Mobile Workforce Protection Reintroduced in Congress, Enacted in West Virginia and Louisiana
By Jeff Glickman, SALT Partner-in-Charge
At a glance:
- The main takeaway: Now that business travel is opening back up and more employees will be performing services in multiples states, federal and state lawmakers are contemplating legislative protections for mobile workers and their employers.
- Impact on your business: There are potentially costly state tax implications of a mobile workforce, which your business needs to understand and plan for.
- Next steps: Going forward, your business should focus on employment and payroll tax requirements to avoid liabilities.
The full story:
As businesses continue to reopen and return to a more normal working environment, there is likely to be an increase in employee travel.
During the COVID-19 shutdown, many businesses severely limited or prohibited employee travel for work reasons. However, businesses that rely on a mobile workforce — such as engineering firms that send engineers to project sites, software companies that perform on-site implementation or any business that has a mobile sales force — will once again deal with the burdensome issue of employee withholding. In addition, employees will also need to address whether or not they have an obligation to file as a nonresident in the state in which they travel to work.
The Mobile Workforce Coalition has a helpful infographic on its website that highlights the problem — over half of U.S. states have no threshold for determining if an employer is required to withhold or an employee is required to file in the state.
For over 15 years, Congress has introduced legislation from time to time that would prohibit states from requiring employers to withhold or employees to file and pay tax on wages earned from performing services in a state for less than a specific time period, which has varied from 30─60 days.
Most recently, the Senate introduced the “Remote and Mobile Worker Relief Act of 2021” (S.1274). This legislation would allow states to tax the wage income of employees who perform services in more than one state only under the following circumstances:
1. The employee is a resident of the state
2. The employee performed services in the state for more than 30 days during the calendar year
Employers would not be required to withhold tax on wages of employees that do meet either of those requirements.
As has been the case with prior versions of similar legislation, there are exceptions for professional athletes and entertainers, “certain public figures,” and for compensation paid in connection with a qualified or certified production (i.e., film/television) under a state incentive program where withholding is required for an expenditure to be treated as a qualified cost under such program.
These rules would apply to calendar years beginning on or after January 1, 2020. For 2020 and 2021, the 30-day rule becomes a 90-day rule for employees working outside their states of residence due to COVID-19.
Finally, the legislation would also provide state tax nexus protection to businesses with employees who worked remotely as a result of COVID-19. The protection could last as long as December 31, 2021, but may end sooner depending on whether or not an employer allows workers to return to their offices and, if so, at least 90% of those workers return.
Given Congress’s track record of not passing similar legislation in previous years, I do not think we should hold our breath — but perhaps in a post-COVID-19 environment, these issues will become a higher priority for our elected representatives.
Legislation in West Virginia and Louisiana
The “good” news is that businesses do not need federal legislation to address this issue (although certainly one, uniform law would be preferable). States are free to enact their own rules and provide much-needed relief to employers and mobile employees. In the last couple of months, both West Virginia and Louisiana have enacted mobile workforce protection legislation.
On April 9, 2021, West Virginia Governor Jim Justice approved H.B. 2026 (effective June 28, 2021), which establishes a 30-day safe harbor for nonresident employees who work in West Virginia and at least one other state during the calendar year. Similar to the federal legislation, the rules do not apply to professional athletes, professional entertainers or public figures. There is also a reciprocity requirement that mandates the employee’s state of residence must either provide a substantially similar exclusion or not impose an individual income tax. Once the nonresident employee works beyond the 30 days, the employer becomes obligated to withhold on the employee’s wages, including those earned in the first 30 days.
On June 16, 2021, Louisiana Governor John Bel Edwards signed S.B. 157 (effective January 1, 2022). This legislation is very similar to West Virginia’s legislation, except that the threshold is 25 days. In addition, Louisiana’s legislation excludes a “qualified production employee” (similar to the federal legislation) from the safe harbor rules as well as a nonresident that has other Louisiana-source income.
The bottom line
As businesses re-establish their pre-COVID activities, they need to focus on their employment and payroll tax requirements. States are very aware of the remote-work environment that gained prevalence during the COVID-19 pandemic and, as a result, may decide to scrutinize more closely where an employer has employees performing services.
We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
 While initially the reciprocity requirement may limit the applicability of the legislation, its goal is to encourage other states to enact similar legislation.
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.