U.S. Senate could solve a taxation nightmare | Don Brunell’s Business View

Have you ever traveled to another state for your job, perhaps to attend a business meeting or a conference? Most people have. But few people realize that they may owe income taxes in that other state.

Have you ever traveled to another state for your job, perhaps to attend a business meeting or a conference? Most people have. But few people realize that they may owe income taxes in that other state.

In all, 41 states levy a tax on the income earned by nonresident employees during their time in the state, even if they’re just attending a conference. Each state calculates its tax differently — 24 states levy the tax from the very first day, while 17 others, including Oregon, Idaho and California, set thresholds of how long the nonresident employee can work before the tax liability is triggered.

Needless to say, this is an administrative nightmare for employers, particularly those with multiple locations or employees who travel frequently. It is the employer’s responsibility to calculate and withhold the taxes from their employees’ paychecks, and it’s the employee’s responsibility to file income tax returns in states that require it.

Complying with those obligations is complicated, costly and confusing, particularly for medium and small employers.

Each state has different tax rates, tax triggers and varying notions of what constitutes income and how to define a work day. Calculating each traveling employee’s tax burden must be done by hand, because payroll systems are not built to allow withholding in multiple locations during the pay period. Cross checking travel vouchers can’t be done automatically either, because travel reimbursements and payroll are two separate systems.

Because of the difficulties involved, most employers are not in compliance. According to The Council On State Taxation, because the information must be tracked and collected manually, employers with workers who travel frequently would need to add two or three employees just to comply with the law, adding $150,000 or more to the budget.

Imagine if you had to deal with something similar.

Imagine that your property tax isn’t based on your house as a whole, but calculated at a different rate for each room. The tax rate for your kitchen is different than the tax rate for your living room, etc. In order to pay the appropriate amount, you must keep a log of how much time you utilize each room and calculate your tax based on the time and tax rate for each room.

Now imagine you have a spouse and four kids. To figure out your tax liability, you must keep track of how much time each of them spent in each room in your house and use that data to calculate your total property tax.

Impossible? That’s how many business owners feel.

Fortunately, there’s a solution. It’s called the Mobile Workforce State Income Tax Simplification Act. This complicated-sounding legislation greatly simplifies the task of tracking and withholding state income taxes for traveling employees.

The bill would establish a uniform national requirement that nonresidents must work in a state for more than 30 days during a calendar year before they’re subject to out-of-state income taxes. The bill defines what a work day is and, to prevent double taxation, it clarifies that employees can get a tax credit in their home state for income taxes paid to other states. Analysts have determined that the measure is largely revenue neutral for the states.

The measure has already passed the House with bipartisan support. On September 12, nearly 200 business leaders wrote Majority Leader Harry Reid, D-Nev., and the rest of the Senate leadership urging them to pass the legislation.

This bill is a simple fix to a complicated problem that preserves revenue for the states while saving money for employers. The Senate should pass it quickly and send it to the president for his signature.