H.R.1393 – Mobile Workforce State Income Tax Simplification Act of 2017

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Week ending June 23, 2017

H.R.1393 – Mobile Workforce State Income Tax Simplification Act of 2017

Brief

The bill report states its purpose “The Mobile Workforce Act provides a clear, uniform framework for when states may tax nonresident employees who travel to the taxing state to perform work. In particular, the bill prevents states from imposing income tax compliance burdens on nonresidents who work in a foreign state for 30 days or fewer in a calendar year.”

“Forty-three states and the District of Columbia levy a personal income tax on wages and partnership income.\1\ The state tax laws that determine when a nonresident must pay a foreign state’s income tax, and when employers must withhold this tax, are numerous and varied.\2\ Some have a days worked in-state threshold. For example, for 2014, a nonresident is subject to tax after working fifty-nine days in Arizona, fifteen days in New Mexico, and fourteen days in Connecticut.\3\ Others have a de minimis exception to employer withholding requirements based on wages earned. That threshold is $1,500 in Wisconsin, $1,000 in Idaho, $800 in South Carolina, and $300 a quarter in Oklahoma.”

Thus the bill.

“The Mobile Workforce Act would substantially simplify state income tax laws by imposing a uniform standard for nonresident taxation and employer withholding. The bill provides that an employee is not subject to income tax in a nonresident state unless the employee has worked for more than thirty days in that jurisdiction.\15\ This threshold is not continuous, so an employee that makes a number of short business trips to a state might still cross it. Once tripped, the withholding obligation is retroactive to the first day worked in the state.”

“The bill further provides that an employer is not responsible for withholding on behalf of any employee who is not subject to a state income tax as a result of the bill.”

“The bill exempts certain professional athletes, entertainers, and public figures who, because of their prominence, are paid on a per appearance basis.”

(Dissenting Views)

(Full text of H.R. 1393 at congress.gov)

SponsorRep. Bishop, Mike [R-MI-8] (Introduced 03/07/2017)

Status: Passed House /

VOTES and FLOOR ACTION

HOUSE

On Passage: On motion to suspend the rules and pass the bill Agreed to by voice vote

House Amendments:

Motion to recommit:

Text of the motion:

SENATE

On Passage:

Procedural Actions:

Senate Amendments:

COST AND IMPACT

Cost to the taxpayersCBO estimates that enacting H.R. 1393 would have no direct effect on the federal budget.

Pay-as-you-go requirements:  Enacting H.R. 1393 would not affect direct spending orrevenues; therefore, pay-as-you-go procedures do not apply.

Regulatory and Other Impact:    H.R. 1393 would impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA) by prohibiting a state from taxing the income of employees who work in the state for fewer than 31 days. (The prohibition would not apply to the income of professional athletes, entertainers, some production employees, or public figures.)

UMRA includes in its definition of mandate costs any amounts that state governments would be prohibited from raising in revenues as a result of the mandate.

Because most states that levy a personal income tax allow residents to take a credit for income taxes that the residents pay to another state, the cost of the mandate would equal, for all states collectively, the difference between the amount of revenue that they would lose from nonresidents who work in the state for fewer than 31 days and the amount of revenue they would gain from residents whose credits for payments to other states would be lower under the bill.

Generally, states that have large employment centers close to a state border would lose the most revenue; states from which employees tend to commute would gain revenue. For example, Illinois, Massachusetts, California, and New York would face losses, with New York probably losing the largest amount of revenue–between $55 million and $120 million per year, according to state and industry estimates. In contrast, New Jersey would probably gain revenue. Because states tax income at different rates and on different tax bases, the changes in tax revenues nationwide would not net to zero.    On the basis of information from officials in a number of states, analysis of state tax data, and an analysis by Ernst & Young, CBO estimates that, for all states collectively, the bill would reduce net revenues by $55 million to $100 million per year beginning in 2020, the first full year that the bill’s changes would be in effect. That range stems from the underlying uncertainty about the amount of revenue that states collect from nonresidents and the amount they would receive from residents whose credits would be lower under the bill. CBO endeavors to develop estimates that are in the middle of a range of possible outcomes. On that basis, CBO has determined that the net cost of the intergovernmental mandate would be $78 million in 2020 and thus would not exceed the annual threshold established in UMRA in any of the first five years that the mandate becomes effective. (In 2017 the threshold is $78 million, and it is adjusted annually for inflation; in 2020, the threshold would be $84 million.)

