Originally published on Forbes.com.
The American Workers, Families, and Employers Assistance ACT, one of the components of the HEALS package now moving in the Senate includes provisions that protect against nasty state income tax surprises. It also includes some recognition of the pervasiveness of gig workers. I’m thinking the latter might be a camel’s nose under the tent sanctioning a disturbing trend. But let’s talk about the SALT (State and Local Tax) issues first.
State Tax Certainty
This part of the act would create uniform procedures for assessing state and local income taxes on remote and mobile workers affected by government shutdown orders and changing working conditions.
There will be a general 30-day threshold for a state to tax a nonresident performing services in that state. The act includes a day counting methodology that seems to prevent people from being considered to be taxable in two states for the same day, as is common now.
There would be a 90-day threshold to be subject to tax by a state other than the state of residence when presence in the other state is due to the Covid-19 pandemic.
The bill would also allow employers to treat employee’s wages as earned at their normal work location or at the remote location until the end of the calendar year.
Most importantly to employers with people suddenly working at home, that will not create nexus for the state of the employee’s home to tax the employer. That is a really nasty problem as I describe here.
Professional athletes, professional entertainers and some others are not covered by this relief.
Gig Workers
The act establishes a safe harbor allowing service recipients and “marketplace platform companies” to provide Covid-19 related assistance to service providers without jeopardizing the service provider’s independent contractor status. It allows benefits, other than cash payments, to be treated as “qualified disaster relief payments” excluded under Code Section 139 by the recipient.
The term ‘‘marketplace platform’’ means any digital website, mobile application, or similar system that facilitates the provision of goods or services by providers to recipients.
What I find disturbing about this is that when there is a government benefit available, all of a sudden these independent contractors are not so independent, but that when it advantages the company for them to be independent it will be. This is just a temporary thing, expiring at year-end.
Politics?
It strikes me that a state hard hit by the “state tax certainty” rule may be New York, since employers will have the option of treating workers not able to come into Manhattan from New Jersey as working in New Jersey. New York tends to be very aggressive in bringing people into its jurisdiction and has a high rate.
Massachusetts had issued a ruling to the effect that during the crisis people would be treated as continuing to work wherever they had been working. Under this legislation, employers could treat people working from home in New Hampshire as being in New Hampshire. New Hampshire does not tax wages.
I am sure there are other pairings of high and low tax states that I am not thinking of. And the high tax states tend to be blue, so maybe there is some politics to this measure, which overall is pretty reasonable.