These Tax Laws ‘Make Scofflaws of Us All’

Congratulations, road warrior. Last year you did business in five states in a week — emails from airports, phone calls from taxis, videoconferences from hotel rooms, business meals here and there. Later, when you took vacation in yet another state, you flipped open your laptop now and then to check in with colleagues.

Now the bad news: Depending on which states you went to, you may have to file tax returns in all six of them, even if your work there took mere minutes.

Ridiculous, right? That’s what the law says, though. According to the Tax Foundation, there are 24 states that require people who did work in their states to file tax returns no matter how short a time they worked or how little income they earned. (Examples are Colorado, Massachusetts, New Jersey, Ohio and Pennsylvania.) In another five states, including California, there’s also no time minimum, although there is an income threshold below which you don’t have to file a return.

Most states don’t pursue short-time visitors for nickels and dimes because it’s not worth the effort. You’re unlikely to get a threatening letter from Nebraska because of that work phone call you made when you attended that wedding in Omaha. As written, though, the state laws “make scofflaws of us all,” says Jared Walczak, vice president of state projects at the Tax Foundation.

It’s actually worse than that. Some people, such as lawyers and accountants, can’t take the risk of getting caught bending the rules, so they have to file returns in every state where they worked, which for many can be a dozen or more. It’s also a paperwork burden for employers that try to play by the rules, because the states require them to withhold state taxes from paychecks.

It’s understandable that states would try to tax professional athletes, pop stars and other high earners who work in their states even briefly, because lots of money is involved. But laws that target everyone are just kind of silly.

Congress could fix the problem by saying that you don’t owe income tax in a state unless you work there at least 30 days in a year. That would strike a reasonable balance between the competing priorities of completeness and simplicity, says Andrew Moylan, executive vice president of the National Taxpayers Union Foundation. Illinois and West Virginia have already set 30-day work minimums. Arizona, Hawaii and Utah have gone even further with 60-day minimums.

There’s legislation in Congress to require a 30-day work minimum for most people, excluding professional athletes and other “public figures.” It passed the House in 2012, 2016 and 2017. It’s co-sponsored in the Senate this session by John Thune, Republican of South Dakota, and Sherrod Brown, Democrat of Ohio, who don’t agree on much. But Senator Charles Schumer of New York, the majority leader, has consistently opposed the legislation.

New York State makes considerable money by taxing out-of-staters who come to the state — especially New York City — for business. New York’s Division of Taxation and Finance “has aggressively enforced the law and gotten more aggressive over time,” says Maureen Riehl, executive director of the Mobile Workforce Coalition. She told me that state employees go to trade shows in the Jacob K. Javits Convention Center in Manhattan and take pictures of the booths so they can go after companies that send their employees to New York.

“We’ve been told by companies that they’ve avoided doing events in New York because of this,” says Ken Pokalsky, a vice president of the Business Council of New York State. “I’m not saying it’s widespread, but it’s one more thing.” He said his organization favors a 30-day work minimum for state taxation. The state tax agency did not reply to my voice mail requests for a response.

(Complicating matters, there’s a related problem called the convenience rule that’s on the books in five states, including New York. Those states claim the right to tax people if the company they work for is headquartered in the state. So workers can be taxed on the same dollar of income by their home state and the state of their company headquarters.)

State laws that require tax filings even for incidental work have become a bigger problem since the pandemic began, because more people are working remotely. But sponsors in the House and Senate aren’t pushing the bill this session because they don’t think it has a chance given the opposition from two key New Yorkers: Schumer and Representative Jerrold Nadler, chairman of the House Judiciary Committee, through which the House bill must pass. “As long as they sit where they sit, this issue’s on pause,” Riehl said.

Angelo Roefaro, Schumer’s press secretary, told me today that Schumer and Nadler aren’t the only ones questioning the legislation. He said talks are continuing with other members of Congress as well as governors and state legislators.

For the time being, nothing is happening. As Walczak of the Tax Foundation wrote to me in an email: “Taxpayers shouldn’t be tasked with deciding when to ignore what is technically a tax filing obligation and when to comply with it. Tax laws should be enforceable and broadly enforced. If they can’t be reasonably enforced, or it would be undesirable to do so, then it’s worth revisiting that law.”

The readers write

I recently saw your newsletter on the University of the People, the university that charges no tuition. The opportunity to attend college without paying for classes could be a life-changer for many students. But the faculty members aren’t paid. At a moment when current Ph.D. students graduate into a crushing job market, if we promote educational models that further erode that job market, it will become impossible for most students to afford to pursue graduate education and become professors — in turn undermining the quality of education we can provide as a nation.

Bruce Lenthall
Rosemont, Pa.

The writer is the executive director of the Center for Teaching and Learning at the University of Pennsylvania.

Quote of the day

“All day long, I’d biddy biddy bum/If I were a wealthy man.”

— Jerry Bock and Sheldon Harnick, “If I Were a Rich Man,” from “Fiddler on the Roof” (1964)

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