House Committee to Vote Thursday on State Income Tax on Out-of-State Business Travelers

November 16, 2011

Tomorrow (Thursday) at 10:00 AM, the House Judiciary Committee will vote on H.R. 1864, the Mobile Workforce State Income Tax Simplification Act. The bill sets a minimum theshold for states to subject individuals to their state income tax: presence of at least 30 days in the state. Currently, most states require tax payments and even tax withholding for workers in the state for much shorter periods of time, including as little as a day (see map).

The version the committee will be considering is a substitute for the original bill (PDF), which mostly cleans up and tightens the language. (There is one typo that I imagine will be fixed before tomorrow, an extra “not” on line 17 of the first page.) A summary of the bill’s key provisions:

  • An employee’s wages or other remuneration shall be subject to state income tax only in either:
    • the employee’s state of residence, or
    • a state where the employee is present and performing employment duties for more than 30 days during the calendar year. A day counts if the employee performs more employment duties in that state than in any other state during that day. Travel time does not count.
  • A state cannot impose withholding and reporting requirements unless the employee is subject to that state’s income tax.
  • Employers may rely on employee’s time determinations (either with actual knowledge or with records maintained in the regular course of business).
  • The bill does not protect professional athletes, professional entertainers, or public figures that give speeches or make personal appearances.
  • The bill takes effect on January 1 of the second year after enactment. Tax obligations before the effective date are not altered.

The proposal takes aim at state practices that 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 designed to raid revenue from business travelers. The U.S. Constitution empowers the Congress to enact laws restraining the states from such beggar-thy-neighbor policies, particularly where as here the overall revenue is a net national wash.

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