Workshop D Employment Tax Challenges Faced by Multistate Employers with a Mobile Workforce - MEC Seminars & Conferences
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26th Annual
Tuesday & Wednesday, January 24‐25, 2017
Hya Regency Columbus, Columbus, Ohio
Workshop D
Ohio Tax
Employment Tax
Challenges Faced by
Multistate Employers with
a Mobile Workforce
Tuesday, January 24, 2017
1:45 p.m. to 2:45 p.m.Biographical Information
Alexander Thomas, Manager, State and Local Employment Tax
PricewaterhouseCoopers LLP, 100 Louisiana, Suite 5800, Houston, TX 77002
(713) 356-5772 alexander.d.thomas@us.pwc.com
Alexander “Alex” Thomas is a manager in PwC’s State and Local Tax Practice in Houston, Texas. Alex has six
years of experience with PwC in various state and local tax matters, with a focus in state and federal
unemployment taxes and state corporate income and franchise tax. Alex’s experience at PwC has included
favorable representation of clients before various state Departments of Revenue in refund claims and audit
defenses, with a focus on state tax controversy matters in Texas and Louisiana. Alex has also pursued
successful appeals of state unemployment tax rate determinations as well as preparation and achievement of
federal and state employment tax refunds as the result of acquisitions and reorganizations. Alex has also
provided consulting advice in numerous state income and payroll tax matters related to corporate
reorganizations, acquisitions, and legal entity simplification. Alex has also presented at numerous
conferences, including the 2014 -2016 Ohio Tax Conference, on federal and state unemployment tax issues
surrounding acquisitions and similar considerations surrounding a mobile workforce.
Alex holds a Bachelor of Arts-University Scholar, in History and Business, from Xavier University in Cincinnati,
Ohio. Alex earned his Juris Doctor degree with concentrations in Taxation and Business Transactional law
from Saint Louis University School of Law in St. Louis, Missouri. During law school, Alex served as a Lead
Editor of the Saint Louis University Journal of Health Law and Policy and as a Legal Research and Writing
Teaching Assistant to Professor Marcia Goldsmith.
Patty Evans, Director, Income Tax Audits & Advisory, The Wendy’s Company
One Dave Thomas Blvd, Dublin, OH 43017
(614) 764-3392 patty.evans@wendys.com
Patty has over 15 years of income tax experience, specializing in tax controversy; the taxation of compensation
and benefits; and withholding and reporting. Prior to joining The Wendy’s Company in 2012, Patty worked with
Abercrombie & Fitch, L Brands (f/k/a Limited Brands) and PwC. Patty earned a Bachelor of Business
Administration from Ohio University in Athens, Ohio and she earned her Master of Taxation degree at Capital
University Law School in Columbus, Ohio. Patty holds a CPA certification in the state of Ohio.
Sara Goldhardt, Director, State & Local Tax Services, GBQ Partners LLC
230 West Street, Suite 700, Columbus, Ohio 43215
(614) 947-5243 sgoldhardt@gbq.com
Sara has over 17 years of experience in federal and state and local tax, servicing both public and private
companies in the manufacturing, construction, healthcare, professional services and retail industries. Sara is
GBQ’s State Income/Franchise Tax Practice Leader. In this role, Sara coordinates the successful completion
of all multistate income/franchise tax engagements. Sara focuses her expertise on managing state income tax
compliance, Ohio Commercial Activity Tax consulting, nexus studies, allocation/apportionment reviews and
transactional planning. She also assists clients with municipal income taxes, employment taxes and mobile
workforce tax matters.
Prior to joining GBQ, Sara worked in the Federal Tax Practice of the Columbus, Ohio office of Deloitte, where
she worked mainly on middle-market clients in the manufacturing and construction industries. Sara was also
employed as a Senior Tax Accountant at Greif in Delaware, Ohio. While at Greif, she worked extensively in the
areas of federal tax compliance, FAS 109, multistate income and franchise tax compliance and state income
tax audits. Past speaking engagements include the OSCPA MEGA Tax Conference in 2012, the Columbus
Association of Tax Professionals in 2013 and 2014 and the Ohio Tax Conference in 2014, 2015 and 2016.
