[House Report 114-780]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-780
======================================================================
MOBILE WORKFORCE STATE INCOME TAX SIMPLIFICATION ACT OF 2015
_______
September 21, 2016.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 2315]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 2315) to limit the authority of States to tax
certain income of employees for employment duties performed in
other States, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 8
New Budget Authority and Tax Expenditures........................ 8
Congressional Budget Office Cost Estimate........................ 8
Duplication of Federal Programs.................................. 10
Disclosure of Directed Rule Makings.............................. 10
Performance Goals and Objectives................................. 10
Advisory on Earmarks............................................. 10
Section-by-Section Analysis...................................... 10
Dissenting Views................................................. 11
Purpose and Summary
The Mobile Workforce Act provides a clear, uniform
framework for when States may tax nonresident employees who
travel to the taxing State to perform work. In particular, the
bill prevents States from imposing income tax compliance
burdens on nonresidents who work in a foreign state for fewer
than 30 days in a year.
Background and Need for the Legislation
Forty-three States and the District of Columbia levy a
personal income tax on wages and partnership income.\1\ The
State tax laws that determine when a nonresident must pay a
foreign state's income tax, and when employers must withhold
this tax, are numerous and varied.\2\ Some have a days worked
in-state threshold. For example, for 2014, a nonresident is
subject to tax after working 59 days in Arizona, 15 days in New
Mexico, and 14 days in Connecticut.\3\ Others have a de minimis
exception to employer withholding requirements based on wages
earned. That threshold is $1,500 in Wisconsin, $1,000 in Idaho,
$800 in South Carolina, and $300 a quarter in Oklahoma.\4\
Additional States with withholding thresholds include Georgia,
Hawaii, Maine, New Jersey, New York, North Dakota, Oregon,
Utah, Virginia, and West Virginia. Some State thresholds are
tied to personal exemption, standard deduction or filing
thresholds that can change each year. The remainder of relevant
States tax income earned within their borders by nonresidents,
even if the employee only works in the State for 1 day.
Examples include New York, even though the State obligates
employers to withhold wages only after 14 days.\5\
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\1\Mobile Workforce State Income Tax Simplification Act of 2011:
Hearing on H.R. 1864 Before Subcomm. on Courts, Commercial & Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. (2011) [hereinafter the
``2011 Hearing''] (testimony of Jeffrey A. Porter, Owner, Porter &
Associates, CPAs, on behalf of the American Institute of Certified
Public Accountants).
\2\Id.
\3\Mobile Workforce State Income Tax Simplification Act of 2013:
Hearing on H.R. 1129 Before Subcomm. on Regulatory Reform, Commercial
and Antirust Law of the H. Comm. on the Judiciary, 113th Cong. 33 39
(2014) (statement of Jeffrey A. Porter, Owner, Porter & Associates,
CPAs, on behalf of the American Institute of Certified Public
Accountants).
\4\Id.
\5\New York State Department of Taxation and Finance, Withholding
on Wages Paid to Certain Nonresidents Who Work 14 Days or Fewer in New
York State (July 2012) (available at http://www.tax.ny.gov/pdf/memos/
income/m12_5i.pdf).
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Some of these States exempt particular activities, such as
training or professional development. Yet these exemptions will
sometimes cover only the withholding requirement. The employee
may still be required to file.
These complicated rules impact everyone who travels for
work and many industries including the retail, manufacturing,
real estate, technology, food, services, and consulting
industries. At the Subcommittee on Regulatory Reform,
Commercial and Antitrust Law's 2014 hearing, a West Virginia
tax practitioner described the burden on his construction and
electrical linemen clients who travel frequently for short-term
projects. He reported filing income tax returns in as many as
10 different States in a year for these workers.\6\ At the
Subcommittee's 2015 hearing, a building products company
executive testified that the patchwork of laws resulted in the
company issuing fifty W 2's to a single employee for a single
year. The executive also noted, regarding the compliance
burden, that ``many of our affected employees make less than
$50,000 per year and have limited resources to seek
professional advice.''\7\
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\6\Porter, supra note 3.
