A Pro-Taxpayer Federal Preemption

Gird for battle, New Mexico revenucrats. Some in D.C. are looking to clip a little bit of your cash.

Earlier today, the Judiciary Committee of the U.S. House of Representatives held a markup of H.R. 1393, the Mobile Workforce State Income Tax Simplification Act of 2017. Chairman Bob Goodlatte (R-VA) is a fan of the legislation, calling it “a clear, uniform framework for when states may tax nonresident employees who travel to the taxing state to perform work.” Fans of bipartisanship and “getting along” and “No Labels” — we’re looking at you, Bob Perls — will be pleased to learn that many in the congressional minority, including Sen. Sherrod Brown (D-OH), are supporters. He sees it as a “simple fix” that will “make filing taxes easier for workers who travel while also cutting burdensome red tape on businesses.”

The problem being addressed, as explained by the Mobile Workforce Coalition, is that states “have inconsistent, varying standards and requirements for employees to file personal income tax returns when traveling to a nonresident state for temporary work periods, and for employers to withhold income tax on employees who travel outside of their state of residence for temporary work periods. Employees who travel outside of their states of residence for business purposes are subject to onerous administrative burdens because they may be legally required to file an income tax return in every other state into which they traveled, even if they were only there for one day. Employers are required to incur extraordinary expenses in their efforts to comply with the states’ widely divergent withholding requirements for employees’ travel to nonresident states for temporary work periods. And in some cases, requirements for employees and employers aren’t the same.”

Half of income-tax states force employers to withhold from nonresident employees’ wages when the workers travel into the state for a single day. (See the map above.) At 15 days, New Mexico’s withholding law isn’t as draconian as Colorado’s mandate, which kicks in immediately. But there’s certainly room for improvement. Texas, of course, has no income tax to comply with. Arizona’s minimum is 60 days. Oklahoma’s standard is $300 or more per calendar quarter — not much of a perk, since that equates to an hourly rate of about a buck and a half an hour for a workweek of 40 hours.

The bill marked up today “provides for a uniform, fair, and easily administered law and helps to ensure that the correct amount of tax is withheld and paid to the states without the undue burden that the current system places on employees and employers. The Act provides a uniform 30-day threshold before the liability attaches and withholding is required. After 30 days, existing state laws will apply. Consistent with current law, the Act provides that an employee’s earnings are subject to full tax in his or her state of residence. Further, an employee’s earnings would be subject to income tax in the state(s) in which the employee is present and performing duties for more than 30 days during the calendar year.”

The Tax Foundation notes that just about everyone, “except some state tax administrators, supports this legislation.” Fedpols from around the nation, and both parties, have signed on as sponsors and supporters. But the list doesn’t include any member of New Mexico’s House delegation. And neither Tom Udall nor Martin Heinrich have endorsed the Senate version of H.R. 1393. Why not?