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MOBILE WORKFORCE STATE INCOME TAX 

FAIRNESS AND SIMPLIFICATION ACT OF 2007 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3359 

NOVEMBER 1, 2007 

Serial No. 110–143 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

NOVEMBER 1, 2007 

Page 

THE BILL 

H.R. 3359, the ‘‘Mobile Workforce State Income Tax Fairness and Simplification Act of 2007’’ ................................................................................................... 3 

OPENING STATEMENTS 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 8 

The Honorable Hank Johnson, a Representative in Congress from the State 

of Georgia, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 9 

WITNESSES 

Mr. Douglas L. Lindholm, President and Executive Director, Council on State 

Taxation, Washington, DC 

Oral Testimony ..................................................................................................... 12 

Prepared Statement ............................................................................................. 14 

Ms. Dee Nelson, Payroll Manager, Alutiiq, LLC and Subsidiaries, Anchorage, 

AK, on behalf of the American Payroll Association 

Oral Testimony ..................................................................................................... 29 

Prepared Statement ............................................................................................. 31 

Mr. Harley T. Duncan, Executive Director, Federation of Tax Administrators, 

Washington, DC 

Oral Testimony ..................................................................................................... 55 

Prepared Statement ............................................................................................. 57 

Mr. Walter Hellerstein, Francis Shackelford Distinguished Professor of Taxation Law, University of Georgia School of Law, Athens, GA 

Oral Testimony ..................................................................................................... 71 

Prepared Statement ............................................................................................. 73 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 8 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 9 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Answers to Post-Hearing Questions from Douglas L. Lindholm, President 

and Executive Director, Council on State Taxation, Washington, DC ............ 92 

Page

IV 

Answers to Post-Hearing Questions from Dee Nelson, Payroll Manager, 

Alutiiq, LLC and Subsidiaries, Anchorage, AK, on behalf of the American 

Payroll Association ............................................................................................... 99 

Answers to Post-Hearing Questions from Harley T. Duncan, Executive Director, Federation of Tax Administrators, Washington, DC .................................. 105 

Answers to Post-Hearing Questions from Walter Hellerstein, Francis 

Shackelford Distinguished Professor of Taxation Law, University of Georgia 

School of Law, Athens, GA .................................................................................. 108 

Prepared Statement of the American Institute of Certified Public Accountants ........................................................................................................................ 112 

Prepared Statement of Edward A. Zelinsky, Morris and Annie Trachman 

Professor of Law, Benjamin N. Cardozo School of Law, Yeshiva University .. 113 

Prepared Statement of Nicole Belson Goluboff, Esquire ...................................... 116 

Letter from various employers in support of H.R. 3359 ....................................... 127 

Letter from Kristina Rasmussen, Director of Government Affairs, Nation 

Taxpayers Union in support of H.R. 3359 ......................................................... 129 

(1) 

MOBILE WORKFORCE STATE INCOME TAX 

FAIRNESS AND SIMPLIFICATION ACT OF 2007 

THURSDAY, NOVEMBER 1, 2007 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 12:12 p.m., in 

room 2237, Rayburn House Office Building, the Honorable Linda 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Johnson, Watt, Cannon and 

Jordan. 

Staff present: Michone Johnson, Majority Chief Counsel; Norberto Salinas, Majority Counsel; Stewart Jefferies, Minority Counsel; and Adam Russell, Majority Professional Staff Member. 

Ms. SA ́ NCHEZ. I would bang the gavel, but I don’t have one with 

me this morning, or this afternoon, I should say. But I am going 

to call the hearing of the Committee on the Judiciary, Subcommittee on Commercial and Administrative Law to order. And I 

am going to recognize myself for a short statement. 

Our workforce has increasingly become mobile. Some employees 

travel and work in several States throughout the year, while others 

live in one State but work in another. When it comes time to complete their income tax returns, many employees must file several 

returns because each State has the authority to tax all the income 

earned within its borders and all the income of the residents wherever the income is earned. 