Sara graduated from The Ohio State University with a B.S. in Accounting. Sara is a member of the American
Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants. She is also the
National Board Treasurer for Women for Economic and Leadership Development (WELD).Employment Tax Challenges Faced by
Multi-State Employers with a Mobile
Workforce
Ohio Tax Conference-Workshop D
January 24, 2017Introductions Sara Goldhardt, Director, State and Local Tax, GBQ Partners, Columbus Phone: (614) 947-5243 E-mail: sgoldhardt@gbq.com Patty Evans, Sr. Director, Audits, Advisory and Process Improvement, The Wendy’s Company, Columbus Phone: (614) 764-3392 E-mail: patty.evans@wendys.com Alex Thomas, Director, State and Local Tax, PwC, Houston Phone : (713) 356-5772 E-mail : alexander.d.thomas@us.pwc.com PwC
Dealing With a Mobile Workforce & Employment Tax
Developments
Mobile or Telecommuting Employees
• With the advancement of technology, the use of the Internet to
reach more customers, and the increase of business travel, a
greater number of companies have employees who:
• Work remotely from home;
• Travel to new states for short periods of time on a project-by-project
basis.
• All of this multistate activity creates a multitude of tax questions.
• Registering for one tax type will put a company on a state’s radar
for other taxes.
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Income Tax Withholding
• States will generally tax an employee based on where the employee
works.
• States will also tax an employee based on where an employee lives.
• Some states allow for work site withholding exceptions based on
number of days in state or dollars earned from a state.
• Examples:
• Arizona & Hawaii: 60-Day Threshold
• New Mexico: 15 or fewer days
• Wisconsin: In-state wages less than $1,500
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Income Tax Withholding – Continued
• Connecticut
o Applicable to taxable years beginning on or after January 1,
2016, an exclusion from personal income tax is provided for
compensation for personal services rendered by a nonresident
employee in Connecticut for not more than 15 full or partial
days
o For purposes of the “15-Day” Rule, presence in Connecticut
for any part of a day constitutes presence for an entire day
unless this presence is only for transit through the state
o Presence in Connecticut for reasons other than performing
services as a nonresident employee are not relevant for
determining the 15-day limitation
4 January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Income Tax Withholding - Continued
• Majority of states do not have a “de minimis” threshold, and state
withholding on nonresident wages may be required at “day 1, dollar
1.”
• Examples: IN, KY, MI, OH, PA
• If state does allow a “de minimis” threshold, it may only preclude the
employer from withholding tax on wages. However, the employer may
still be required to file an informational report.
• Nonresident employee may also be required to file nonresident income tax
return on “pre-threshold” wages.
• Employers must have business nexus with a state before residency-
based withholding is required.
• Employers without business nexus with a state may do residency-
based withholding on a voluntary basis (courtesy withholding).
January 24, 2017Courtesy Withholding
Practice of withholding on employees regardless of legal requirement to do
so
Key Considerations
Bandwidth of Payroll Department
Triggering Entity Level Tax
Employee Relations
Once decision is made to comply, must meet all compliance
requirements
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Reciprocity
• When a reciprocal agreement has been reached between two or more
states, agreeing states are precluded from taxing the earned income of
employees who are residents of reciprocal states.
• Ohio: Reciprocal agreements with all border states: Indiana,
Kentucky, Michigan, Pennsylvania, and West Virginia.
• Note: Ohio municipalities do not allow for reciprocity.
• District of Columbia: Reciprocal agreements with Maryland and
Virginia. However, by law, the District of Columbia currently only
taxes its own residents.
• No reciprocity exists within the New York tri-state area (New York,
New Jersey and Connecticut).
• Reciprocity update on New Jersey and Pennsylvania. Chris Christie
reverses course in late November.
