At New York’s request, a dollar threshold was included a decade ago in a model mobile workforce withholding statute that only one state adopted — and New York itself is worse off as a result, according to Doug Lindholm of the Council On State Taxation.
Speaking during a January 21 meeting of a Multistate Tax Commission standing subcommittee, Lindholm said some of the provisions included in the MTC’s 2011 mobile workforce model statute were included at the request of only one or two states.
“For example, the dollar threshold, I know, is at the request of the state of New York, which is understandable,” Lindholm said. “But I want people to step back a little bit and think about what’s happening now in New York.” Even pre-pandemic, corporate executives were not going to New York “because their income is not protected,” he said.
“They fly up to Teterboro and have a meeting there with their folks that come over to New Jersey,” Lindholm said. This means that New York loses out on all the ancillary tax revenue derived from such travel, including cab rides, restaurant meals, and hotel room bookings, he said.
COST recently surprised MTC staff by drafting model state legislation that would provide a 30-day safe harbor from income tax filing and withholding requirements for workers temporarily traveling to states for business meetings or to attend training events. COST’s intent is to have the state legislation mirror mobile workforce bills proposed in Congress, Lindholm said, adding that the organization is pursuing federal legislation while simultaneously seeking state-by-state enactment of the same provisions. COST just wants the issues resolved, he said.
At issue are classic mobile workforce problems that predate and are different from the temporary remote telecommuting issue that has taken center stage during the pandemic. However, the issues are being revisited partly because early Senate versions of COVID-19 relief packages in 2020 included traditional mobile workforce language and new provisions that would have required states to maintain their pre-pandemic tax treatment of workers temporarily telecommuting during the pandemic.
During the meeting, MTC staff shared a draft analysis of the differences between the MTC model, the COST proposal, and congressional versions of federal mobile workforce bills. MTC Counsel Brian Hamer, speaking on his own behalf, said it struck him that the MTC and COST proposals are not all that different. If that’s the case, he said, why doesn’t COST embrace the MTC model, which might lead to a greater likelihood of states adopting it?
The MTC model has a 20-day threshold before income tax filing and withholding taxes would be triggered. It also differs from the COST proposal in that it contains a dollar threshold, which Lindholm said is “a major concern that has kept us apart so far.”
“As soon as there’s a dollar threshold in here, it makes the recordkeeping and compliance issues for taxpayers worse than the existing law,” Lindholm said. One reason is because when a worker is paid a commission or bonus or other deferred income, the employer doesn’t know where that should be attributed, or even how much is earned in a specific state, he said.
COST authors expanded on the subject in January, writing that relying solely on a time-based threshold would eliminate the need for most employees to track travel for tax purposes.
“If a dollar threshold is imposed, it will require employers to track and calculate employee income for all traveling workers, a task that is next to impossible for employees paid partially through bonuses and commissions at the end of the year,” the COST authors wrote. They added that income is defined differently in every state, which means that a dollar threshold would require either a model definition of income or employers researching state statutes to calculate earnings on a per-day basis.
Uniformity Counsel Helen Hecht said the MTC intended the dollar threshold to be a way of identifying high earners. She said the difference between the 30-day threshold in COST’s proposal and the MTC’s 20-day threshold can translate to substantial wages for high earners.
The MTC model doesn’t clarify how to determine whether an employee exceeds the earnings threshold, but Hecht said one obvious way to do it would be to look to an employee’s prior-year earnings and withhold accordingly. But she said the MTC might need to develop model regs or further explain how that provision would work.
“I know that the MTC thought that provision was important,” Hecht said. She added that the drafters understood that there was a difference of opinion between the MTC and COST on the provision.
Lindholm, meanwhile, said that if New York were to enact COST’s proposal with its 30-day threshold, “then, granted, they may not get the high dollars for those 30 days, but they’ll still get all the ancillary revenues that derive from a visit to the state of New York.” New York is losing more money now than if it had a 30-day threshold and no earnings threshold, he said.
More importantly, New York’s adoption could set off a domino effect, Lindholm said, as the mobile workforce proposal would protect nonresident workers traveling into different states as well as a state’s own residents traveling for business.