While employees are responsible for filing State income tax returns, their employers are duty bound to withhold State income 

taxes for their employees. Therefore, both employees and employers 

must know the different thresholds for each State in which the 

company operates. 

These varying thresholds have raised concerns of employee tax liability and employer State income tax withholding compliance during this period of improved corporate transparency. To remedy this 

confusing system, my colleagues, Congressman Johnson and Ranking Member Cannon introduced H.R. 3359, which aims to establish 

a uniform national threshold of 60 work days within a calendar 

year before a State may tax certain nonresidents. 

Today’s hearing serves a dual purpose. First, this hearing will 

provide us with an opportunity to learn more about State taxation 

of nonresidents, specifically the differing thresholds States mainVerDate Aug 31 2005 15:17 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\COMM\110107\38642.000 HJUD1 PsN: 38642
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tain and how they affect employees, employers and State and local 

revenues. And second, the testimony provided today will help us 

determine what role Congress has in this matter, and whether 

H.R. 3359 addresses the concerns of employee liability and employer withholding requirements for nonresidents, while protecting 

the interests of State and local governments to tax the income 

earned within their boundaries. 

Accordingly, I very much look forward to today’s hearing and the 

testimony of our witnesses. And at this time I would like to recognize my colleague, Mr. Cannon, the distinguished Ranking Member 

of the Subcommittee and co-author of the bill that we are examining today for his opening remarks. 

[The bill, H.R. 3359, follows]: 

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Mr. CANNON. Thank you, Madam Chair. And I apologize. I am 

going to have to be leaving the hearing virtually immediately. We 

have a bill on the floor that would save us from a 19th century 

piece of legislation. I worry that somebody will want to save us 

from an 18th century Constitution at some point in time. So I need 

to go over and do an amendment there. 

And I apologize in advance to our distinguished panel and appreciate them being here. This, of course, is legislation that I introduced last year. And I wanted to thank Mr. Johnson for introducing it on behalf of the majority this time. 

This is good legislation. It creates some bright lines and significantly facilitates the nature of what we are doing, what is actually 

happening in America, that some States just can’t keep their hands 

off. 

And so, with that, Madam Chair, I would actually like to submit 

my statement for the record. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The prepared statement of Mr. Cannon follows:] 

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW

In today’s increasingly mobile workplace, employers and employees face numerous 

challenges in determining tax liability, particularly in instances when employers 

send their employees into another state to work for a short period of time. 

Of the 41 states that have a personal income tax, 24 have no minimum threshold 

for employer withholding requirements. That is, employers and employees are liable 

for that state’s taxes the moment an employee sets foot in the state to do work. Six 

states have exemptions for employer filing requirements that are determined by the 

number of days that an employee works in the state. Those thresholds range from 

a minimum of 10 days in Maine to 60 days in Arizona and Hawaii. 

Another 11 states have exemptions based on the amount of income that an employee earns in a particular state. Those income thresholds range from a minimum 

of $300 in any calendar quarter in Ohio to $7,000 in Virginia. According to the 

Council on State Taxation (COST), represented here by Mr. Doug Lindholm, the 

point at which tax liability attaches to an individual is usually, but not always, the 

same as when a company’s withholding requirement kicks in. 

This patchwork of state laws creates significant administrative headaches for both 

companies and their employees. Under Sarbanes-Oxley, a company must certify that 

it is compliance with all state and local laws, including tax laws. With so many variations on the state withholding laws, employers argue that it is impossible to be 

fully in compliance with Sarbanes-Oxley. 

All four of the witnesses today recognize that there is a problem here. That is a 

good start. Obviously the state taxing authorities, as represented by Mr. Harley 

Duncan, have their concerns about this legislation, which is to be expected. But I 

am heartened to see that they are willing to talk about ways to fix the problem. 

We are all concerned about federalism on this committee and on the ability of 

states to control activities within the state’s borders. That said, this Subcommittee, 

this Committee, and this Congress have also recognized that there are times when 

the country’s needs outweigh the needs of any individual state. Such was the case 

with the recently enacted Internet Tax Freedom Act Amendments Act, which was 

signed by the President yesterday. 