\7\Mobile Workforce State Income Tax Simplification Act of 2015:
Hearing on H.R. 2315 Before Subcomm. on Regulatory Reform, Commercial
and Antitrust Law of the H. Comm. on the Judiciary, 114th Cong. 1 5
(2015) (written testimony of Lawrence F. Leaman, Vice President of
Taxes, Masco Corporation).
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States generally allow a credit for income taxes paid to
another State. However, it is not always dollar-for-dollar when
local taxes are factored in. Furthermore, such credits provide
no relief to residents of the nine States that do not impose
income taxes. Such individuals have been found to bear an
overall tax burden comparable to residents of States that do
impose State income taxes, and thus are effectively subject to
double taxation.\8\
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\8\Mobile Workforce State Income Tax Simplification Act of 2013:
Hearing on H.R. 1129 Before Subcomm. on Regulatory Reform, Commercial
and Antirust Law of the H. Comm. on the Judiciary, 113th Cong. 42 72
(2014) (statement of Lori Brown, CPP, Director, Disbursements CACI
International, Inc.).
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There are substantial burdens on employers as well. For
example, they must determine whether to withhold for a
nonresident working in a particular State, which can be
complicated. For example, Georgia has a three-part test looking
at whether an employee has worked there for 23 days in a
calendar quarter, whether more than 5 percent of the employee's
income is attributable to work in Georgia or whether the
employee has received remuneration for services in Georgia that
exceeds $5000.\9\
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\9\Porter, supra note 3.
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Temporary work assignments also require the employer to
register for a withholding account, which can be ``just as
burdensome as trying to manage the tax itself.''\10\ Employers
must track employees' work locations and time spent, which is
often a manual process.
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\10\Brown, supra note 8.
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Large businesses may have more resources, but they are also
more tightly regulated. The Sarbanes-Oxley Act of 2002 requires
management to sign-off on the internal controls that ensure
State tax compliance and requires auditors to certify
management's assessment.\11\ The diversity of State income tax
laws requires public companies and their auditors to invest a
significant amount of time ensuring that the company has
withheld correctly for each employee, at great expense to the
firm.\12\
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\11\Sarbanes-Oxley Act of 2002, Pub. L. 107 204, Sec. 404, 116
Stat. 745, 789 (codified at 15 U.S.C. Sec. 7262) (2002).
\12\2007 Hearing, supra note 4, at 10 (statement of Rep. Henry
``Hank'' Johnson).
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In short, as a witness told the Subcommittee in 2014,
``[b]usinesses, including small businesses and family
businesses, that operate interstate are subject to significant
regulatory burdens with regard to compliance with nonresident
State income tax withholding laws.''\13\ These burdens raise
costs, which are typically passed on to customers.
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\13\2011 Hearing at 13 (testimony of Jeffrey A. Porter, Owner,
Porter & Associates, CPAs, on behalf of the American Institute of
Certified Public Accountants).
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The result is a significant burden on interstate commerce.
Professor Walter Hellerstein testified in 2007 that States have
a legitimate interest in assuring that workers earning income
in a State ``pay their fair share . . . for the benefits and
protections that the State provides.'' However, that interest
``has to be balanced against the burdens that are imposed on
multi-state enterprises and on the conduct of interstate
commerce by uncertain, inconsistent, and unreasonable
withholding obligations imposed by the State.''\14\
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\14\2007 Hearing, supra note 4, at 71 (statement of Walter
Hellerstein, Francis Shackelford Distinguished Professor of Taxation
Law, University of Georgia School of Law).
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HOW THE MOBILE WORKFORCE ACT SIMPLIFIES THE STATE INCOME TAX LAW REGIME
The Mobile Workforce Act would substantially simplify State
income tax laws by imposing a uniform standard for nonresident
taxation and employer withholding. The bill provides that an
employee is not subject to income tax in a nonresident State
unless the employee has worked for at least 30 days in that
jurisdiction.\15\ This threshold is not continuous, so an
employee that makes a number of short business trips to a State
might still trip it. Once tripped, the withholding obligation
is retroactive to the first day worked in the State.
