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COVID-19 Sparks Activity on Traditional Mobile Workforce Issues

Posted on Dec. 22, 2020

The COVID-19 pandemic is bringing to the surface a renewed focus on mobile workforce issues regarding when income tax return filing and withholding requirements are triggered by workers traveling to a state for a conference, for example.

The federal Remote and Mobile Worker Relief Act (S. 3995), one of the latest iterations of mobile workforce legislation to be introduced in Congress, would exempt workers from state income tax return filing and withholding requirements if they are in a state for 30 or fewer days.

Senate Majority Whip John Thune, R-S.D., and Finance Committee member Sherrod Brown, D-Ohio — the bill’s sponsors — this summer updated the proposal to include language that would establish a 90-day standard for healthcare workers who traveled to assist in another state during the pandemic. The bill also would preempt state income tax nexus issues raised by workers telecommuting from another state under stay-at-home orders “by codifying the pre-pandemic status quo,” according to Thune.

"Under my bill, if you planned to work in North Carolina but had to work from home in South Carolina during the pandemic, your income would still be taxed as if you were going in to the office in North Carolina, just as it would have been if the pandemic had never happened,” Thune said December 9. 

The National Conference of State Legislatures recently asked the Multistate Tax Commission and the Council On State Taxation to participate in a discussion of S. 3995, according to MTC Uniformity Counsel Helen Hecht, who provided the update during a December 17 standing subcommittee meeting. 

COST and the American Institute of CPAs in August endorsed enactment of the mobile workforce provisions as part of a federal COVID-19 relief package. But Hecht said that to her surprise, Doug Lindholm of COST indicated that the organization is also now focusing on a state-level solution. The MTC followed up with COST, the AICPA, and other groups that are in favor of federal legislation, and Hecht said it appears that there is some focus among these organizations on enacting state, rather than federal, legislation.

“COST continues to strongly support the federal legislation,” said Aziza Farooki, the organization’s policy director, in a December 21 email with Tax Notes. “But due to lack of action in the Senate to date, COST has drafted state model legislation that mirrors the federal legislation and is simultaneously working on state-by-state enactment. We just want to solve the problem; the federal solution is easier and definitely more uniform, but we would also seek uniformity in a state level effort.”

According to Hecht, the MTC is developing an analysis of the differences between congressional versions of the mobile workforce legislation, the COST draft state approach, and the model state mobile workforce withholding statute adopted by the MTC in 2011. The MTC model, created with assistance from COST members as an alternative to federal legislation, would generally establish a de minimis 20-day threshold before income tax return filing and withholding requirements would apply to traveling workers and their employers. The MTC hopes to make its analysis of the different proposals and models available within the next few weeks, Hecht said.

“Just to be clear, this mobile workforce legislation that has been introduced for many years now mainly addressed this idea of temporary workers in the state — traveling, going to conferences, meetings,” Hecht said. The remote telecommuting issue that has taken center stage during the COVID-19 pandemic is also addressed in S. 3995, but that issue is not part of the MTC model.

“It’s a different issue,” Hecht said, cautioning against an assumption that because the MTC has a mobile workforce model that the organization also has a position on remote workers. “We haven’t looked at that issue, but just from what we’ve seen around the country trying to deal with the pandemic, it raises a whole host of issues that obviously need to be approached with care,” Hecht said.

But because S. 3995 has received so much attention recently — the Senate in the past has included S. 3995 in its versions of COVID-19 relief proposals — the MTC thought it would be best to go on record formally opposing its passage, Hecht said. The organization’s longtime position is that the issue is best resolved at the state level.

In a December 17 letter to congressional leaders, the MTC opposed incorporating the text of S. 3995 into the final COVID-19 relief package. One notable issue for the MTC is that the list of exempt workers isn't long enough; it currently would exempt professional athletes and performers, movie producers, and some public figures from its 30-day threshold. The COST draft model language would retain these exemptions.

S. 3995 “discriminates against low-wage workers because all other high-wage workers are not included in the exemption list,” the MTC letter said. “For example, a well-paid CEO or money manager would not pay tax on 30 days of his physically-present work while a roofer would pay tax on much lesser wages when she works for thirty-one days.”

The MTC model addresses this issue by incorporating the definition of the term “key employees” contained in IRC section 416(i), the organization said in its letter to Senate Majority Leader Mitch McConnell, R-Ky., Senate Minority Leader Charles E. Schumer, D-N.Y., House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif.

The text of the $900 billion relief package announced by congressional leaders on December 20 was not available by press time. However, S. 3995 did not appear to be included in the initial drafts of the bills that served as the starting point for the latest round of negotiations (the Bipartisan COVID-19 Emergency Relief Act of 2020 and the Bipartisan State and Local Support and Small Business Protection Act of 2020). 

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