In addition to Mr. Duncan and Mr. Lindholm, I want to thank our other witnesses 

here today, particularly Ms. Nelson, who flew in from Alaska to give us her perspective on the burdens that the current situation places on employers and employees. 

I also want to thank Professor Hellerstein for being here; he has testified before this 

Subcommittee in previous Congresses and his knowledge of the Commerce Clause 

as it relates to state taxation is invaluable. 

Finally, I am thankful that Representative Johnson has introduced H.R. 3359, the 

‘‘Mobile Workforce State Income Tax Fairness and Simplification Act of 2007.’’ I am 

a co-sponsor of that legislation and was a sponsor of a similar bill, H.R. 6167, in 

the last Congress. H.R. 3359 is beginning to garner more co-sponsors, and I am 

9 

hopeful that this hearing will raise awareness of this issue and begin to get the ball 

rolling towards a legislative solution. 

American companies and American workers deserve no less. 

I look forward to hearing from our witnesses. 

Mr. CANNON. And in addition to that, I have a document, a statement by the AICPA, the American Institute of Certified Public Accountants. I would ask unanimous consent that we can submit that 

to the record. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The information referred to is available in the Appendix.] 

Mr. CANNON. Thank you, Madam Chair. And I yield back. 

Ms. SA ́ NCHEZ. I thank the gentleman for his statement. I also 

would like to enter into the record a statement from Mr. Conyers 

who could not join us today. Without objection, it will be entered 

into the record. 

[The prepared statement of Mr. Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDICIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Today we hold a legislative hearing on H.R. 3359, a bill introduced by two distinguished members of this Subcommittee, Congressman Hank Johnson and Ranking 

Member Chris Cannon. This legislation attempts to impose a uniform national 

standard for when employees are required to pay state income taxes to those states 

in which they work but do not reside. Some concerns have been raised that some 

employees who work in several states throughout the year have difficulty knowing 

in which states they must file an income tax return and that some employers also 

experience the same challenges when withholding deductions for their employees. 

These concerns apparently exist because the states have different standards by 

which they begin to tax non-resident employees. 

Although this legislation seems to address those concerns, I worry about Congress 

treading upon state sovereignty. My state of Michigan has already addressed some 

of the concerns some of you will discuss this afternoon by entering into reciprocity 

agreements with surrounding states. I would hope that the states can resolve these 

concerns first, and if they cannot, we can determine whether Congress should step 

in and strike a balanced piece of legislation. 

I have concerns about how H.R. 3359 may impact Michigan and other states. According to an attachment to Mr. Lindholm’s testimony, this legislation will result 

in an estimated revenue loss for Michigan, a state which is experiencing severe 

budgetary problems. Other states, especially California, Illinois, and New York, will 

stand to lose tens of millions of dollars in revenues if H.R. 3359 passes without any 

changes. We should be careful not to cause more revenue losses for states. Remember that the power to tax is the power to govern, and if states cannot tax the income 

earned within their states, how will they afford to provide needed services to those 

within their states. I understand that the Federation of Tax Administrators opposes 

H.R. 3359 as written, and I look forward to hearing their testimony this afternoon 

on how this bill can be improved so that we can pass a balanced bill. 

Ms. SA ́ NCHEZ. And at this time, I would like to recognize Mr. 

Johnson for his opening statement. 

Mr. JOHNSON. Thank you, Madam Chairwoman, for holding this 

important hearing that affects businesses large and small. Today 

if an Atlanta-based employee of a Chicago company travels to headquarters on business once a year, that employee would be subject 

to Illinois tax, even if his annual visit only lasts 1 day. 

But if he travels to Maine, his trip would be subject to tax only 

if his trip lasts for 10 days. And if he traveled to a weekend conference in Virginia, withholding would occur if his wages were 

above his personal exemptions and standard deduction, unless the 

employee elected his filing threshold. 

10 

These varying thresholds within the 41 States that have a personal income tax have their own different set of standards for liability and enforcement. This inconsistency between statute and 

practice has the effect of placing tremendous compliance burdens 

on businesses and employees. 