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\15\Mobile Workforce State Income Tax Simplification Act of 2015,
H.R. 2315 Sec. 2(a), 114th Congress (2015).
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The bill further provides that an employer is not
responsible for withholding on behalf of any employee who is
not subject to a State income tax as a result of the bill.\16\
For purposes of determining penalties related to a failure to
report or withhold, employers are entitled to rely on their
employees' report of days spent in a nonresident State unless
the employer uses a time and attendance system for its
employees.\17\
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\16\Id. Sec. 2(b).
\17\Id. Sec. 2(c).
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Finally, the bill exempts certain professional athletes,
entertainers, and public figures who, because of their
prominence, are paid on a per appearance basis. (i.e., they
will not receive the 30-day exemption.)\18\ The rationale is
that individuals like musical performers and professional
athletes earn income specifically from playing at a venue in
the foreign state. By contrast, even a highly-paid employee's
temporary presence in a foreign state is typically incidental
to that employee's job.
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\18\Id. Sec. 2(d)(2).
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COUNTERING ASSERTED CONCERNS
State revenue departments that oppose the bill raise
several arguments. First, they invoke the source principle that
income should be taxed where it is earned. This may be true
generally, but this bill deals with bringing uniformity to a
small set of de minimis exceptions, in order to reduce
compliance costs.
Indeed, an analysis from Ernst & Young, LLP, offered as
testimony in the 111th Congress, found that the bill's revenue
impact is minimal. In particular, it predicted a net revenue
change nationwide for States of merely one hundredth of 1
percent (.01%), which translates into a $42 million overall
reduction in personal income taxes.\19\ A July 9, 2015 update
to that analysis found nearly identical results.\20\ This seems
reasonable, since for every nonresident whose income tax a
State loses, the State gains from not having to provide a
credit to in-state residents who temporarily work and therefore
currently pay taxes out of State. The result should
approximately be a wash. The benefit is in reducing complexity
and compliance burdens.
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\19\Mobile Workforce State Income Tax Simplification Act of 2013:
Hearing on H.R. 1129 Before Subcomm. on Regulatory Reform, Commercial
and Antirust Law of the H. Comm. on the Judiciary, 113th Cong. 14 30
(2014) (statement Maureen B. Riehl Vice President, Government Affairs
Council On State Taxation (COST)).
\20\Ernst & Young LLP, Estimates of State-By-State Impacts of The
Mobile Workforce State Income Tax Fairness And Simplification Act
Prepared for The State Tax Research Institute (Jul. 9, 2015) (available
at http://www.cost.org/WorkArea/DownloadAsset.aspx?id=90612).
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Opponents cite an industry estimate that New York will lose
between $50 and $100 million. But the bill does not
significantly alter the overall amount of income tax collected.
The size of the pot remains the same. It is merely the
apportionment that differs, which is appropriate in order to
reduce compliance burdens and retain sensible limits on State
regulatory authority over nonresidents.
It is also true that approximately one-third of the States
have entered into reciprocity agreements not to tax each
other's border-state residents' wages. But this still leaves
two-thirds of the country not covered, and the existing
agreements are geared toward regular commuters living on State
borders, rather than workers traveling to multiple locations
for temporary work.
At previous Subcommittee hearings, witnesses representing
State revenue departments, have raised a number of arguments
centered on potential fraud and gaming of the system.\21\ For
example, they object to provisions permitting employers to rely
on employees' estimates of time spent in other jurisdictions.
They term this ``voluntary reporting'' that has not been
effective in the income tax enforcement context. However, this
allowance is made only for purposes of calculating employer
penalties, not for determining the amount actually owed.\22\
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\21\Mobile Workforce State Income Tax Simplification Act of 2013:
Hearing on H.R. 1129 Before Subcomm. on Regulatory Reform, Commercial
and Antirust Law of the H. Comm. on the Judiciary, 113th Cong. 75 82
(2014) (Patrick Carter Director, Division of Revenue for the State of
Delaware).
