in Washington, D.C. The council is a nonprofit trade
association consisting of nearly 600 multi-State corporations
engaged in interstate and international business. Its objective
is to preserve and promote equitable and nondiscriminatory
State and local taxation of multijurisdictional business
entities.
Prior to joining COST, Mr. Crosby was the national director
of State legislative service for Ernst & Young in Washington,
D.C. He has been quoted as an expert in State and local tax
policy in several major media outlets. Before attending
American University for graduate coursework in economics, Mr.
Crosby earned his bachelor's degree in history at the Loyola
Marymount University in Los Angeles.
Gentlemen, good to have each of you with us. Good to have
those in the audience with us as well.
Mr. Porter, we will start with you. And if you would,
gentlemen, on your panel, you will see a panel that will
illuminate with a green light. When that green light turns to
amber, that tells you that the ice on which you are skating is
getting thin, and you will have another minute to go. And if
you could wrap up on or about 5 minutes, we would appreciate
that.
Mr. Porter, we will start with you.
TESTIMONY OF JEFFREY A. PORTER, OWNER, PORTER & ASSOCIATES,
CPAS, HUNTINGTON, WEST VIRGINIA, ON BEHALF OF THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
Mr. Porter. Thank you, Mr. Chairman and Members of the
Subcommittee.
We appreciate the opportunity to testify today in support
of H.R. 1864, the Mobile Workforce State Income Tax
Simplification Act of 2011.
My name is Jeff Porter. I am a sole practitioner in
Huntington, West Virginia, with Porter & Associates and
currently serve on the Tax Executive Committee of the American
Institute of Certified Public Accountants.
At Porter & Associates, we provide accounting and tax
services to approximately 100 local businesses and prepare
close to 900 individual income tax returns annually. We have
clients in a wide range of industries, including contracting,
wholesale and retail trade, medical, law, the food industries,
and many others. Today, I am pleased to testify on behalf of
the AICPA.
The AICPA is a national professional organization of
certified public accountants, comprised of approximately
370,000 members. The AICPA members advise clients on Federal,
State, and international tax matters and prepare income tax
returns for millions of Americans.
The members of the AICPA also provide services to
individuals, tax exempt organizations, small and medium-sized
businesses, as well as America's largest businesses.
The AICPA supports H.R. 1864. Businesses, including small
businesses and family businesses, that operate interstate are
subject to significant regulatory burden with regard to
compliance with nonresident State income tax withholding laws.
These administrative burdens take existing resources from
operational aspects of the business and may require the hiring
of additional administrative staff or outside experts in order
to meet the demands of compliance.
The business costs could be passed on to customers and
clients. But either way, they incur cost to someone in the
stream of commerce. Having a uniform national standard for
State resident income tax withholding and having a de minimis
exemption for the multi-State assessment of State nonresident
income tax would significantly mitigate these burdens.
Accounting firms, including small firms, do a great deal of
business across State lines. Many clients have facilities in
nearby States that require an onsite inspection during the
conduct of an audit. Additionally, consulting, tax, and other
nonaudit services that CPAs deliver may be provided to clients
in other States or to facilities of local clients that are
located in other States.
Many small business clients of CPAs have multi-State
activities also. In essence, all of these entities--small
businesses, accounting firms, and their clients--are affected
by nonresident income tax withholding laws.
Forty-three States and the District of Columbia impose a
personal income tax on wages, and there are many differing
requirements for withholding tax for nonresidents among those
States. Some of the States have a de minimis number of days
before nonresidents working in that State must have taxes
withheld and paid to the State. Others have a de minimis
exemption based on the amount of wages earned, either in
dollars or as a percent of total income while in the State.
The rest of the States that impose personal income taxes on
nonresident income earned in the State only require a work
appearance in the State, even if in the presence of the State
only for a moment. The issue of tracking and complying with all
of these different requirements are further complicated by the
reciprocity agreements in many States, usually among adjoining
States and that specify they will not require State income tax
withholding for residents of other States that have signed the
reciprocity agreement.
