Washington, D.C. – House Judiciary Committee Chairman Bob Goodlatte (R-Va.) delivered the following remarks during the House Judiciary Committee’s markup of the Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393).
Chairman Goodlatte: The Mobile Workforce State Income Tax Simplification Act provides a clear, uniform framework for when states may tax nonresident employees who travel to the taxing state to perform work.
In particular, this bill prevents states from imposing income tax compliance burdens on nonresidents who work in a foreign state for 30 days or less in a year.
The state tax laws that determine when a nonresident must pay a foreign state’s income tax and when employers must withhold this tax are numerous and varied.
Some states tax income earned within their borders by nonresidents even if the employee only works in the state for just one day. These complicated rules impact everyone who travels for work and many industries.
As just one example, the Judiciary Committee heard testimony in 2015 that the patchwork of state laws resulted in a manufacturing company issuing 50 W-2s to a single employee for a single year.
The company executive also noted regarding the compliance burden that, “[m]any of our affected employees make less than $50,000 per year and have limited resources to seek professional advice.”
States generally allow a credit for income taxes paid to another state. However, it is not always dollar for dollar when local taxes are factored in. Credits also do not relieve workers of substantial paperwork burdens.
There are substantial burdens on employers as well. The Committee heard testimony in 2014 that businesses, including small businesses, that operate interstate are subject to significant regulatory burdens with regard to compliance with nonresident state income tax withholding laws. These burdens distract from productive activity and job creation.
Nevertheless, some object that the States will lose revenue if the bill is enacted. However, an analysis from Ernst & Young found that the bill’s revenue impact is minimal.
There is little motive for fraud and gaming because the amount of money at issue, taxes on 30 days’ wages or less, is minimal. Also, the income tax generally has to be paid. The question is merely to whom.
Nor does this bill violate federalism principles. On the contrary, it is an exercise of Congress’s Commerce Clause authority in precisely the situation for which it was intended.
The Supreme Court has explained that the Commerce Clause . . . [was] informed . . . by structural concerns about the effects of state regulation on the national economy. Under the Articles of Confederation, state taxes and duties hindered and suppressed interstate commerce; the Framers intended the Commerce Clause as a cure for these structural ills.”
This bill fits squarely within this authority by bringing uniformity to cases of de minimis presence by interstate workers, in order to reduce compliance costs.
Last year’s version of the bill passed the House on suspension by voice vote. This year’s version is nearly identical, with two substantive changes. The professional-entertainer exemption is narrowed from a “person who performs services” to a “person of prominence who performs services,” in order to ensure that other entertainers retain the benefit of the bill’s protections.
Second, the list of exclusions is expanded to cover film production employees if associated tax credits for in-state productions are contingent on withholding film production wages earned in the state. This avoids disruption to such arrangements.
I commend the bill’s lead sponsors, Representatives Bishop and Johnson, and thank all of the bill’s cosponsors. I urge the bill’s passage, and I reserve the balance of my time.