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BREAKING NEWS: House Passes Mobile Workforce State Income Tax Simplification Act

Moments ago, the United States House of Representatives (House) passed the Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) by voice vote. The Act will now be delivered to the United States Senate (Senate) for introduction and referral to committee for consideration. While the Senate Committee on Finance has not advanced a companion bill (S. 386) introduced by Senators John Thune (R-SD) and Sherrod Brown (D-OH) in February 2015, the bill currently touts 45 co-sponsors.

Background

The Mobile Workforce Act that passed today was introduced in May 2015 by Representatives Mike Bishop (R-MI) and Hank Johnson (D-GA). As highlighted in our prior coverage, the bill advanced out of the House Judiciary Committee in June 2015 by a vote 23-4. This legislation has been introduced in the House by each Congress since it was first introduced in 2006 by the 109th. While the legislation has seen some degree of success in the House, it has yet to advance beyond the Senate Committee on Finance. Notably, in May 2012, a prior version of the Act was passed in the House, but the Senate Committee on Finance did not take it up for consideration.

The Mobile Workforce Act

While the Mobile Workforce Act has been tweaked over the years, its underlying objective has largely remained the same—to providing a workable, national framework for the administration of, and compliance with, the states’ incongruent withholding and nonresident income tax payment laws. The version of the Act passed by the House today establishes a thirty-day safe harbor for traveling employees from nonresident state personal income taxes, and greatly reduces and simplifies the withholding and reporting burdens and related costs to their employers. Specifically, an employee working in a nonresident state for thirty or fewer days would not pay personal income tax to the nonresident state. Instead, the employee would remain fully taxable in its resident state on these earnings.

Under the Act, employers would not be required to withhold taxes in the nonresident state for employees whose travel falls at or below the thirty-day threshold in the state. In making this determination, the Act allows employers to rely on an employee’s annual determination of the time they will spend working in a state, absent fraud or collusion by the employee. The definition of “employee” has the same meaning given to it by the state in which the employment duties are performed, subject to only a few exceptions (including professional athletes, professional entertainers, and public figures who are persons of prominence who perform services for wages or other remuneration on a per-event basis).

As passed today, the “Act shall take effect on January 1 of the [second] year that begins after the date of the enactment of this Act” and retroactive application is expressly prohibited. Practically speaking, this means that the absolute earliest the Act could take effect is January 1, 2018 (assuming the Senate [...]

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BREAKING NEWS: Discussion Draft of Online Sales Simplification Act of 2016 Released

Today, the Chairman of the House Judiciary Committee, Rep. Goodlatte from Virginia, released the long-anticipated discussion draft of the Online Sales Simplification Act of 2016. Highlights of the bill include:

  • The bill implements the Chairman’s much-discussed ‘hybrid-origin’ approach.
  • The bill removes the Quill physical presence requirements for sales tax collection obligations under certain circumstances.
  • States may impose sales tax on remote sales IF the state is the origin state and it participates in a statutory clearinghouse AND the tax uses the origin state base and the destination state rate for participating states (the origin state rate is used if the destination state does not participate in the clearinghouse).
  • A remote seller will only have to remit the tax to its origin state for all remote sales.
  • A destination state may only have one statewide rate for remote sales.
  • Only the origin state may audit a seller for remote sales.
  • States that do not participate in the clearinghouse have significant restrictions on the ability to extract the tax from the remote seller.

Below is a more in-depth discussion of the intricacies of the bill.

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Breaking News: Physical Presence Requirement Bill Introduced in Congress

Yesterday, Congressman Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016 (H.R. 5893) in the US House of Representatives (House).  The bill would codify the physical presence requirement established by the US Supreme Court in Quill.  The bill would specifically define physical presence, creating a de minimis threshold, and would significantly affect existing state efforts to expand the definition of physical presence and overturn Quill.

Not only would the bill preempt the ‘nexus expansion’ laws, such as click-through nexus provisions, affiliate nexus provisions, reporting requirements and marketplace collection bills, but it would likely halt the South Dakota and Alabama (and other state litigation) specifically designed to overturn Quill.  It would also move all future litigation on this issue to federal courts.

The bill would be effective as of January 1, 2017.  The bill was referred to the House Committee on the Judiciary, which Rep. Sensenbrenner is a sitting member of (and former Chairman).

Summary

The bill defines “seller”, and provides that states and localities may not: (1) obligate a person to collect a sales, use or similar tax; (2) obligate a person to report sales; (3) assess a tax on a person; or (4) treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.

Persons have a physical presence only if during the calendar year the person: (1) owns or leases real or tangible personal property in the state; (2) has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or (3) maintains an office in-state with three or more employees for any purpose.

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