It is not difficult to understand the complexity that goes
into this, and the recordkeeping could be voluminous. The
recordkeeping and withholding a State requires can be for as
little as a few moments of work in another State.
The research to determine any State's given individual
requirement is extensive and time consuming, especially for a
small firm or a small business that does not have a great
amount of resources. This research needs to be updated
annually, at least to make sure that the State law has not
changed.
In addition to uniformity, we maintain there needs to be a
de minimis exemption. The AICPA has supported the 60-day limit
contained in previous versions of similar legislation but
believe that the 30-day limit contained in H.R. 1864 is fair
and workable.
The changes that have occurred as our country has gone from
local economies to a national economy are huge. Where
businesses once tended to be local, they now have a national
reach. This has caused the operations of even a small business
to move to an interstate basis.
As this Committee moves forward in considering the
legislation, there is one amendment that the AICPA would
recommend. Once the 30-day threshold is reached, the employee
should pay withholding and State income tax in the host State
for all wages going forward. Withholding should not be made
retroactive for the first 30 days. To do so would be unfair to
the employee.
Mr. Chairman, again, thank you for the opportunity to
testify in support of H.R. 1864, and I would be happy to answer
any questions you or the Members of the Subcommittee may have.
[The prepared statement of Mr. Porter follows:]
__________
Mr. Coble. Thank you, Mr. Porter.
Mr. Carter, you are recognized for 5 minutes.
TESTIMONY OF PATRICK T. CARTER, DIRECTOR, DELAWARE DIVISION OF
REVENUE, WILMINGTON, DELAWARE, ON BEHALF OF THE FEDERATION OF
TAX ADMINISTRATORS
Mr. Carter. Chairman Coble, Vice Chairman Gowdy, Ranking
Member Cohen, Members of the Subcommittee, thank you for the
opportunity to address the Subcommittee on H.R. 1864.
I am Patrick Carter, president of the Federation of Tax
Administrators. The FTA is an association of the principal tax
and revenue collection agencies in each of the 50 States, the
District of Columbia, and New York City. We have worked with
the Committee staff, industry representatives on this
legislation for several years.
We had requested through an FTA resolution that since New
York State is the most significantly affected State and since
it is undertaking review of the issue that Federal legislation
should not proceed until proponents of H.R. 1864 have worked
with New York State officials to resolve the issue at the State
level. Further, Congress should also take account of the
constructive action by other States on this issue before
proceeding with legislation.
We regret that except for a reduction in the days threshold
for determining employees' tax withholding responsibility from
60 to 30 days, few of these changes we suggested have been made
to the legislation before you. As a result, we believe this
bill offers avoidance opportunities and makes normal tax
administration of this area virtually impossible.
We must oppose the legislation as it is currently written.
If Congress intends to pursue legislation in this area, the
Federation of Tax Administrators believes the legislation
should be revised as follows.
First, the recordkeeping requirements should be improved.
The proposed recordkeeping requirements absolve employers of
virtually any obligation to use information that they have
unless there is fraud in using the employees' records. State
audits will have to be done on each employee to determine if
withholdings should have taken place. This scheme cannot
effectively be audited or enforced.
The fraud standard should be eliminated, and the employer
should be allowed to rely on employee's estimate of time in a
State, unless the employer has actual knowledge that the
employee's estimate is in error. If an employer maintains
records on the location of an employee, those records should be
used to determine whether an employee has a State income tax
withholding and information return obligation.
On the 30-day rule for establishing tax withholding
requirement, it is certainly more than is required to deal with
the compliance and burden issues that the bill is intended to
address. For example, it is certainly well beyond any level
that is necessary to deal with individuals who travel regularly
as part of their jobs. For example, attorneys with litigation,
training personnel, meeting organizers, as well as government
affairs and sales personnel.