Dynamic Scoring:   CBO estimates that enacting H.R. 1393 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

Tax Complexity:  Not applicable to this bill.

Earmark Certification:  In accordance with clause 9 of rule XXI of the Rules of the House of Representatives, H.R. 1393 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e), or 9(f) of rule XXI.

Duplication of programs: Data not available

Direct Rule-Making:  Data not available

Advisory Committee Statement: Data not available

Budget Authority:    Clause 3(c)(2) of rule XIII of the Rules of the House of Representatives is inapplicable because this legislation does not provide new budgetary authority or increased tax expenditures.

Constitutional Authority:   Assumed.

 

More Bill Information:

Dissenting Views

Concerns with the bill

 

We agree with the sponsors of H.R. 1393, the “Mobile Workforce State Income Tax Simplification Act of 2017,” that a uniform framework specifying when an employer must withhold state income tax could help ensure simplicity and be more administrable than the current varied state standards.\1\ However the means by which H.R. 1393 achieves this result would lead to significant state revenue losses. Specifically, the bill’s 30-day threshold is simply too long and, as drafted, could facilitate manipulation. Our concerns are shared by a broad coalition of labor and tax organizations, including the Federation of Tax Administrators, and the Multistate Tax Commission.\2\

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\1\See e.g., Unofficial Tr. of Markup of H.R. 1393, the Mobile

Workforce State Income Tax Simplification Act of 2017, H.R. 695, the

Child Protection Improvements Act of 2017, H.R. 883, the Targeting

Child Predators Act of 2017, and H.R. 1188, the Adam Walsh

Reauthorization Act of 2017: Before the H. Comm. on the Judiciary,

115th Cong. 76-78 (March 22, 2017) (statement of Chairman Bob Goodlatte

(R-VA)) [hereinafter “2017 Markup”].

\2\Letter from the American Federation of Labor and Congress of

Industrial Organizations, American Federation of State, County and

Municipal Employees, American Federation of Government Employees,

Amalgamated Transit Union, Communications Workers of America,

International Association of Firefighters, International Federation of

Professional and Technical Engineers, International Union, United

Automobile, Aerospace and Agricultural Implement Workers of America,

International Union of Police Associations, National Education

Association, Service Employees International Union, (March 21, 2017)

(on file with the H. of Representatives Comm. on the Judiciary,

Democratic Staff); Letter from Dawn Cash, President of the Federation

of Tax Administrators Board of Trustees and Commissioner of the

Oklahoma Tax Comm’n, to Representative Bob Goodlatte, Chairman of the

  1. Comm. on the Judiciary, & Representative John Conyers, Jr., Ranking

Member of the H. Comm. on the Judiciary (March 13, 2017) (on file with

the H. Comm. on the Judiciary Democratic staff); Letter from Gregory S.

Matson, Executive Director of the Multistate Tax Comm’n, to

Representative Bob Goodlatte, Chairman of the H. Comm. on the

Judiciary, & Representative John Conyers, Jr., Ranking Member of the H.

Comm. on the Judiciary (March 13, 2017) (on file with the H. Comm. on

the Judiciary Democratic staff) [hereinafter “MTC Letter”].

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For these reasons we must respectfully dissent and oppose HR1393.

 

CONCERNS WITH H.R. 1393

 

  1. H.R. 1393 WILL RESULT IN MAJOR TAX REVENUE LOSSES FOR CERTAIN STATES

 