• Make sure employees are completing any required forms.
January 24, 2017Multistate Withholding-Key Issues
Increased Scrutiny
State revenue shortfalls have lead to an increase in audit activity
around nonresident withholding
Potential bad publicity for company, high ranking officers
Issues with government contracts and compliance with state laws
Concerns with individual income tax liabilities for key executives
State by State Analysis
Application of state specific laws
Lack of state guidance with regard to particular compensation streams
Request for specific guidance (letter rulings)
PwC 8Multistate Withholding-Deferred Compensation
State Position
Deferred compensation earned in all jurisdictions in which employee
performed services during period in which compensation was deferred
As such, states require withholding on portions of deferred
compensation earned while performing services within the state in
addition to regular wages
Focus on payments to higher compensated employees
As a result, number of issues arise related to state sourcing of deferred
compensation
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
State Unemployment Tax
• For a telecommuting or mobile employee, where is state
unemployment tax due?
• Generally, the employer must look at four tests in determining
where to pay unemployment tax:
1. Localization – where the services are performed
2. Base of Operations – where an employee reports to work
3. Direction and Control – where the employer exercises control
over the employee’s services
4. Residence – If none of the above apply
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
State Unemployment Tax - Continued
• If a determination cannot be made (no services performed in
states in which tests 2-4 apply), then most states allow the
employer to elect a state based on the Interstate Reciprocal
Coverage Arrangement. The elected state must meet one of the
qualifying criteria:
a. State in which some services are performed by employee;
b. Employee’s resident state; or
c. State in which the employer maintains a place of business.
January 24, 2017State Employment Tax Audit Activity
• State Income Tax Audit Activity
- State Withholding Tax Audits
◦ New York
◦ Connecticut
◦ Localities
› Wilmington DE
- State Unemployment Tax Audits
◦ Focus on worker classification
◦ New York and California most aggressive
- Personal Income Tax Audits
◦ Focus on residency and nonresident allocation
◦ New York and California most aggressive
January 24, 2017
PwCDealing With a Mobile Workforce & Employment Tax
Developments
Federal Legislation
• Legislation has been introduced to both the House of Representatives and
the Senate in order to simplify state income tax issues for mobile
workforces.
• Mobile Workforce State Income Tax Simplification Act of 2011
(H.R. 1864)
• Introduced on May 12, 2011 to 112th Congress
• Passed House of Representatives on May 15, 2012, but failed to pass
Senate
• Introduced 30-day rule, prohibiting the taxation of employee wages in a
state other than the state of residence, unless employee performs duties
within the state for more than 30 days during the calendar year.
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Federal Legislation - Continued
• Mobile Workforce State Income Tax Simplification Act of 2013
(H.R. 1129)
• Introduced on March 13, 2013 to Congress (113th) by Rep. Howard
Coble (R-NC) and Hank Johnson (D-GA).
• Re-introduced 30-day rule to House of Representatives in
essentially the same language as H.R. 1864 as passed by the 112th
Congress.
• Mobile Workforce State Income Tax Simplification Act of 2013 (S.
1645)
• Introduced on November 5, 2013 to Congress (113th) by Senator
Sherrod Brown (D-OH) as a companion bill to H.R. 1129 (Also
includes 30-day rule).
January 24, 2017Dealing With a Mobile Workforce & Employment Tax
Developments
Federal Legislation - Continued
• Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315)
• Introduced on May 14, 2015 to Congress (114th) by Rep. Mike Bishop (R-MI)
and Hank Johnson (D-GA).
• Re-introduced 30-day rule to House of Representatives in essentially the
same language as H.R. 1864 as passed by the 112th Congress.
• Current Status: Passed the House on September 21, 2016 without
amendment. The bill has been received in the Senate; however, no action
taken prior to adjournment of 114th Congress.