We believe the excessive nature of the 30-day rule
contributes to the substantial revenue impact that the bill has
on certain States, particularly in New York State because of
the nature of its economy and its role as an international
center in finance and business. New York State has estimated
that this bill could potentially cost them between $80 million
and $100 million.
We suggest that it be reduced after a consultation with
States concerned with the revenue effect of the rule. The FTA
believes that if the legislation is enacted in this area, the
de minimis withholding threshold should have an income
component in addition to the time component.
State tax obligations would be triggered if the total wages
and remuneration paid to an employee for services in a State
exceeded a specified amount of income or if the employee
exceeded a certain number of days, as is currently proposed.
This is similar to the approach used in the Federal income tax
system to determine the taxability of income paid on a
nonresident alien.
H.R. 1864 defines ``day'' as a preponderance of the
employee's employment duties in such State or locality for such
day. We believe this is too vague for administrative purposes.
We recommend that this be changed to substitute ``all or any
part of a day in which the employee is present and performs
services in that State.''
Furthermore, H.R. 1864 provides no guidance and will likely
disrupt established State policies on an increasingly frequent
form of compensation, stock options, or other compensation paid
in 1 year for services performed in an earlier year. We
recommend that the legislation include a provision that allows
States to allocate option income earned by a nonresident to a
State based on the proportion of time worked in the State from
the time the option is granted to the time it is exercised.
The bill only excludes certain public figures and persons
of prominence from the coverage of the bill. There are other
types of individuals that are paid on a per-event basis. We
recommend instead that the bill be amended simply to provide
that persons paid on a per-event basis are not to be subject to
the terms of the bill. This would avoid litigation and reduce
the revenue impact of the legislation.
Mr. Chairman, New York State is the State that is most
negatively impacted by this bill. However, today, I had a
conversation with the commissioner of the New York State Tax
Department, and he is amenable with New York State to work with
the Federation of Tax Administrators and with private industry
to work toward a compromise on this bill.
That concludes my remarks on this legislation. We continue
to be interested in working with the Subcommittee and concerned
States to develop a mutually accepted proposal.
Thank you.
[The prepared statement of Mr. Carter follows:]
__________
Mr. Coble. Thank you, Mr. Carter.
Mr. Crosby?
TESTIMONY OF JOSEPH R. CROSBY, CHIEF OPERATING OFFICER AND
SENIOR DIRECTOR OF POLICY, COUNCIL ON STATE TAXATION,
WASHINGTON, DC
Mr. Crosby. Chairman Coble, Ranking Member Cohen, and
Members of the Subcommittee, my name is Joe Crosby. I am chief
operating officer and senior director of policy with the
Council on State Taxation, which is more commonly known as
COST.
COST is a trade association based here in D.C. that
represents nearly 600 of the Nation's largest employers on
business tax issues.
Mr. Chairman, I would like to begin by thanking you and
Congressman Johnson for introducing H.R. 1864. This is an
important piece of legislation, and we appreciate your support.
I would also like to thank the other Subcommittee Members
who have already agreed to cosponsor and those who I hope will
soon cosponsor the legislation.
I appreciate the opportunity to share with you COST views
on this issue. Mr. Chairman, you and the Ranking Member Cohen
and Mr. Johnson did an excellent job in your introductory
remarks describing the problem and what the legislation does.
So being from Maine and understanding what thin ice means, I
will dispense with a lengthy description of what the bill does
in the interest of time.
What I would like to say, simply to add to a couple of
things that were said earlier, is that this is an issue that
impacts all employers, not just businesses. It impacts
businesses large and small. It also impacts charities and
nonprofits and even Government agencies.
The legislation is not a business legislation, per se, but
legislation that helps all employees that travel for work and
all of their employers, and I think that is an important thing
to keep in mind.
