On Monday, July 27, the Senate Finance Committee released draft legislative provisions (“COVID-19 Bill”) regarding the next iteration of Coronavirus relief. Somewhat surprisingly, the provisions include the Remote and Mobile Worker Relief Act of 2020, which was introduced earlier this year as S. 3995 by Sens. Sherrod Brown (D-OH) and Jon Thune (R-SD).
S. 3995 appears to be based on S. 604, the Mobile Workforce State Income Tax Simplification Act (“Mobile Workforce Act”), which was introduced in the current Congress. As many state tax professionals know, some version of the Mobile Workforce Act has been introduced many times over the years, but has never been passed, in large part due to opposition from Senator Schumer and other members of the New York delegation to Congress.
At its core, the Mobile Workforce Act would prohibit states from imposing an income tax on the wages or remuneration of a non-resident working in that state unless the non-resident worked in the state for more than 30 days in a calendar year. The members of the New York delegation to Congress have long opposed this provision because New York applies a 14-day threshold to non-residents, as opposed to the 30-day threshold that the bill would implement. The COVID-19 Bill would implement the 30-day threshold.
However, the COVID-19 Bill also contains special provisions that only apply during a defined “covered period.” The covered period is defined as the date that an employee first started working remotely, and ends on December 31, 2020 or the date that the employee returns to their primary work location where the employer allows at least 90% of the permanent workforce to go to the location, whichever is earlier.
During that covered period, the days worked threshold would be 90 days, not 30 and would cover localities, not just states. Many localities have begun to take aggressive positions against out-of-state taxpayers and thus the bill ensures the same rules would apply to them as to the states. Additionally, the COVID-19 Bill would provide that income from remote activity occurring during the public health emergency should be sourced and apportioned based on the employee’s primary work location prior to the public health emergency, and not their temporary work location. Finally, and maybe most importantly, the COVID-19 Bill provides that an employee’s remote work does not create nexus for the employer during the covered period.
If enacted, these provisions could give great comfort to taxpayers. Although a number of states have released guidance, regarding tax liability, apportionment, and withholding, even more states have been silent on the issue. These proposed federal provisions would give certainty as to the liability that taxpayers face due to the public health emergency.
The likelihood of passage of these provisions is entirely unclear at this point. As stated above, the relief provisions are in the Republican version of the overall proposed Coronavirus relief bill, and the Mobile Workforce Act provisions have bipartisan support, yet the leader of the minority in the Senate, Senator Schumer, opposed them. We will continue to monitor developments on this issue.