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Don’t Look Now But There Is Glimmer of Sensible Tax Policy in Congress

A long-overdue measure to limit state taxation of non-residents has cleared its first committee, reports the Tax Policy Blog. The House Judiciary Committee approved H.R. 1864, the Mobile Workforce State Income Tax Simplification Act, which provides:

An employee’s wages or other remuneration shall be subject to state income tax only in either:

-the employee’s state of residence, or

-a state where the employee is present and performing employment duties for more than 30 days during the calendar year. A day counts if the employee performs more employment duties in that state than in any other state during that day. Travel time does not count.

For traveling taxpayers, that’s good news. Lord knows how many loyal Going Concern readers flit from state to state in their unceasing efforts to ensure that the Nation’s financial statements are fairly stated in all material respects. But it’s also bad news — it reminds us that right now you can be taxable in a state after spending as little as a day there.

Why are the states so greedy? Think of LeBron James. When he visits the Staples Center to beat up the Clippers, the home team may lose, but the Franchise Tax Board wins every time. But the tax law in its majesty applies as much to the newbie auditor sent to count vegetables as to LeBron.

Fortunately for our auditor, the firm will probably tell her how much of her income is taxable in each state. Unfortunately, it won’t do all of the extra tax returns she will have to file in all of the exciting states a modern jet-setting auditor may visit.

H.R. 1864 is a long way from perfect. Its biggest flaw is that it doesn’t protect visiting entertainers or athletes. Sure, LeBron can afford the tax help to file in a couple dozen states, but the same rules apply to minor league ballplayers, comedians trying to become senators, and your friendly struggling road band. Still, anything that helps abused staff accountants isn’t all bad.

The proposal is a long ways from becoming law. The high tax states hate any limitations on their ability to pick visitor pockets. Still, it’s nice to have at least a glimmer of hope for sanity.

Which Accounting Firm Has a High-Ranking Partner Whose Hooker Habit Got Him in a Bit of Trouble?

Actually, there might be a few of them but we’re talking about a very specific instance. A partner with a hectic international travel schedule got taken to the cleaners by his wife after she discovered that he was keeping company on the side while on his business trips, including the aforementioned hookers. And as luck would have it, some of the court documents found their way into our inbox. We’ve clipped some of the juicy parts for you:

It should be noted that this particular situation took place a number of years ago and proceedings were still being wrapped up fairly recently. Now, the hookers angle is especially salacious (which we like) but what does a situation like this say about the pressure that many globetrotting partners are under? The firms demand a lot from their top leaders and a lifestyle of high pressure and international travel can wear on a person. If whores on the cheap happen to be in close proximity to your hotel…well, it’s not inconceivable that some partners may want to blow off some steam. Landing an exotic piece of tail to help you cope with the stress while traveling on business may be a lot of fun but if you have a wife and kids and home, that’s where things get can complicated, and in this case expensive, as the following indicates:

And we didn’t even mention the possibility of the spreading around the clap. No one wins there.

KPMG Decides That Travel Time Is No Longer On the Clock

A member of the Phil Mickelson fan club is a little peeved with a recent decision (or not so much, you’ll have to tell us) regarding travel time:

I am in an office that covers a significant region that includes TN, KY, GA, MS and AL. Previously, it was office policy (and in most cases area policy) that at a minimum half of the travel time to and from client was considered chargeable. Well, management in its infinite wisdom has decided that will no longer be the case. Therefore, those 40, 50 or 60 hour weeks are now 50, 60, or 70 hour weeks when the travel time is excluded for management’s purposes but included in the “real world” (which management has clearly lost touch with).

Why the change? Our source has a theory:

In this year of increased emphasis on internal profitability (which is a joke for a fixed fee revenue generating business), management needed some mechanism to make up for all the hours that are going to be wasted messing around with this “awesome” tool (which malfunctions daily) [Ed. note: he/she is referring to the new paperless audit tool]. This is also in response to the area management’s inability to win clients. So, instead of [leadership] making the tough decisions and forcing those responsible for the poor results, loss of clients, and improper planning to bear the weight of the lack of profitability (and reduce their income), it totally makes sense to squeeze the staff even further. I guess the philosophy may go something like this: “well, they are already pissed because we don’t pay them properly, we are forcing them to use this eAudit tool that doesn’t work and isn’t ready for deployment, and we are making them work ridiculous hours because we fired too many people (keep in mind the exodus is just beginning so this is just going to get worse), so we might as well just making even madder by telling them that those hours they used to spend in the air or car in the service of KPMG don’t really matter for crap either”.

Sound about right, Klynveldians? Discuss, debunk and whathaveyou.

Franken’s Monster: State Taxes for the Traveling Employee

He’s good enough, he’s smart enough, and doggone it, the state revenue departments loved Al Franken — once he paid $70,000 in back taxes.

Like many celebrities, Mr. Franken took his act on the road, making a good living on gigs in various states. Unlike many celebrities, Franken ran for office, subjecting his tax life to unnatural scrutiny. It turned out that he hadn’t filed taxes in every state wher

$70,000 of back taxes paid to 17 states later, Mr. Franken squeaked into the U.S. Senate by the narrowest of margins.

Franken has a lot of company in going from state to state without paying all of his taxes (he also has a lot of company in dumping on his accountant to weasel out of the blame). It’s a lot of work, and a lot of expense, for a traveling worker to pay taxes in every state. Every state has its own tax rules, and preparing all those returns isn’t cheap. Unfortunately, current law can make you taxable in a state with as little as one day of work.

State taxes are a compliance nighmare for glamour professions like sports, entertainment, construction and auditing. That’s why the Multistate Tax Commission is working on model legislation that would exempt workers from state taxes if they work in a state for less than 20 days in a year. That is, unless they work in sports, entertainment or construction (perhaps the only known instance where auditors aren’t abused worse than other professionals). A bill going nowhere in Congress, the Mobile Workforce State Income Tax Fairness and Simplification Act, would would create a 30-day threshold, but similarly screw entertainers and athletes, but not construction workers.

This raises the obvious question: why do they want to screw the athletes and entertainers? Presumably the states all want to pick Taylor Swift’s pocket (understandably), but for every Taylor Swift there are hundreds of struggling young musicians trying to scrape by and make a name for themselves. Yet the tax law, in all its majesty, requires the same level of tax compliance for millionairess Taylor Swift and the wonderful, but surely less prosperous, Carrie Rodriguez.

Small businesses used to be able to blow off states they only visited for a brief time. That’s becoming a bad bet. Better and cheaper data mining software makes it easier each year for state revenuers to sniff out temporary presence. If there is any publicity for your visit, you leave a Google trail. If you don’t file in a state, the statute of limitations never runs there, and you can build up a painful multi-year liability. If they catch you after the statute of limitations for your home state runs out, you lose your credit on the home state return for taxes paid in the other state — meaning you pay tax on the same income in two states.

So what do you do if you are a small business? Pay attention to which states you are doing business in. Don’t assume they just won’t notice you. Discuss things with your tax preparer. If you have sinned, most states will work out a deal through your preparer to only collect for a few years, and maybe waive penalties, if you come forward before they catch you. And remember that if you live in a high tax state, like California, New York or Iowa, you should be able to get an offsetting refund on your home state return for non-resident state taxes on an amended return for open years.

Joe Kristan is a shareholder of Roth & Company, P.C. in Des Moines, Iowa, author of the Tax Update Blog and Going Concern contributor. You can see all of his posts for GC here.