The other thing that I think is helpful to understand, and
Mr. Carter's testimony alluded to this, this is an issue that
is understood nearly universally to be a problem. The
Federation of Tax Administrators in prior testimony before this
Subcommittee said, ``Complying with the current system is,
indeed, difficult and probably impractical.''
And the executive director of the Multi-State Tax
Commission said, ``There is widespread noncompliance'' as a
result of the complex laws that are currently in place.
So I don't really think there is a whole lot of question
with regard to whether this is an issue that needs to be
addressed. Nor is there really any question about the substance
of what the solution should be. The framework that is set forth
in H.R. 1864, a national threshold that protects employees that
travel on temporary work assignments is, indeed, the framework
that has been adopted by the Multi-State Tax Commission in
their own efforts on this issue.
The Multi-State Tax Commission's agreement, modeled after
H.R. 1864, unfortunately, will not solve the problem, and
Federal action is needed. Model State legislation in the area
of taxation has never been universally adopted in the States.
We have never had one experience in this country of the States
uniformly adopting any tax simplification proposal.
And so, while I would like to think that something like
that could happen, it faces a fundamental political challenge.
And that is for especially on this issue, for a State
legislator to make this issue a high priority would require him
or her to put the interests of nonresidents above his or her
own constituents.
The legislation, as it might be adopted in any particular
State, benefits exclusively nonresidents. And so, it is
difficult for State legislators, as you know better than I, to
put forward an issue that is going to help primarily folks who
are not their constituents.
And so, adoption of a model State statute by one State or
even a handful of States won't solve the problem. For employees
who travel and their employers, there will be no meaningful
simplification unless and until Congress enacts legislation.
And Mr. Chairman, that is really the question that we
confront here is whether this is something best addressed
separately by the States or addressed by this body. And I think
the weight of the evidence is clear that it is something that
must be adopted here because of the practical political
obstacles, as well as the historic inability for States to
solve these sorts of problems.
As you mentioned in your introductory remarks, Mr.
Chairman, the mobility of our workforce is one of our greatest
strengths as a Nation, and that flexibility is being impinged
by the current laws and regulations. Unless H.R. 1864 is
passed, that flexibility will be hindered and will continue to
form a problem.
Thus, I respectfully request the Subcommittee's speedy
adoption of H.R. 1864. I appreciate the time and would be happy
to answer any questions you have.
Thank you.
[The prepared statement of Mr. Crosby follows:]
__________
Mr. Coble. Thank you, Mr. Crosby.
Thanks to each of you.
Now, as we pose questions, we will try to comply with the
5-minute rule. So if you could keep your responses terse, we
can move along. I would appreciate that.
Mr. Porter, can you explain how taxes paid to a nonresident
State are generally treated by the resident State for tax
purposes, and how will this bill affect this treatment?
Mr. Porter. Generally, if you are a nonresident and you
come and work in a State, they are going to withhold taxes. So
you are going to have to file a tax return in the nonresident
State.
And typically, the resident State will give you a credit
for the tax that you have paid up to the amount that the
resident State would generally tax you on that amount. So, in
other words, if you are in a higher tax rate at, say, 6
percent, a State that only has a 4 percent rate is going to
give you a 4 percent credit equal to that. That is typically in
the area that I am in--in West Virginia, Ohio, Kentucky--a
practice that I see.
This bill would change that just primarily on the first 30
days that when you are working in a State, you would not have
to pay State taxes in the nonresident State. So you would pay
it in the resident State.
Mr. Coble. Thank you, sir.
Mr. Carter, do you acknowledge that there is a patchwork
among States' income tax laws that make or that create
administrative burdens for small businesses in particular?
Mr. Carter. Mr. Chairman, I do. Delaware, our tax nexus for
employees is very similar or modeled after New York State. One
day in the State of Delaware, an individual is subject to
taxation.
As you read into your testimony, other States have
different models. Arizona is 60 days. So someone could be in
the State of Arizona for 60 days before they are subject to
taxation in Arizona.