\22\Mobile Workforce State Income Tax Simplification Act of 2015,
H.R. 2315 Sec. 2(c), 114th Congress (2015).
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More importantly, unlike in the general income tax context,
there is little motive here for fraud or gaming. The amount of
money at issue (taxes on less than thirty day's wages) is
minimal. Second, except in nine States, the employee will have
to pay the tax anyway to that employee's home State, so the
only savings would be from minor rate differentials between the
two jurisdictions.
Hearings
The Committee on the Judiciary's Subcommittee on Regulatory
Reform, Commercial, and Antitrust Law held 1 day of hearings on
H.R. 2315 and related bills H.R. 1643 and H.R. 2584 on June 2,
2015. Testimony was received from Mr. Grover Norquist,
President, Americans for Tax Reform; Mr. Douglas L. Lindholm,
CEO & Executive Director of the Council on State Taxation; Mr.
Lawrence F. Leaman, Vice President--Taxes, Masco Corporation;
Ms. Julie P. Magee, Commissioner, Alabama Department of
Revenue; and Mr. Dan L. Crippen, Executive Director, National
Governors Association.
Committee Consideration
On June 17, 2015, the Committee met in open session and
ordered the bill H.R. 2315 favorably reported, without
amendment, by a rollcall vote of 23 to 4, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 2315:
1. Amendment #1, offered by Mr. Nadler and Mr. Jeffries.
The Amendment lowers the threshold from 30 days to 14 before a
State can tax the income of a nonresident temporarily working
in a foreign state. The amendment was defeated by a rollcall
vote of 7 to 21.
ROLLCALL NO. 1
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................ X
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................
Mr. King (IA).................................. X
Mr. Franks (AZ)................................
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)............................... X
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)...............................
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 7 21
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2. Motion to Report H.R. 2315. The bill will provide a
uniform framework, including a 30-day threshold, for when
States may tax nonresident employees who travel to the taxing
State to perform work. The motion was agreed to by a rollcall
vote of 23 to 4.
ROLLCALL NO. 2
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA).................................. X
Mr. Franks (AZ)................................
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO)..................................
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)...............................
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 23 4
------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 2315, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 21, 2015.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2315, the ``Mobile
Workforce State Income Tax Simplification Act of 2015.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Aurora
Swanson (for Federal costs), who can be reached at 226 2860,
and Jon Sperl (for intergovernmental mandates), who can be
reached at 225 3220.
Sincerely,
Keith Hall,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 2315--Mobile Workforce State Income Tax Simplification Act of
2015.
As ordered reported by the House Committee on the Judiciary
on June 17, 2015.
H.R. 2315 would establish consistent criteria for States to
determine State taxation and employer withholding for
nonresidents who work in a State. CBO estimates that Federal
taxation and employer withholding would not be affected by the
legislation and that implementing the bill would have no effect
on the Federal budget. Enacting H.R. 2315 would not affect
direct spending or revenues; therefore, pay-as-you-go
procedures do not apply.
H.R. 2315 would impose an intergovernmental mandate as
defined in the Unfunded Mandates Reform Act (UMRA) by
prohibiting States from taxing the income of employees who work
in the State for fewer than 31 days. The prohibition would not
apply to the income of professional athletes, entertainers, or
public figures. UMRA includes in its definition of mandate
costs any amounts that State governments would be prohibited
from raising in revenues as a result of the mandate. The
mandate costs of H.R. 2315 would include taxes that State
governments would be precluded from collecting under the bill.
Most States that levy a personal income tax allow
residentsq to take a credit for income taxes that the residents
pay to another State. The cost of the mandate would equal, for
all States collectively, the difference between the amount of
revenue that they would lose--from nonresidents who work in the
State for fewer than 31 days--and the amount of revenue they
would gain--from residents whose credits for payments to other
States would be lower under the bill. Generally, States that
have large employment centers close to a State border would
lose the most revenue; States from which employees tend to
commute would gain revenue. For example, New York would
probably lose the largest amount of revenue--between $50
million and $125 million per year, according to State and
industry estimates--and Illinois, Massachusetts, and California
would face smaller losses. In contrast, New Jersey would
probably gain revenue. Because States tax income at different
rates and on different tax bases, the changes in tax revenues
nationwide would not net to zero.
