Minnesota Legislation Would Ease Burdens for Business Travelers

Minnesota, long a high-taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. state, has doubled down on business taxes in recent years. However, a recent proposal exempting certain nonresident workers from having to file and pay income taxes would reduce compliance costs for business travelers and their employers at limited cost to the state.

Introduced by Senator Ann Rest (D), chair of the Senate tax committee, SF 46 would establish a 30-day threshold for temporary workers in the state to be exempt from filing and withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. requirements. To receive this allowance, the worker’s state of residence must also allow similar treatment or have no income tax. If a nonresident works in Minnesota for more than 30 days, filing and withholding requirements would apply to his or her entire income and not merely the income earned for working past those 30 days.

In the current text of the bill, a “qualifying nonresident individual” is further defined as someone who resides and customarily returns to another state at least once a month, and performs employment duties primarily outside Minnesota (with more duties in another state than in Minnesota on any given day). The bill also requires that employers maintain a “time and attendance system” to track employees’ work locations daily, ensuring accurate allocation of compensation across states for tax purposes, though alternative recordkeeping methods are permitted if no such system exists.

Wages paid to such qualifying nonresidents would be exempt from Minnesota’s withholding and filing requirements under sections 290.92 and 289A.09, respectively, reducing administrative burdens for both employees and employers. Employers are protected from penalties or interest for failing to withhold taxes if they reasonably rely on time and attendance data or other records in good faith to exempt themselves, even if some of their affected employees end up working more than 30 days against their best prior predictions.

Such a threshold is good economic strategy to simplify tax obligations for nonresidents, encourage interstate labor mobility, and reduce compliance costs, while ensuring Minnesota remains competitive with neighboring states’ tax policies. This would especially potentially benefit workers located in border regions and industries with mobile labor and capital, such as consulting and transport. A better version of this bill would, however, eliminate the mutuality requirements and instead offer this safe harbor neutrally to all nonresident workers under the threshold.

At present, nonresidents must file if their gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” from their employer is greater than or equal to the state’s minimum income, which as of 2024 is $14,575. Further, uniquely, Minnesota’s withholding threshold is likewise based not on the amount of state-sourced income a nonresident earns but on the amount of total income earned from an employer, irrespective of the location in which that income is earned. Thus, if an employer anticipates paying more than $14,575 to an employee for work performed anywhere, it must withhold from that employee on any taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. earned in Minnesota. As such, Minnesota’s filing and withholding thresholds are essentially irrelevant for full-time employees.

This means that, to remain compliant, every nonresident worker, even if they worked in the state for one day, is responsible for calculating and documenting the amount of income that they earned in the state. This is especially burdensome for low-income earners who do not have the advantage of professional help. For those who choose to file with popular online tax preparation services, moreover, the cost of adding an additional state return can easily exceed the amount owed to Minnesota. Employers are also responsible for appropriately tracking hours and withholding state income tax. This imposes a significant recordkeeping and compliance burden on firms and employees, even if no actual filing or tax payments are eventually due. The bill, if passed, will significantly alleviate this burden and uncertainty regarding tax filings.

Minnesota, of course, is not alone with this deficiency in its tax system. As of January 2025, almost half the states in the country treat nonresident workers similarly, even though compliance is likely very low.

Since taxpayers can anyway claim a credit on their tax liability from another state, this has very little impact on their overall taxes due. Minnesota’s comparatively high taxes might yield some additional tax payment, but for those working briefly in the state, the real cost is the need to file and remit, not the tax burden itself.

Minnesota already has tax reciprocity with Michigan and North Dakota, meaning that residents of those states who work (some or all of the time) in Minnesota pay taxes to their home state, not Minnesota—and vice versa for Minnesota residents working in those states. A filing and withholding threshold would extend some of this benefit to residents of other states which either forgo an income tax or have similar thresholds, albeit on a time-limited basis.

A growing number of states are adopting filing and withholding thresholds, recognizing that taxing those only in the state for a few days is not worth the compliance cost to the taxpayer or the administration costs for the state. Under SF 46, Minnesota may be the next state to join their ranks.

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