So I do acknowledge that for businesses--in my prior
career, I worked for JPMorgan Bank in their accounts payable
area, and I was responsible for making sure that travel
expenses were paid. But we did not communicate with the payroll
department to tell people in the payroll department where the
people were traveling. So it is a challenge for not only small
businesses, but large businesses as well.
Mr. Coble. I thank you, sir.
Mr. Carter. You are welcome.
Mr. Coble. Mr. Crosby, if Congress does not approve this
bill, is there an individual State that has an incentive to
reduce the administrative burden placed upon small businesses
by the cumulative effect of diverse State income tax laws?
Mr. Crosby. Mr. Chairman, it is not in the interest of any
one State to change this statute because the benefits accrue to
folks who live outside of the State. So, by definition, it is
very difficult for a State legislator to put high on their
priority list an issue which is going to benefit folks living
somewhere else.
We have some wonderful State legislators in this country. A
friend of mine, State senator Dwight Cook in North Dakota did
marshal a change through his legislature this year. But I fear
that we are not going to see a uniform or nationwide movement
toward this and that North Dakota will prove to be the
exception rather than the rule.
Mr. Coble. I thank you.
Thank you, gentlemen.
I am now pleased to recognize the distinguished gentleman
from Tennessee, Mr. Cohen.
Mr. Cohen. Thank you, Mr. Chairman.
The Multi-State Tax Commission has proposed a model
statute, and I think it has got the 20-day rule in it. I
haven't really put it to memory. And it would have a uniform
standard similar, I think, to the legislation we have got here.
Mr. Carter, does this address the concerns, the legislation
that you have, to some extent?
Mr. Carter. It does, to some effect. Some of our concerns,
as I laid out, are some of the definitions in the House rule
you have right now. I do believe that the States, if we had an
opportunity to work with the industry and with the Subcommittee
staff, we could come to an agreement on the definition of days.
But there are other issues in the bill that I think need to
be addressed.
Mr. Cohen. Other than days?
Mr. Carter. Other than days, yes.
Mr. Cohen. Like what?
Mr. Carter. Well, we talked about some of the definitions
of what a day is. A definition of----
Mr. Cohen. It sounds like the title of a song.
Mr. Carter. It does. But as to whether bonuses or stock
options--not bonuses, but stock options, how they are treated
in this type of legislation. I think there is some items that
worked on, we could come up with a bill that is agreeable to
both sides on this, and I don't believe that the day threshold
is the--although it is important for someone like New York
State because of the economic impact to them--is not the
biggest hurdle.
Mr. Cohen. Mr. Crosby, are the definitions something you
could work with Mr. Carter on and Mr. Webster and get this all
worked out?
Mr. Crosby. Yes, Mr. Cohen. After there was a hearing at
the end of 2007, then-Chairwoman Sanchez of this Subcommittee
directed the parties to work together. And under Mr. Johnson's
aegis, we spent a considerable amount of time working with
representatives for State and local government, and there are
numerous changes in this version of the legislation to address
some of the things that the Federation of Tax Administrators
raised, including the definition of ``day.''
That was changed substantially to ensure that if a
nonresident is only in one nonresident State, then it is a
nonresident day, regardless of how long they are there. We
certainly would be willing to continue discussions, were it
acceptable to the sponsors. I think my concern is that I have
the redline of the old bill and the letters that were exchanged
between Mr. Johnson and Chairwoman Sanchez at the time
discussing and detailing all the changes we have made, and
there seems to be not a recognition on the part of the tax
administrators.
And so, my fear is that we would make further changes and
yet be back here in another Congress where there are further
changes yet to be made. So, Mr. Cohen, we certainly would be
willing to consider them and work with them, as long as there
was a good faith effort on their part that at the end of the
process, they would support the legislation.
Mr. Cohen. So if they would support it at the end. And Mr.
Carter, it was definitions, and what is your other issue? The
days you said weren't important.