With the passage of the Sarbanes-Oxley Act employers are 

spending a tremendous amount of time and resources to fully comply with tax laws and withholding regulations. Under section 404 

of the act, auditors of public companies must attest under penalty 

of perjury that they have reviewed the corporation’s systems and 

that the company is in full compliance with all of its tax obligations. 

With 41 different tax laws, however, and with various de minimis rules, companies are facing difficulties complying with these 

rules and are expending a significant amount of resources to comply. That is why I, along with my colleague, Congressman Chris 

Cannon, introduced H.R. 3359, the ‘‘Mobile Workforce State Income 

Tax Fairness and Simplification Act of 2007.’’ This is an act that 

Congressman Cannon has been working on even prior to the 110th 

Congress, which is my first session of Congress, of course. 

So I appreciate your work and effort in this regard in the 109th, 

Mr. Cannon. 

H.R. 3359 would establish uniform and administratable rules, including appropriate de minimis rules, which would ensure that the 

appropriate amount of income tax is paid to jurisdictions without 

placing undue burdens on employees and their employers. This legislation was not designed to usurp State rights to tax. Rather, this 

bill was introduced in order to aid companies to fully comply with 

applicable laws and regulations, including State tax laws. 

We are all aware of the problem. It is my hope that this bill can 

serve as the impetus to a solution that will minimally impact State 

revenues while assisting businesses as they comply with complex 

tax laws. 

Thank you. And I yield back my time. 

Ms. SA ́ NCHEZ. I thank the gentleman for his opening statement. 

And without objection, other Members’ opening statements will 

be included in the record. Without objection, the Chair will be authorized to declare a recess of the hearing at any time. 

I am now pleased to introduce the witnesses for today’s hearing. 

Our first witness is Douglas Lindholm. Mr. Lindholm is president 

and executive director of the Council on State Taxation, an organization dedicated to preserving and promoting equitable and nondiscriminatory State taxation of multi-jurisdictional entities. 

He also served for 3 years as legislative director for COST. Prior 

to taking the helm at COST, Mr. Lindholm served as counsel for 

State tax policy for the General Electric Company in Washington, 

D.C., where he managed and coordinated State tax policy initiatives before State legislators and State administrative agencies. 

We want to welcome you here. 

He has written numerous articles on Federal, State, and local tax 

issues in a wide variety of publications, testified frequently before 

State legislatures and Congress on State tax issues and is a frequent speaker at State tax and State government affairs conferences and seminars. 

11 

Our second witness is Dee Nelson. Ms. Nelson has over 17 years 

of experience as a payroll professional, an active member of the 

American Payroll Association since 1998. She chairs the automated 

clearinghouse committee nominations and election committee and 

the global affairs task force as well as the hotline referral service. 

She also teaches courses for APA’s fundamental payroll certification and certified payroll professional designations. 

She received a meritorious service award in 2003 and the special 

recognition award in 2007. At the State level, she has served as 

president of both the northern life and, I know this is going to be 

a tough one, Matanuska-Susitna Valley—is that pretty close— 

chapters. Ms. Nelson currently works as payroll manager for 

Alutiiq LLC, a company that provides government contracting service. 

Welcome to you. 

Our third witness is Harley Duncan. Mr. Duncan is the executive 

director of the Federation of Tax Administrators and the chief executive officer of the National Association of State Tax Administration Agencies. FTA represents the revenue departments of each of 

the 50 States plus D.C. and New York City and carries out a program of research, information sharing, training, inter-governmental 

coordination, and Federal representation. 

Prior to joining the FTA, Mr. Duncan served as secretary of the 

Kansas Department of Revenue and was responsible for administration of major State taxes as well as motor vehicle registration, 

drivers licensing, alcoholic beverage control, and property tax oversight. He is a frequent lecturer and speaker at national and regional tax conferences and meetings and has written several tax 

articles. Mr. Duncan regularly testifies before congressional Committees on matters affecting State and local taxation. 

