Apr 06, 2011

State Tax Withholding Simplification Coming?

We hope so -- it would be a good thing indeed.

We hear that the Executive Committee of the Multistate Tax Commission (MTC) has approved a model law which would establish a uniform standard for the manner in which states tax compensation earned by nonresidents.

Under the model, compensation earned by a nonresident in a state would be exempt from taxation in that state if:

  1. The nonresident has no other taxable income from sources within the state for the tax year in which the compensation was received;
  2. The nonresident is present in the state to perform employment duties for no more than 20 days during the tax year in which the compensation was received; and
  3. The nonresident's state of residence provides a substantially similar exclusion or does not impose any individual tax.

The rules would not apply to professional athletes, professional entertainers, prominent folks who perform services for compensation on a per-event basis, construction workers, and certain "key employees."

A good step forward -- folks who earn income in multiple jurisdictions (like some independent contractors and consultants) have long been burdened with multiple state (and sometimes even local) tax return filing and payment obligations -- often a compliance nightmare!