On the basis of information from officials in a number of
States, analysis of State tax data, and an analysis by Ernst &
Young, CBO estimates that, for all States collectively, the
bill would reduce revenues on a net basis by between $50
million and $100 million per year beginning in 2018, the first
full year that the bill's changes would be in effect. Given
that range--stemming from the underlying uncertainty about the
amount of revenue that States collect from nonresidents and the
amount they would receive from residents whose credits would be
lower under the bill--CBO cannot determine whether the net cost
of the intergovernmental mandate in the bill would exceed the
annual threshold established in UMRA ($77 million in 2015,
adjusted annually for inflation).
H.R. 2315 contains no private-sector mandates as defined in
UMRA.
The CBO staff contacts for this estimate are Aurora Swanson
(for Federal costs) and Jon Sperl (for intergovernmental
mandates). This estimate was approved H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 2315 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111 139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 2315 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
2315 provides clear, uniform guidelines for when States may tax
nonresident employees who travel to the taxing State to perform
work.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 2315 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short Title
This Act may be cited as the ``Mobile Workforce State
Income Tax Simplification Act of 2015.''
Section 2. Limitations on State Withholding and Taxation of Employee
Income
Subsection (a)--A State may not subject nonresidents to
personal income tax unless the nonresident is ``present and
performing employment duties''' for more than 30 days in the
calendar year in which ``the wages or other remuneration is
earned.''
Subsection (b)--No employer withholding requirement for
nonresidents may be imposed unless the 30-day trigger is met,
but once triggered, it is retroactive to Day 1 of the
employees' work in-state.
Subsection (c)--For purposes of determining penalties
related to employers' failures to withhold or report, employers
may rely on an employee's determination of the time spent in a
nonresident State, unless (1) there is fraud or collusion to
avoid taxation between the employer and employee; OR (2) the
employer voluntarily ``maintains a time and attendance system
that tracks where the employee performs duties on a daily
basis,'' in which case that data must be used to calculate
withholding requirements.\23\
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\23\This description covers Paragraphs (c)(1) and (c)(3). Paragraph
(c)(2) merely underscores that the employer may rely on the employee,
even if it could theoretically gather the necessary information from
its records, provided that the employer does not maintain a specific
tracking system described in Paragraph (c)(3).
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Subsection (d)--Defines relevant terms. Of particular note:
(1) LWorking in a State for a ``Day'' means that the
employee performs more of the employee's employment
duties within such State than in any other State during
that day. However, if the employee worked only in the
resident and in one nonresident State during that day,
it is counted as a nonresident day regardless of the
time spent there. Transit time is excluded from these
calculations.
(2) L``Employee'' is defined according to State law
consistent with State sovereignty principles. The term
does not include a professional athlete, entertainer,
or certain public figures.
(6) L``Employer'' is defined by State law unless the
State provides no definition, in which case Federal law
controls. Again, this is consistent with State
sovereignty principles.
(8) L``Time and Attendance System'' means a system that
requires employees to record the locations where they
work every day and that the employer uses that system
to allocate employees' wages for tax purposes.
(9) L``Wages or Other Remuneration'' is left to the
States to define.
Section 3. Effective Date; Applicability.
The Act is effective on January 1 of the second year after
the date of enactment and does not apply to any tax obligation
accrued before then.