We want to welcome you this afternoon as well. 

Our final witness is Walter Hellerstein. Professor Hellerstein 

joined the University of Georgia’s School of Law faculty in 1978 

and was named Francis Shackelford distinguished professor of taxation law in 1999. He teaches in the area of State and local taxation, international taxation, and Federal income taxation. 

Professor Hellerstein is co-author with his late father of both the 

leading treaties on State taxation, State Taxation Volumes I and 

II, which probably gave me nightmares as a law student, and the 

leading casebook on State and local taxation, State and Local Taxation. In 1992 Hellerstein received the multi-state tax commission’s 

25th anniversary award for outstanding contributions to multistate taxation. 

I want to thank all of you for your willingness to participate in 

today’s hearing. Without objection, your written statements will be 

placed into the record. And we are going to ask that you limit your 

oral testimony to 5 minutes. 

You will note that we have a lighting system that we try to keep 

on top of, let us be honest, but don’t always. When you begin your 

testimony, you will get a green light. After 4 minutes, the light will 

turn yellow. 

It serves as a warning that you have one minute left to give your 

testimony. When it turns red, that means your time has expired, 

12 

and we would appreciate it if you could just conclude your final 

thoughts so that we can move on to the next witness. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

And so, at this time, I would invite Mr. Lindholm to please proceed with his testimony. 

TESTIMONY OF DOUGLAS L. LINDHOLM, PRESIDENT AND EXECUTIVE DIRECTOR, COUNCIL ON STATE TAXATION, WASHINGTON, DC 

Mr. LINDHOLM. Thank you, Madam Chairwoman and Ranking 

Member Cannon and Congressman Johnson. I very much appreciate the opportunity to be here and the fact that you are holding 

this hearing. As indicated, my name is Doug Lindholm. I am president and executive director of the Council on State Taxation. Our 

membership consists of almost 600 multi-state businesses engaged 

in both interstate and international commerce. 

I realize that time is somewhat short today, so let me just make 

three points regarding the bill before us today, House bill 3359. 

First of all, as opening statements attest, this is indeed a widespread problem that we feel Congress is best suited to resolve. Secondly, the bill contains a simple and practical solution to that problem. Third, we feel that solution very effectively balances State sovereignty issues with Congress’ interest in resolving burdens on 

interstate commerce. 

Now, let me elaborate briefly on some of those. First of all, with 

regard to how widespread the problem is, one of the greatest 

strengths of our economy is that we have an increasingly nimble 

and mobile workforce, national workforce. Those of you that have 

spent any time in an airport recently realize that thousands of employees are sent by their employers on an almost daily basis to 

nonresident States to work in those States. Most of those trips are 

temporary in nature. 

Typically they will travel out, conduct some business, and then 

fly back to their State of residence. Unfortunately, the 41 States 

that impose a personal income tax have widely diverging rules for 

determining two things: one, when the liability for that employee 

attaches and two, when the withholding obligation for that employee’s employer attaches. 

Some States attach a liability the moment you set foot in the 

State. Some States have a days threshold. Arizona and Hawaii, to 

name two, have a 60-day threshold similar to what we are proposing. Others have a dollar threshold, an earnings threshold. And 

still others have a combination of a days and a dollar threshold. 

And there is an attachment to my testimony that does a pretty 

good job of laying this out in a map. 

A key point I would like to make is that this is not just an issue 

for large corporations. It impacts small businesses, nonprofits, 

State and local governments, hospitals, churches, universities, anyone who has employees that travel regularly for work. 

Point two, we think this is a simple and practical solution. And 

essentially what it does is it creates a Federal threshold of 60 days 

for temporary work assignments in nonresident States. And anVerDate Aug 31 2005 15:17 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 H:\WORK\COMM\110107\38642.000 HJUD1 PsN: 38642
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other point is that for anything up to 60 days the employee would 

remain taxable in their State of residence. 

Now, I am sure we will get the question, why 60 days? We conducted a fairly extensive survey of our membership, our member 

companies. And 60 days came back as the figure that our employers felt resolved most of the problems. 

