 | ||
November 2007 | ||
|
Special Issue Payroll Insights is a publication from KPMG LLP’s Employment Tax Practice. It is designed to provide you with current developments in the payroll and employment tax arena and will be published periodically throughout the year as developments warrant. In This Issue | |
|
U.S. House Subcommittee on Commercial and Administrative Law hearing held on November 1 regarding the Mobile Workforce State Income Tax Fairness and Simplification Act of 2007 On November 1, 2007, the U.S. House Subcommittee on Commercial and Administrative Law held a hearing on H.R. 3359. This bill would (1) impose a 60-day in-state threshold before a state could require a nonresident employee to file an income tax return in the nonresident state and (2) provide that an employer’s withholding obligation is not triggered until the 60-day threshold is met. This legislation was drafted in response to the various inconsistencies amongst states with respect to when a tax return filing obligation or an employer withholding obligation exists with respect to nonresident employees. These inconsistencies can exacerbate the already complex burdens placed on businesses that have a mobile workforce. The bill provides that a nonresident employee may not be subject to income tax in a state or locality unless the employee resides in the state or locality or is physically present in that state or locality for more than 60 days. Correspondingly, the employer would not have to report or withhold from the employee’s wages until the employee is subject to income tax in the state. The bill defines “day” as any day when the employee is physically present in the jurisdiction and performs more than 50 percent of the employee’s employment duties in the jurisdiction. At the hearing, testimony was heard from a number of persons. Doug Lindholm, President and Executive Director of COST testified in favor of the bill, stating that this issue is a widespread problem for businesses that Congress should solve. In his opinion, H.R. 3359 contains a simple solution that balances states' rights with the substantial federal interest in reducing the burdens placed on businesses. Harley Duncan, the Executive Director of the Federation of Tax Administrators, voiced three major policy objections to the bill. First, he argued that if enacted, this bill would represent a substantial intrusion into the authority of a state to impose tax on income earned within its borders. Secondly, the bill would contradict a fundamental federal and state tax principle that income is taxed where the services giving rise to the income are performed. Finally, Mr. Duncan noted that H.R. 3359 goes where no Congress has gone before concerning individual income taxation. In the past, Congress has only acted to restrict a state’s ability to impose individual income taxes when there was a substantial federal interest implicated or where workers were regularly engaged in interstate commerce in the regular course of doing their jobs (i.e., railroad workers, airline employees). Finally, Professor Walter Hellerstein argued that Congress has the authority to enact the bill and that enactment of the bill would be an appropriate exercise of congressional authority. After the testimony, members of the subcommittee asked questions of the witnesses. Many of these questions centered on whether the 60-day threshold period was appropriate and whether a dollars-earned-in-state threshold should also be included in the bill. In addition, on November 1, The American Institute of Certified Public Accountants (AICPA) endorsed HR 3359. "We need a simple and uniform system governing how states apply taxes to nonresidents doing business in their states," said James Metzler, AICPA Vice President -- Small Firm Interests. "Recordkeeping can be voluminous under the current regulatory scheme." KPMG will keep you apprised as additional details emerge on this topic through Payroll Insights and This Week in State Tax (TWIST) podcasts, which can be accessed at www.kpmgtaxwatch.com/. A podcast about HR 3359 can be downloaded from the November 5, 2007 edition of TWIST: http://www.kpmgtaxwatch.com/podcasts.aspx. | |||
| |||
|
Contact Us Our area leaders in the Employment Tax Practice are interested in your feedback, including any topics you might like to see addressed in future issues.
Subscribe to Payroll Insights If
you aren't already a subscriber, click
here to send an e-mail request to us |
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax advisor. |
|
To unsubscribe, please click
here to send a message to us with "Unsubscribe" in the subject line
and hit the Payroll Insights, KPMG LLP, 530 Chestnut Ridge Road, Woodcliff Lake, NJ 07677 © 2007 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. |