Mr. Carter. Days were not a critical--although it is
expensive to some of the States. It would cost Delaware. We are
a 1-day State. New York, much more than us just because of the
size of their economy. But there were a series of things.
Reciprocity, there are certain States that agree,
irrespective of how many days a nonresident is in the State,
New Jersey and Pennsylvania have reciprocity. So a Pennsylvania
resident working in New Jersey is not subject to tax in New
Jersey and vice versa. This bill does not recognize that.
Mr. Cohen. Mr. Crosby, why don't you incorporate that? That
seems like it would be good for small business and for
accountants?
Mr. Crosby. That is an excellent question. In fact, what
this bill does is set a threshold below which States cannot tax
nonresidents. It does not prohibit a State from setting a
higher threshold.
So those reciprocity agreements that exist right now, you
can think of them as 365-day thresholds. They are perfectly
acceptable under this legislation. We could specifically
recognize them, and that is certainly not a concern.
The way the bill is drafted, though, it doesn't impinge
upon those in any way, shape, or form.
Mr. Cohen. All right, Mr. Carter. Checkmate. [Laughter.]
What is your next problem?
Mr. Carter. I think the recordkeeping provisions where it
refers to fraud as being the criteria for whether the records
are proper or not. That is a very high standard, almost
impossible to prosecute against.
We have, in Delaware, we have a statute on tax fraud, and
it is very, very, very difficult to prove if someone is
committing fraud in the tax area. We normally prosecute, if we
do, for not filing because it is such a high threshold.
One of the other issues that we have is with the concern
with high-income individuals. We believe that someone earning
$500,000 a year as being tracked where they go, come and go,
maybe the 20-, 30-day threshold is not--for that person is not
a low enough level, just because they are traveling all over
the place and their income is so substantial. And their goings
are easily tracked.
They are not the type of individual of the small business
where the person is just popping in for 1 day because they get
called up and they have to fix the pipes for the plumbing
company, and they are crossing the State line.
So there are a number of things I think that we can work on
and resolve to come up with a much more amenable piece of
legislation to both the States and private industry.
Mr. Cohen. My time has expired. So I won't ask you about
the right of return in the Golan Heights.
I yield back the remainder of my time.
Mr. Coble. Thank you, Mr. Cohen.
The distinguished gentleman from South Carolina, Mr. Gowdy,
is recognized.
Mr. Gowdy. Thank you, Mr. Chairman.
And I am delighted to go last. If the distinguished
gentleman from Georgia, who is an original cosponsor, would
wish to take my turn, I am pleased to go last.
Mr. Johnson. I would. Thank you, Mr. Gowdy.
Mr. Coble. The distinguished gentleman from Georgia is
recognized.
Mr. Johnson. Thank you, Chairman.
Does anybody here know what Charlie Brown used to utter
when Lucy would take the ball off the tee again, and he would
kick and end up falling on his back? Does anybody know that?
Mr. Cohen. I don't think you can say that in public.
[Laughter.]
Mr. Johnson. You knew this was coming for you, didn't you?
Yes, I feel like Charlie Brown, and Mr. Cohen is my Lucy. And I
think he has covered just about everything I would like to
cover, and I will say thank you for doing that. And that kind
of cuts down a little time on the hearing.
I will say, Mr. Crosby, yes, there was a new definition of
what is a day, definition of a day. And no definition of what
does ``is'' mean. What is ``is?''
Mr. Crosby. No, sir. That was not redefined.
Mr. Johnson. That was not in there, but there are some
other things in there as well.
And Mr. Carter, we certainly want to work with you to clear
up any problems that you may have with the bill. But I think it
is moving pretty quickly toward adoption by this body, and I
would encourage you to get with Committee staff and also my own
staff and staff for Mr. Coble, see what you can work out on
this thing so that we can go ahead and move it forward.
And that will be the extent of my questions and comments.
Thank you.
And thank you, Mr. Gowdy.