First of all, that time period covers the vast majority of employee 

travel. Secondly, if you start shortening that time period, there is 

a—it becomes more and more likely that employees will inadvertently or unwittingly back into the State rules. 

Secondly, if you start to shorten that time period, it increases the 

possibility that there will be arguments over what constitutes a 

day or what are the duties that they are performing for employment in a day. The 60 days allows that company to focus on that 

small set of employees that actually travel for long-term work assignments. 

The second question I would like to address is that why no dollar 

threshold. I would like to point out that we have been working with 

the State administrators on this issue for 2 years, or discussing it 

with them for 2 years. And we know that this is a concern for 

States. But after considering this dollar threshold, we ultimately 

rejected it because it would actually make the compliance burden 

greater in many cases than it is now. 

Employers would be forced to track every employee on a daily 

basis, compare that with sensitive payroll data, and then make allocations to the States where they travel. And all this before the 

employee has filed a single tax return. So although we are sympathetic to State concerns, we feel that that really would create a 

greater compliance burden. 

A third point, we really do think that this solution strikes the 

proper balance between individual State concerns over sovereignty 

and revenue and national concerns of Congress over reducing burdens on interstate commerce. We have got a fiscal note attached, 

and we feel that the impact on States is negligible. For all 50 

States, the net reduction in personal income tax revenues is estimated to be 100 of 1 percent, .01 percent. 

And again, I want to point out that we had been working on this 

issue with tax administrators for several years. We very much appreciate their constructive engagement. But this is an issue that if 

left unresolved will only grow in scope and complexity. Accordingly, 

we very much urge your support, thank you for your support. And 

I would be happy to answer any questions. 

[The prepared statement of Mr. Lindholm follows:] 

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PREPARED STATEMENT OF DOUGLAS L. LINDHOLM


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Ms. SA ́ NCHEZ. Thank you. We appreciate your testimony. 

Ms. Nelson, you may begin your testimony. 

TESTIMONY OF DEE NELSON, PAYROLL MANAGER, ALUTIIQ, 

LLC AND SUBSIDIARIES, ANCHORAGE, AK, ON BEHALF OF 

THE AMERICAN PAYROLL ASSOCIATION 

Ms. NELSON. My name is Dee Nelson. And I am speaking today 

on behalf of the American Payroll Association in favor of H.R. 3359. 

The American Payroll Association is a nonprofit payroll association 

with more than 23,000 members. Most of our members are the payroll managers for their employers. And some of our members work 

for payroll service providers who in turn process the payrolls of another 1.5 million employers. 

I have been a payroll professional for 17 years, of which 10 of the 

last have been with a multi-state company. I have been in this environment, so I know firsthand the problems that employers and 

employees face in trying to manage their way through multi-state 

tax requirements. 

Even in the case of an employee who resides in one State and 

works throughout the year in another State, State and local tax 

withholding and reporting can be very complicated. The employer 

has to verify the employee’s State of residence, check whether the 

two States have a reciprocity agreement, analyze the tax laws of 

both States, and likely withhold tax for both States and prepare a 

form W-2 for both States. 

Of the 41 States with income tax withhold, most tax all wages 

earned within their borders by residents of other States. States 

have widely varying de minimis amounts, but need to be exceeded 

before withholding is required. 

Just as the United States taxes its citizens and residents on their 

worldwide income, so do the States impose a tax on their residents 

who earn income outside their borders. If the employer has a business connection within the employee’s State of residence, it generally must withhold tax for the State of residence in addition to 

the State in which the services are performed. Besides the withholding requirement, each State also has its own wage reporting 

requirement. 

I offer this as background on how much more complicated it becomes when an employee has a temporary assignment to another 

State. Whenever an employer sends an employee to a worksite outside of the State in which the employee normally performs services, 

the requirements that are then imposed on the employer, such as 

to register for the withholding account and to withhold tax, creates 

a very burdensome process. 

As a payroll professional it is my duty to ensure that taxation 

is happening properly for the State in which the employee is working, as well as the State in which the employee claims residency. 

