Moments ago, the United States House of Representatives (House) passed the Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) by voice vote. The Act will now be delivered to the United States Senate (Senate) for introduction and referral to committee for consideration. While the Senate Committee on Finance has not advanced a companion bill (S. 386) introduced by Senators John Thune (R-SD) and Sherrod Brown (D-OH) in February 2015, the bill currently touts 45 co-sponsors.
Background
The Mobile Workforce Act that passed today was introduced in May 2015 by Representatives Mike Bishop (R-MI) and Hank Johnson (D-GA). As highlighted in our prior coverage, the bill advanced out of the House Judiciary Committee in June 2015 by a vote 23-4. This legislation has been introduced in the House by each Congress since it was first introduced in 2006 by the 109th. While the legislation has seen some degree of success in the House, it has yet to advance beyond the Senate Committee on Finance. Notably, in May 2012, a prior version of the Act was passed in the House, but the Senate Committee on Finance did not take it up for consideration.
The Mobile Workforce Act
While the Mobile Workforce Act has been tweaked over the years, its underlying objective has largely remained the same—to providing a workable, national framework for the administration of, and compliance with, the states’ incongruent withholding and nonresident income tax payment laws. The version of the Act passed by the House today establishes a thirty-day safe harbor for traveling employees from nonresident state personal income taxes, and greatly reduces and simplifies the withholding and reporting burdens and related costs to their employers. Specifically, an employee working in a nonresident state for thirty or fewer days would not pay personal income tax to the nonresident state. Instead, the employee would remain fully taxable in its resident state on these earnings.
Under the Act, employers would not be required to withhold taxes in the nonresident state for employees whose travel falls at or below the thirty-day threshold in the state. In making this determination, the Act allows employers to rely on an employee’s annual determination of the time they will spend working in a state, absent fraud or collusion by the employee. The definition of “employee” has the same meaning given to it by the state in which the employment duties are performed, subject to only a few exceptions (including professional athletes, professional entertainers, and public figures who are persons of prominence who perform services for wages or other remuneration on a per-event basis).
As passed today, the “Act shall take effect on January 1 of the [second] year that begins after the date of the enactment of this Act” and retroactive application is expressly prohibited. Practically speaking, this means that the absolute earliest the Act could take effect is January 1, 2018 (assuming the Senate passes and President approves the Act this year), and would apply to tax obligations that accrue beginning then.
Practice Note
If recent history is any indication, the outlook in the Senate remains somewhat bleak. Looking at the glass half full, the Senate companion bill does enjoys 45 co-sponsors this time around—a figure that has been much less in the past. With elections and a lame-duck session right around the corner, it will be interesting to see if the Senate has an appetite to advance the Act this year.
The two other state tax bills advanced by the House Judiciary Committee last summer (i.e., the Digital Goods and Services Tax Fairness Act of 2015 and the Business Activity Tax Simplification Act of 2015) were not included on this week’s House suspension calendar for consideration.
More significantly in the eyes of many, the House Judiciary Committee has yet to formally consider one of the widely discussed online sales tax bills. This inaction comes amidst legislative and judicial turmoil as states continue to challenge the continued viability of the Quill physical presence standard.
The situation is only expected to get worse, as we understand several states are preparing to introduce South Dakota-style legislation (i.e., similar to S.B. 106) during their upcoming 2017 legislative sessions. As more states follow the lead of aggressive states likes South Dakota and Alabama, the desperation for a Congressional solution will continue to increase. While we applaud the passage of the Mobile Workforce Act, Congress continues to leave the most important issue on the table.