Mr. Coble. Thank you, Mr. Johnson.
Now the distinguished gentleman from South Carolina, Mr.
Gowdy, is recognized.
Mr. Gowdy. Thank you, Mr. Chairman.
I have just got a couple of questions, and they are broad,
general questions.
Mr. Crosby, other than the complexities of compliance, what
is your best argument for uniformity? And I get how complex it
is. But other than the complexities of compliance, what is your
best argument for uniformity?
Mr. Crosby. I think the best arguments are the ones that
Mr. Coble made in his introductory remarks in terms of the
mobility and flexibility of the U.S. workforce.
As large and small employers alike are subject to
additional recordkeeping burdens, large employers are burdened
by or having to comply with Sarbanes-Oxley and Section 404,
ensuring that they are in compliance with all applicable laws
and regulations. This is an increasingly difficult area for
them and requires a significant expenditure of resources, as
well as a significant negative impact on the employees who are
required to travel for work.
And so, my fear is that if we move forward without solving
this problem, ultimately, you will have folks deterred from
doing things they would otherwise do. I have spoken to numerous
business managers and employees who have relocated meetings
from one jurisdiction to another because of the potential
impact of having tax liability in a jurisdiction.
As I said, myself, I live in Maine. We have a 10-day
threshold there. Massachusetts is 1 day. New Hampshire does not
have a personal income tax. I know many regional businesses
that now hold their meetings in New Hampshire, much to New
Hampshire's benefit, because of the fear of holding those in
Maine or Massachusetts and being subject to tax liability.
So, currently, the existing laws are negatively impacting
commerce around the country, and I think that is probably,
other than the complexity, the biggest concern with the
existing patchwork of State laws.
Mr. Gowdy. And you are satisfied that there are no issues
with the dormant commerce clause?
Mr. Crosby. Yes, sir. I am.
Professor Wally Hellerstein, who wrote literally the
casebook that is studied by State and local tax lawyers,
testified before this Committee that this legislation is not
only authorized by the Constitution but is exactly the type of
legislation that the framers envisioned if they could have
envisioned this type of legislation--what I will call a
surgical insertion into State tax law to alleviate a burden
without fundamentally altering the way State taxes work.
Mr. Gowdy. And if I will listen to the testimony correctly,
there is nothing talismanic about 30 days, and that is open to
negotiation?
Mr. Crosby. Representative Gowdy, Mr. Johnson, when he
first introduced this bill, started with 60 days. And that was
based on survey data from employers regarding the number of
employees that would fall outside of certain thresholds and
then, in the spirit of compromise, was reduced later to 30
days.
Every reduction you make significantly increases the number
of employees who would no longer be protected by the bill. So
there is nothing talismanic about it. But certainly, any
reduction means that fewer people would benefit from the
legislation, so I think must be considered carefully.
Mr. Gowdy. Thank you. I would yield back the remainder of
my time, Mr. Chairman.
Mr. Coble. I thank you, Mr. Gowdy.
And I want to thank the Members of the Subcommittee for
your attendance. I want to reiterate our thanks to the panel
for your patience, as well as those in the audience.
And without objection, all Members will have 5 legislative
days to submit to the Chair additional written questions for
the witnesses, which we will forward and ask the witnesses to,
in fact, respond as promptly as you can, that their answers may
be made a part of the record.
Without objection, all Members will have 5 legislative days
to submit additional materials for inclusion in the record.
And with that, again, I thank the witnesses, and this
hearing is now adjourned.
[Whereupon, at 3:54 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Ranking Member, Committee
on the Judiciary
Today we discuss H.R. 1864, the ``Mobile Workforce State Income Tax
Simplification Act,'' a bill to address concerns employers have raised
about different state withholding standards.
I am encouraged that the business community has reached out to the
states to improve upon this legislation since the 110th Congress. And I
sympathize with employers for the difficulties they have expressed on
behalf of their record-keeping and employees. And the states have
acknowledged that there is problem.
