Bloomberg News

State Ability to Tax Traveling Workers Limited in U.S. House

May 15, 2012

The U.S. House passed a measure limiting states’ ability to tax those working temporarily in their borders, which would ease employee burdens and reduce revenue for New York.

The House today approved legislation on a voice vote that would prevent states from taxing the income of workers who visit for fewer than 31 days. Similar legislation hasn’t advanced in the U.S. Senate.

Businesses including Microsoft Corp. (MSFT:US), American Express Co. (AXP:US) and Time Warner Inc. (TWX:US) have pressed Congress to replace a patchwork of state tax laws. The shift would cut as much as $100 million a year from New York’s revenue, with smaller reductions for other states with a large number of visiting workers including Illinois, Massachusetts and California, according to the Congressional Budget Office.

“Tax simplification, on both the federal and state level, will allow workers and employers to predict their tax liabilities with accuracy and expend fewer resources researching the nuances of each state’s respective law,” Representative Howard Coble, a North Carolina Republican who sponsored the bill, said on the House floor today. “The money they would have spent hiring accountants and tax lawyers can then be spent creating meaningful jobs and growing the economy.”

Most States

The measure would affect most U.S. states, which tax out- of-state residents from their first day of work or after a certain time or income level, according to the Council on State Taxation, a Washington-based taxpayer group that supports the bill. The legislation is opposed by public employee unions, which say it would mark a costly intrusion into the taxing authority of local governments.

The varying state laws can be a burden to employees who must file taxes in multiple jurisdictions and businesses that must keep track of where their income is earned.

Dozens of companies, including AT&T Inc. (T:US), Hewlett-Packard Co. (HPQ:US) and Lockheed Martin Corp. (LMT:US) signed a letter to congressional leaders urging them to pass the measure. Supporters said it will simplify tax rules at odds with an increasingly mobile workforce.

Not all workers would benefit. The limits won’t apply to the earnings of athletes, entertainers and public figures who command hefty speaking fees, which states would be allowed to tax as they do currently.

Little Revenue Effect

States have yet to rebound from the revenue loss brought on by the recession and the slow pace of economic recovery. Hank Johnson, a Georgia Democrat who supported the bill, said it would have little effect on most states’ revenue.

“For the vast majority of states, this bill contains minimal, or no, revenue impact,” Johnson said on the House floor. “At a time when more and more Americans find themselves traveling for their jobs, this bill is a common sense solution.”

Most states give residents a credit for taxes paid for work elsewhere. The measure’s effects will depend on the difference between the amount states lose by taxing visiting workers and how much comes back from their residents.

States such as New York that draw a large number of traveling workers would lose the most, the budget office said, while nearby states such as Connecticut and New Jersey probably would gain tax revenue.

The Federation of Tax Administrators, a Washington-based nonprofit group that works on behalf of states, recognizes the need to streamline state tax laws, said Gale Garriott, the group’s executive director. Still, he said the group favors a narrower time frame to limit the effect on states such as New York.

“That would take difficulty off dealing with the revenue loss,” he said. “There is recognition that this is a situation that should be addressed.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net.

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net.


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