• Mobile Workforce State Income Tax Simplification Act of 2015 (S. 386)
• Introduced on February 5, 2015 to Congress (114th) by Senator Sherrod
Brown (D-OH) and Senator John Thune (R-SD) as a companion bill to H.R.
2315 (Also includes 30-day rule).
January 24, 2017Understanding Ohio’s Casual Entrant Rule
Pre-HB5: Twelve (12) Day Rule
• In general, municipalities may not tax compensation paid to a nonresident
individual for personal services performed by the individual within the
municipality on twelve (12) or fewer days in the calendar year
• Most municipalities require withholding back to “day one” if employee exceeds 12
days working within a municipality
• Unclear definition of a “day”
HB5: Twenty (20) Day Rule
• Operative January 1, 2016
• An employer is not required to withhold municipal income tax to the municipality
on qualifying wages paid to an employee for personal services performed by the
individual within the municipality on twenty (20) or fewer days in the calendar
year
• If 20 day rule is not exceeded, employers must withhold to the municipality of the
“Principal Place of Work”
• If 20 day rule is exceeded, withholding is required to begin on “day 21”.
Employers are not required to withhold back to “day one” unless they elect to do
so
16 January 24, 2017Understanding Ohio’s Casual Entrant Rule
HB5: Twenty (20) Day Rule (Cont.)
• Where is the “Principal Place of Work” (“PPW”)?
o The fixed location to which an employee is required to report for
employment duties on a regular and ordinary basis
o If no fixed location exists, the “PPW” means the Ohio “worksite location” to
which the employee is required to report on a regular and ordinary basis
- “Worksite Location” means a construction site or other temporary worksite in Ohio at
which the employer provides services for more than 20 days during the calendar year.
- “Worksite Location” does not include the home of an employee.
o If no fixed location or worksite location exists, the “PPW” means the location
in this state at which the employee spends the greatest number of days in
a calendar year performing services on behalf of his/her employer.
- If two or more municipalities have the same number of days (ties), the employer
shall allocate wages amongst the municipalities using any fair and reasonable method,
which includes methods based on time spent or sales made by the employee in each
municipality
17 January 24, 2017Understanding Ohio’s Casual Entrant Rule
HB5: Twenty (20) Day Rule (Cont.)
• What is a “Day”?
o An employee can only be considered in one municipality per calendar day
o In general, an employee shall be considered to have spent a day performing
services in a municipality only if the employee spent more time performing
services in that municipality than in any other municipality that day
o Most travel time counts toward time spent at principal place of work. See
ORC 718.011(B)(2)(a)-(e)
18 January 24, 2017Understanding Ohio’s Casual Entrant Rule
HB5: Twenty (20) Day Rule (Cont.)
• Exceptions to 20 Day Rule:
o Small Employer Exception: Employers which earned less than $500,000
of total revenue during the preceding taxable year shall withhold tax on
employee wages to the employer’s “fixed location”
o The employee performed services at one or more “presumed worksite
locations”
- “Presumed Worksite Location” is defined as a construction site or other temporary
worksite in Ohio at which the employer provides services that can reasonably be
expected by the employer to last more than 20 days in a calendar year
- Can be reasonably expected to last more than 20 days if 1) the nature of the services
are such that it will require more than 20 days to complete the services, or 2) the
agreement between the employer and customer requires the employer to perform
services at the location for more than 20 days
19 January 24, 2017Understanding Ohio’s Casual Entrant Rule
HB5: Twenty (20) Day Rule (Cont.)
• Exceptions to 20 Day Rule:
o The employee is a professional athlete, professional entertainer, or public
figure, and the wages are paid for the performance of such services
o The employee’s principal place of work is located in the municipal
corporation
o The employee is a resident of the municipal corporation and has requested
that the employer withhold tax from the employee’s wages to the
municipality of residence (courtesy withholdings)
20 January 24, 2017Multistate Withholding-Key Issues
Development of a Policy
Coordinating applicable stakeholders
Assessing risk (analyzing travel)
Identifying population and states at issue
Communication (stakeholders/employees)
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