H.R. 1393’s 30-day threshold would allow a non-resident employee to work six entire business weeks (or more than ten percent of the year) in another state and avoid an obligation to pay any income taxes to that state.\16\ The Congressional Budget Office (CBO) stated that “H.R. 1393 would impose an intergovernmental mandate as defined by the Unfunded Mandates Reform Act” and result in major revenue losses of “between $50 million and $100 million per year” collectively.\17\ CBO estimates that “Illinois, Massachusetts, California and New York would face losses, with New York probably losing the largest amount of revenue–between $55 million and $120 million per year, according to state and industry estimates”\18\ The State of New York itself estimates that the bill will lead to a tax revenue loss of between $95 million and $120 million starting in 2017.\19\ Of note, this “revenue loss is greater than the revenue impact on all other states combined.”\20\ Such shortfalls in tax revenues would force states to make up these losses by shifting the tax burden to resident taxpayers through increased property, income, and sales taxes, and perhaps by cutting governmental services. Unfortunately, the Committee rejected an amendment, offered by Representative Jerrold Nadler (D-NY) during the markup of the legislation, which would have shortened the threshold to a reasonable 14 days.\21\

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\16\Unofficial Tr. of Markup of H.R. 1864, the Mobile Workforce

State Income Tax Simplification Act of 2011: Before the H. Comm. on the

Judiciary, 112th Cong. 94 (Nov. 17, 2011) (statement of Representative

Jerrold Nadler).

\17\Congressional Budget Office Cost Estimate, H.R. 1393: Mobile

Workforce State Income Tax Simplification Act of 2017 (April 10, 2017).

The Unfunded Mandates Reform Act is intended to curb the practice of

imposing federal mandates on state and local governments without

adequate funding. Unfunded Mandates Reform Act of 1995, Pub. L. No.

104-4, 109 Stat. 48 (1995).

\18\Id. The ranges of revenue losses for New York exceed the range

of overall losses for the states collectively because “states tax

income at different rates and on different tax bases, the changes in

tax revenues nationwide would not net to zero.” Id.

\19\Letter from Nonie Manion, Executive Deputy Commissioner,

Department of Taxation and Finance, State of New York, to

Representative Bob Goodlatte, Chairman, House Comm on the Jud., and

Representative John Conyers, Jr., Ranking Member, House Comm. on the

Jud. (March 20, 2017) (on file with the H. Comm. on the Judiciary,

Democratic Staff). In his letter, Commissioner Boone details how his

office calculated that figure:

Our estimate is constructed through a simulation of actual New YorkState nonresident tax returns from tax year 2014. Nonresident wages, the base of the estimate, are grown to tax year 2019 using the most recent forecast from the New York State Division of the Budget. We also build in a behavioral assumption regarding the actions likely to be taken by some nonresidents to stay below the 30-day threshold. Finally, the estimate includes an offset for the reduction in the resident credit New York provides to its residents who work out-of-state.

\20\Id.

\21\2017 Markup at 98.

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  1. H.R. 1393 HINDERS ENFORCEMENT OF INCOME TAX COLLECTION

 

H.R. 1393 also could prohibit an employer from withholding an employee’s income taxes owed to a non-resident state. Section 2(c) of the bill provides that–for purposes of determining an employer’s obligation to withhold state income taxes for an employee–an employer may rely on the employee’s determination of the time the employee is expected to spend in another state during the year.\22\ Thus, if the employee does not inform his or her employer about expecting to spend more than 30 work days during the calendar year in another state, this provision effectively prevents the employer from withholding an employee’s state income taxes to a non-resident state. As concerned stakeholders have highlighted, “[e]ven if the employer knows where the employee has worked more than 30 days based on its own records, the employer may still rely on the employee’s advance estimate; this and the immediately preceding rule would allow an employee to knowingly underestimate the expected time in-state to avoid tax, and the employer could not be held to account if it turns a blind eye, i.e. avoids actual knowledge of fraud or collusion”\23\ As a result, H.R. 1393 undermines enforcement of state income tax collection.

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\22\H.R. 1393, Sec.  2(c).

\23\MTC Letter.

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CONCLUSION

 

Disparate state employment tax withholding criteria present real challenges for both states and employees. However we cannot support legislation that in its attempt to address these challenges will incidentally cause states to incur significant revenue losses. The amendment offered by Representative Nadler, which proposed to shorten the threshold period to 14 days, would have lessened this impact on state revenues while still providing the certainty proponents of the legislation seek. Had that change been made to the legislation we could have supported it. Unfortunately, absent a more reasonable threshold, we must oppose H.R. 1393.

 

Mr. Conyers, Jr.

Mr. Nadler.

Mr. Jeffries.

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