Dissenting Views
Most would agree that a uniform framework specifying when
an employer must withhold state income tax would help ensure
simplicity and be more administrable than the current varied
state standards.\1\ Although H.R. 2315, the ``Mobile Workforce
State Income Tax Simplification Act of 2015,'' is intended to
achieve this result, the means by which it does so would lead
to significant state revenue losses. Specifically, the bill's
30-day threshold is simply too long and, as drafted, could
facilitate manipulation. Our concerns are shared by a broad
coalition of labor and tax organizations, including the
American Federation of Labor and Congress of Industrial
Organizations, the American Federation of State, County and
Municipal Employees, the American Federation of Government
Employees, the American Federation of Teachers, the Amalgamated
Transit Union, the Communications Workers of America, the
International Federation of Professional and Technical
Engineers, the International Union of Police Associations, the
National Education Association, the Service Employees
International Union, the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of
America, the Federation of Tax Administrators, and the
Multistate Tax Commission.\2\
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\1\See e.g., Unofficial Tr. of Markup of H.R. 2315, the Mobile
Workforce State Income Tax Simplification Act of 2015, H.R. 1643, the
Digital Goods and Services Tax Fairness Act of 2015, and H.R. 2584, the
Business Activity Tax Simplification Act of 2015: Before the H. Comm.
on the Judiciary, 114th Cong. 4-6 (June 17, 2015) (statement of
Chairman Bob Goodlatte (R-VA)) [hereinafter ``2015 Markup''].
\2\Letter from the American Federation of Labor and Congress of
Industrial Organizations, American Federation of State, County and
Municipal Employees, American Federation of Government Employees,
American Federation of Teachers, Amalgamated Transit Union,
Communications Workers of America, International Federation of
Professional and Technical Engineers, International Union of Police
Associations, National Education Association, Service Employees
International Union, International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America (June 16, 2015) (on file
with the H. of Representatives Comm. on the Judiciary, Democratic
Staff); Federation of Tax Administrators Resolution 2015-2 (Federal
Mobile Workforce Legislation) (June 18, 2015) (on file with the H. of
Representatives Comm. on the Judiciary, Democratic Staff); Letter from
Julie P. Magee, Chair of the Multistate Tax Comm'n, to Representative
Bob Goodlatte, Chairman of the H. Comm. on the Judiciary, &
Representative John Conyers, Jr., Ranking Member of the H. Comm. on the
Judiciary (July 8, 2015) (on file with the H. Comm. on the Judiciary
Democratic staff) [hereinafter ``MTC Letter''].
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For these reasons and others set forth below, we must
respectfully dissent.
DESCRIPTION AND BACKGROUND
In an ever-increasing mobile U.S. workforce, employees
often work in several states throughout the year. As a result,
these employees may incur state income tax obligations in more
than just their resident state and they are obligated to pay
state income taxes to the state where income is earned or where
the services giving rise to the income are performed.\3\
Although an employee's resident state may tax all income
regardless of where the income is earned,\4\ the resident state
typically provides a credit for any income taxes paid to other
states.\5\
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\3\Shaffer v. Carter, 252 U.S. 37, 52 (1920) (``[J]ust as a State
may impose general income taxes upon its own citizens and residents
whose persons are subject to its control, it may, as a necessary
consequence, levy a duty of like character, and not more onerous in its
effect, upon incomes accruing to non-residents from their property or
business within the State, or their occupations carried on therein.'').
\4\See New York ex rel. Cohn v. Graves, 300 U.S. 308 (1937);
Lawrence v. State Tax Comm'n, 286 U.S. 276 (1932) (holding that the
state has unrestricted power to tax citizens' net income even if
activities are carried on outside of the state).
\5\Unofficial Tr. of Nexus Issues: Hearing on H.R. 2315, the Mobile
Workforce State Income Tax Simplification Act of 2015, H.R. 1643, the
Digital Goods and Services Tax Fairness Act of 2015, and H.R. 2584, the
Business Activity Tax Simplification Act of 2015: Before the Subcomm.
on Reg. Reform, Com. and Antitrust Law of the H. Comm. on the
Judiciary, 114th Cong. (2015)(written statement of Julie P. Magee,
Commissioner of the Alabama Department of Revenue, at 5) [hereinafter
the ``2015 Hearing''].