However, the legislation as written does not address all of the
concerns the states have addressed and will likely inhibit the ability
of states to tax, which will lead to lost state revenues.
If States cannot tax the income earned within their borders, it
could impede their ability to provide needed services which many of us
depend upon. States may be forced to furlough their dedicated and hard
working government employees.
I understand that some states--especially New York--would stand to
lose tens of millions of dollars in revenue if the bill is enacted in
its current form. My own state of Michigan would lose much needed
revenue, nearly enough to cover the funding cut to libraries and the
elimination of dairy inspectors that Michigan Governor Snyder has
proposed. These programs support the education and protection of our
children.
With state revenues projected to suffer for the foreseeable future
in this economic climate, Congress should be wary to pass legislation
which may diminish state revenues.
I am concerned that the bill's 30-day threshold, which exceeds the
thresholds in several states, would allow an employee to work in
several states about six weeks at a time and not have to pay taxes in
those states. Those states would lose revenue while some employees
would avoid paying taxes.
The Multistate Tax Commission has proposed a model statute similar
to this legislation but establishing a 20-day threshold. Others have
proposed a hybrid threshold of 20-days or $20,000 earned in a state in
a calendar year. Those thresholds seem more reasonable.
I am also concerned about the timekeeping component in this
legislation. In some instances timekeeping is left to the employees
while in others the employer keeps track of the days its employees work
in other states. These different timekeeping standards may lead to tax
avoidance and confusion.
A further discussion on the timekeeping standard would benefit all
interested parties and allay some of the concerns with this bill.
Otherwise, we may need to introduce separate legislation to improve
upon this bill.
Thank you and I look forward to hearing from the witnesses.
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, Jr., a
Representative in Congress from the State of Georgia, and Member,
Subcommittee on Courts, Commercial and Administrative Law
Chairman Coble, Ranking Member Cohen, I thank you for holding this
hearing on H.R. 1864, the ``Mobile Workforce State Income Tax
Simplification Act of 2011.''
This is an important bill that will help workers and businesses
large and small. I have been working on this bill since I was a
freshman in the 110th Congress, and I am pleased to have introduced it
in this Congress with Chairman Coble.
We live in an ever-increasing mobile economy. Every day, thousands
of Americans travel outside of their home state on business trips for
brief periods of time.
Many states have their own set of requirements for filing non-
resident individual income tax returns that most Americans are not
aware of and don't understand.
For example, if an Atlanta-based employee of a Chicago company
travels to headquarters on a business trip once a year, that employee
would be subject to Illinois tax, even if his annual visit only lasts a
day.
However, if that employee travels to Maine, her trip would only be
subject to tax if her trip lasts for 10 days. If she travels to New
Mexico on business, she would only be subject to tax if she was in the
state for 15 days.
The Mobile Workforce State Income Tax Simplification Act would fix
this problem by establishing a fair and uniform law that would ensure
the correct amount of tax is withheld and paid to the states without
the undue burden of the current dysfunctional system.
Consistent with current law, H.R. 1864 provides that an employee's
earnings are subject to full tax in his or her state of residence. In
addition, this bill would only subject employees who perform employment
duties in a nonresident state if they work in that state for more than
30 calendar days.
At a time when more and more Americans find themselves traveling
for their job, this bill is a common-sense solution that helps workers
who are employed in multiple jurisdictions by simplifying their tax
reporting requirements.
We are all aware there's a problem, and this bill is the solution.
It not only simplifies the system, but makes it fair for people who
work in multiple jurisdictions and assists businesses as they comply
with complex tax laws.
In an economy that is beginning to recover from the devastating
recession, this bill makes sense.
After three years of championing this issue, I appreciate this
Subcommittee's interest in this legislation.
I look forward to working with all of you to move the bill through
Congress and to the President's desk for signature.
Thank you, Mr. Chairman, and I yield back the balance of my time.