Some states hit traveling employees with income taxes even if they are working in the state for a single day. Congress is considering a bill to limit the ability to tax brief employee stays. Tax Analysts reports ($link):
H.R. 1864, the Mobile Workforce State Income Tax Simplification Act, would allow a state to impose income taxes on an out-of-state employee’s wages only if the individual spends more than 30 days working in that state during a calendar year. The threshold would not apply to professional athletes, entertainers, and other high-profile individuals.
These rules are a paperwork nightmare for employers and employees, and are widely ignored — but potentially very costly when the states catch non-filers. This sort of bill would be very helpful to business while costing states little. Naturally, state tax collection bureaucrats are appalled.
Speaking at a Congressional Hearing yesterday, a representative of the bureaucrats made their case:
The Federation of Tax Administrators opposed the current bill. Patrick Carter, director of the Delaware Division of Revenue and president of the FTA Board of Trustees, said the bill would create tax avoidance opportunities and unnecessarily intrude on state tax sovereignty.
Carter acknowledged that New York has the most concerns with the bill, with the state set to lose an estimated $80 million to $100 million annually if the proposal becomes law.
The 30-day rule would be a big improvement over current law, but the exception for “professional athletes, entertainers, and other high-profile individuals” is misplaced. They obviously want to pick LeBron James’ pockets every time he shows up to play the Knicks, but there are plenty of athletes and entertainers who aren’t LeBron James. Every traveling musician, seminar provider or minor-league hockey player would have the same reporting liability as LeBron, without the zillion-dollar income to pay compliance costs.
Link: HR 1864