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A total of 41 states currently collect state income
taxes\6\ and each has established a threshold for when an
earner must pay such taxes and when the employer must
withhold.\7\ The thresholds generally fall into two categories
at which employers must begin to withhold income for state tax
purposes: a threshold based on the number of days that the
employee earned income in the state and a threshold based on
the amount of income earned in the state.\8\ For example, New
York requires withholding after an individual has worked 14
days within the state.\9\ In contrast, Wisconsin requires
withholding once the employee has earned at least $1,500 within
the state.\10\
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\6\Mobile Workforce State Income Tax Simplification Act of 2011:
Hearing on H.R. 1864 Before the Subcomm. on Courts, Com. and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 41 (2011) [hereinafter
the ``2011 Hearing'']. The following nine states do not impose an
individual income tax: Alaska, Florida, Nevada, New Hampshire, South
Dakota, Tennessee, Texas, Washington, and Wyoming. Although the
District of Columbia may tax its residents, Federal law bars it from
taxing the income of non-residents. Pub. L. No. 93-198 (1973). But see
Mobile Workforce State Income Tax Simplification Act of 2013: Hearing
on H.R. 1129 Before the Subcomm. on Reg. Reform, Com. and Antirust Law
of the H. Comm. on the Judiciary, 113th Cong. 33-39 (2014) (statement
of Jeffrey A. Porter, Owner, Porter & Associates, CPAs, on behalf of
the American Institute of Certified Public Accountants) (contending
that not 41 but 43 states impose an income tax).
\7\2015 Hearing (written statement of Doug Lindholm, President and
Executive Director of the Council on State Taxation, at 2).
\8\2011 Hearing at 17 (written statement of Jeffrey A. Porter,
speaking on behalf of the American Institute of Certified Public
Accountants).
\9\State of New York--Department of Taxation and Finance, Income/
Franchise Tax--District Office Audit Manual, Withholding Tax Field
Audit Guidelines, at 24 (Sept. 17, 2004), available at http://
www.bcnys.org/inside/tax/withholding.pdf.
\10\Wis. Stat. Sec. 71.64(6)(b) (2015).
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As a result of these differing thresholds, both states and
employees have burdensome compliance and paperwork
requirements,\11\ which are particularly challenging for
employees who must travel for work.\12\ Accordingly, a solution
that would impose a national uniform standard is urged by those
who have encountered such difficulties.
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\11\2015 Hearing (written statement of Doug Lindholm, President and
Executive Director of the Council on State Taxation, at 2).
\12\2011 Hearing at 2 (statement of Ranking Member Coble); id., at
35 (written statement of Joseph R. Crosby, COO and Senior Policy
Director for the Council on State Taxation).
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H.R. 2315 seeks to address these differing standards by
establishing a national uniform threshold. Specifically, it
bars a state from imposing income taxes on a non-resident until
the non-resident has worked more than 30 workdays within a
calendar year within the state.\13\ The 30-day threshold would
not apply, however, to certain high-income individuals (e.g.,
professional athletes, entertainers, and certain public
figures), although they would still be subject to current state
thresholds.\14\ The bill defines what constitutes a workday to
ensure that no state double counts the workday of an
employee.\15\
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\13\H.R. 2315, Sec. 2(a)(2).
\14\H.R. 2315, Sec. 2(d)(2) (high-income individuals are excluded
from the definition of ``employee'' and therefore the 30-day threshold
would not apply to them).
\15\H.R. 2315, Sec. 2(d)(1).
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CONCERNS WITH H.R. 2315
I. H.R. 2315 WILL RESULT IN MAJOR TAX REVENUE LOSSES FOR CERTAIN STATES
H.R. 2315's 30-day threshold would allow a non-resident
employee to work six entire business weeks (or more than ten
percent of the year) in another state and avoid an obligation
to pay any income taxes to that state.\16\ The Congressional
Budget Office (CBO) stated that ``H.R. 2315 would impose an
intergovernmental mandate as defined by the Unfunded Mandates
Reform Act'' and result in major revenue losses of ``between
$50 million and $100 million per year'' collectively.\17\ CBO
estimates that ``New York would probably lose the largest
amount of revenue--between $50 million and $125 million per
year, according to state and industry estimates--and Illinois,
Massachusetts, and California would face smaller losses.''\18\
The State of New York itself estimates that the bill will lead
to a tax revenue loss of between $100 million and $125 million
starting in 2017.\19\ Of note, this ``revenue loss is greater
than the revenue impact on all other states combined.''\20\
Such shortfalls in tax revenues would force states to make up
these losses by shifting the tax burden to resident taxpayers
through increased property, income, and sales taxes, and
perhaps by cutting governmental services. Unfortunately, an
amendment offered by Representatives Jerrold Nadler (D-NY) and
Hakeem Jeffries (D-NY) that would have shortened the threshold
to a reasonable 14 days failed by a vote of 7 to 12.\21\
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\16\Unofficial Tr. of Markup of H.R. 1864, the Mobile Workforce
State Income Tax Simplification Act of 2011: Before the H. Comm. on the
Judiciary, 112th Cong. 94 (Nov. 17, 2011) (statement of Representative
Jerrold Nadler).
