Congress is considering legislation that would limit states’ power to 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. individuals who work in a state for less than 30 days. Currently, most states require tax payments and even tax 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. for workers in the state for much shorter periods of time, including as little as a day (the red states below). Traditionally imposed only on entertainers and athletes, increasing availability of public schedules is enabling states to reach further down into the business traveler community.
As I post this, I’m listening to a teleconference meeting of the Multistate Tax Commission (MTC), which is debating recommending model uniformity legislation on the issue. Like the congressional bill, the proposal will focus on a de minimis threshold: basing it on how many days an individual is in the state. (There is some talk of having an income threshold, as some states do; Montana Revenue Director Dan Bucks is fiercely resistant any restrictions on states’ taxing authority on business travelers (PDF).)
Current state practices disrupt interstate commerce and falsely suggest that business travelers earn their income in traveling states and not from the home office. In recent hearings, Congress has shown its outrage at these state practices, and it’s a good development that states, through the MTC, are talking with bill supporters in search for a compromise.
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Map Courtesy Council on State Taxation (COST)Share