The Multistate Tax Commission (MTC) Income and Franchise Tax Uniformity Subcommittee is considering a “Draft Model Mobile Workforce Statute.” This model state statute would govern nonresident employee withholding. The model withholding statute is the MTC’s attempt to fend off federal legislation (H.R. 2110, the Mobile Workforce State Income Tax Fairness and Simplification Act).
The MTC draft and the federal legislation adopt a different threshold number of days that a nonresident employee must work in a state before his or her employer must withhold. The federal legislation requires at least 30 days of in-state service during the calendar year (a reduction from 60 days in the original draft bill), while the MTC draft requires 20 days. The MTC draft also includes two requirements not included in the federal legislation: (1) the nonresident has no other in-state income; and (2) the nonresident’s state of residence provides a “substantially similar” exclusion from wage withholding. However, both proposals provide that nonresident wages excluded for withholding purposes are also excluded for purposes of determining the nonresident’s personal income tax obligations (thus, both the employer and the employee are off the hook).
The MTC’s draft and the federal bill also differ as to what constitutes a “day” for purposes of the respective thresholds (you guessed it, the MTC says one minute in the state is an entire day in the state). In contrast, the federal legislation adopts a much more reasonable “preponderance” of a day test to allocate wages to a state. For a more detailed analysis of the states’ withholding requirements, please contact a member of the Sutherland SALT team.
The MTC draft will likely be expedited for approval in light of the looming federal bill and could be finalized as early as March 2010 for consideration at the MTC’s July 2010 meeting. The Subcommittee will hold a conference call on January 22 to discuss the current draft. We live for MTC meetings and will be watching (and reporting) on future developments.