\17\Congressional Budget Office Cost Estimate, H.R. 2315: Mobile
Workforce State Income Tax Simplification Act of 2015 (July 21, 2015).
The Unfunded Mandates Reform Act is intended to curb the practice of
imposing Federal mandates on state and local governments without
adequate funding. Unfunded Mandates Reform Act of 1995, Pub. L. No.
104-4, 109 Stat. 48 (1995).
\18\Id. The ranges of revenue losses for New York exceed the range
of overall losses for the states collectively because ``states tax
income at different rates and on different tax bases, the changes in
tax revenues nationwide would not net to zero.'' Id.
\19\Letter from Jerry Boone, Commissioner of the Department of
Taxation and Finance, State of New York, to Speaker John Boehner,
Minority Leader Nancy Pelosi, Representative Bob Goodlatte, Chairman of
the House Committee on the Judiciary, & Representative John Conyers,
Jr., Ranking Member of the House Committee on the Judiciary (July 8,
2015) (on file with the H. Comm. on the Judiciary, Democratic Staff).
In his letter, Commissioner Boone details how his office calculated
that figure:
GOur estimate is constructed through a simulation of actual New
York State nonresident tax returns from tax year 2012. Nonresident
wages, the base of the estimate, are grown to tax year 2017 using the
most recent forecast from the New York State Division of the Budget. We
also build in a behavioral assumption regarding the actions likely to
be taken by some nonresidents to stay below the 30-day threshold.
Finally, the estimate includes an offset for the reduction in the
resident credit New York provides to its residents who work out-of-
state.
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\20\Id.
\21\2015 Markup at 40.
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II. H.R. 2315 HINDERS ENFORCEMENT OF INCOME TAX COLLECTION
H.R. 2315 also could prohibit an employer from withholding
an employee's income taxes owed to a non-resident state.
Section 2(c) of the bill provides that--for purposes of
determining an employer's obligation to withhold state income
taxes for an employee--an employer may rely on the employee's
determination of the time the employee is expected to spend in
another state during the year.\22\ Thus, if the employee does
not inform his or her employer about expecting to spend more
than 30 work days during the calendar year in another state,
this provision effectively prevents the employer from
withholding an employee's state income taxes to a non-resident
state. ``This is true even if the employer is aware that the
employee has been working in a state more than 30 days, as long
as that state cannot prove that the employee committed fraud in
making his annual determination and that the employer knew
it.''\23\ As a result, H.R. 2315 undermines enforcement of
state income tax collection.
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\22\H.R. 2315, Sec. 2(c).
\23\MTC Letter.
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CONCLUSION
Although real problems are presented for both states and
employees as the result of disparate state employment tax
withholding criteria, H.R. 2315 is not the solution. We cannot
support legislation that will cause states to incur significant
revenue losses, which the bill in its current form would do.
Nevertheless, had the amendment to H.R. 2315, which would have
shortened the threshold period to 14 days been accepted, we
could have supported this revised version of the legislation
because it would have lessened its impact on state revenues
while still providing the certainty proponents of the
legislation seek. Absent a more reasonable threshold, we must
oppose the bill as ordered reported by the Committee.
Mr. Conyers, Jr.
Mr. Nadler.
Ms. Chu.
Mr. Jeffries.
[all]