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COVID-19 Bill Unlikely to Feature Relief for Traveling Workers

Posted on July 13, 2020

Tax obligations for traveling workers are not likely to be standardized in an upcoming coronavirus package, but advocates hope the pandemic has highlighted flaws in tax collection procedures for those forced to work from home.

Senate Majority Leader Mitch McConnell, R-Ky., is targeting the end of July for a final coronavirus relief package, telling reporters he thinks the country needs one last boost to help the economy recover. The package is likely to include another set of stimulus payments and tax credits for businesses reconfiguring their stores.

A bipartisan pair of senators wants the package to include a long-term goal of theirs by providing relief for traveling workers, especially those who volunteered in other states during the pandemic. Senate Republican Whip John Thune of South Dakota and fellow Finance Committee member Sherrod Brown, D-Ohio, introduced the Remote and Mobile Worker Relief Act of 2020 (S. 3995) to streamline tax policy for traveling workers and prevent them from being hit with income tax bills from states where they worked temporarily.

The bill’s introduction follows statements by New York Gov. Andrew Cuomo (D) indicating that volunteer healthcare professionals who traveled to New York would have to pay state taxes.

The bill would exempt workers from filing returns in a state where they worked for 30 or fewer days. The exemption would be extended to 90 days for those who worked out of state during the pandemic.

“We’ve seen this story before,” Andrew Moylan of the National Taxpayers Union told Tax Notes, referring to out-of-state workers being taxed after helping with recovery efforts in New York following Hurricane Sandy in 2012. “There is every reason to believe it will repeat this time, absent some sort of congressional action.”

The bill’s sponsors have been meeting with Senate leadership on the issue and say they have the support of most of their colleagues.

“Support for this measure is overwhelming because it benefits most states,” Brown told Tax Notes. He has been trying to standardize tax policy for traveling workers for almost a decade.

Despite the idea’s popularity among lawmakers, bills to standardize the taxation of traveling workers have found only moderate success. A Republican-controlled House approved a measure in 2017, but the bill didn’t gain much support in the Senate because of its opposition by the New York delegation, including Senate Minority Leader Charles E. Schumer, D-N.Y.

Brown said reasons for the bill’s failure three years ago are still at play to prevent its inclusion in a coronavirus package. Without naming Schumer, Brown said that “powerful unnamed people” don't see the issue as important enough to be included in the next package.

The Brown-Thune bill has its own powerful backers, including the U.S. Chamber of Commerce, the Business Roundtable, and the Securities Industry and Financial Markets Association. Large companies have for years tried to change the law on taxing traveling workers, and now see a viable path by tying the bill to a provision exempting remote workers from state nexus laws during the pandemic.

The Nexus Addition

S. 3995 goes further than prior mobile tax simplification bills by clarifying how remote workers should be taxed during the pandemic. The bill dictates that the taxing jurisdiction of an employee is that of their employer regardless of where the employee is located if they are working remotely during the pandemic. It also clarifies that no nexus or minimum contact is created by an employee working in a state for an out-of-state business during the pandemic.

“A federal solution is needed because the states are taking different and conflicting positions on how the income of workers displaced by the pandemic should be taxed,” a coalition of businesses and trade groups told Congress in a July 2 letter.

Like some other states, Illinois has issued guidance to out-of-state employers telling them they may need to withhold Illinois income tax for employees working at home in Illinois because of the pandemic. Other states, like New Jersey, announced that they will suspend nexus thresholds for employees working from home during the pandemic. But most states have remained silent on the issue.

“When there is competition among states like that, you can’t leave it up to the states. Some states are advantaged, and others aren’t,” Brown said.

Maureen Riehl of MultiState Associates said the states’ varying policies are putting businesses and employees at a disadvantage. “You can’t on the one hand support work-from-home and social distancing orders, and on the other hand punish people for doing exactly that,” she said.

Riehl, who heads the Mobile Workforce Coalition, said the addition of the nexus exemption would allow states to deal with a new stage in the workforce. “This is a modernization of an income tax economy,” she said.

The bill has given the issue new life in the Senate. Riehl said the coalition has slightly reduced lobbying the House since Rep. Jerrold Nadler, D-N.Y., became chair of the Judiciary Committee.

Nadler has been a vocal opponent of standardizing the process because of its negative impact on New York’s revenue. It was clear to the coalition that he would not entertain a hearing on the bill in his committee.

Adding the measure into a coronavirus package would allow proponents to sidestep the formal process generally required for a bill. But proponents recognize it is a tall order, especially as states reel from the revenue shortfalls caused by the pandemic. “States are always opposed to any kind of federal action that might constrain them, especially when it comes to revenue collection,” Moylan said.

But that won’t stop the coalition from moving ahead with its lobbying efforts, going into the next Congress if necessary, Riehl said. It’s been reinvigorated by the desire it saw in Congress to finally standardize tax collection procedures during a changing economy that may see more people working from home. “The debate is to come,” Riehl said.

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