What I do for an employee who is a California resident who temporarily goes to work in New York is completely different from what 

I do for the same employee if he or she goes to work in New Jersey 

or Georgia. 

If I send an employee who is an Oregon resident to temporarily 

work in New York, New Jersey, or Georgia, I will be required to 

handle it entirely differently than I did for the California resident. 

30 

The current process is not only burdensome, but it is costly to both 

employees and employers. 

As a multi-state employer for the company I work for, not only 

are we required to withhold taxes for each of the States in which 

our employees may temporarily work, but we also have the responsibility to register our business in each of the States in which we 

are required to pay the tax. The registration process for businesses 

can be just as burdensome as trying to manage the tax itself. 

This process is very time consuming and utilizes many of my 

payroll department staff resources for a small group of our employees. Our employees are also burdened. Each employee has to file 

a State personal income tax return for each State for which tax 

was taken from their pay. For some of our employees, this can 

mean up to eight State tax returns in addition to the one for their 

home State. 

Most of the States have thresholds of income below which no income tax is due. Payroll systems have no way of detecting the 

length in which an employee will be in any State, so State withholding is taken even for someone who spends only 1 week in that 

State out of the entire year. In such a situation, the employee, of 

course, has to file a State personal income tax return and will likely get a refund on all of that withholding. 

So, because there is no standard time period before withholding 

is required, employers have to withhold tax, report wages, employees must file income tax returns, and in cases like these, States 

have to process wage reports and income tax returns of individuals 

for whom they will refund all the taxes withheld. That is a lot of 

time, effort, and burden with no positive return for the employer, 

the employee, or the State. 

At my company, to assist our employees and to ensure we can 

keep their positions filled, we pay for preparation of their additional tax returns. This costs our company approximately $50,000 

annually. 

I have told you about the processes and burdens at my company. 

However, it certainly can be said that due to the extreme complexity of the varying current State tax regulations, there are many 

companies that are not withholding properly due to ignorance or 

due to lack of systems, personnel, time, money, or other resources 

to uphold the complex rules. 

More employers will comply with a law that is uniform across all 

States and localities and that is federally supported, versus the 

current patchwork of laws of which an employer might not even be 

aware. The American Payroll Association and its 23,000 members 

strongly recommend that this legislation be considered and enacted. 

And I thank you for your time you have allowed me today. And 

I hope to see this legislation passed. 

[The prepared statement of Ms. Nelson follows:] 

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PREPARED STATEMENT OF DEE NELSON


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Ms. SA ́ NCHEZ. Thank you, Ms. Nelson. We appreciate your testimony. 

At this time, I would invite Mr. Duncan to give his testimony. 

TESTIMONY OF HARLEY T. DUNCAN, EXECUTIVE DIRECTOR, 

FEDERATION OF TAX ADMINISTRATORS, WASHINGTON, DC 

Mr. DUNCAN. Madam Chairwoman, Members of the Committee, 

my name is Harley Duncan. I am the executive director of the Federation of Tax Administrators. I appreciate the opportunity to appear before you on H.R. 3359 to present the views of State tax administrators. 

The federation is an association of the principal tax administration agencies in each of the 50 States, D.C., New York City, and 

Puerto Rico. Our policy on this matter is attached to my testimony. 

It was adopted by our membership in Chicago, and amplified last 

week by our board of trustees. 

As a preliminary matter, while I will be speaking to States because that is who I represent is States, the issues involved in this 

bill and I think the comments I make also apply to a fair number 

of local governments that apply and impose income taxes, particularly cities of St. Louis, Kansas City, Philadelphia, and a number 

in Ohio and Kentucky as well. 

The federation is opposed to H.R. 3359 as that bill has been introduced. We have three major policy objections to the issue. 

The first is that it represents a substantial intrusion into State 

tax sovereignty and authority, the authority of States to design a 

tax system that meets their needs within the contours of the Constitution and to impose tax on economic activity that occurs within 

its borders. If enacted as introduced, it would leave States exposed 

to a situation in which an individuals could make extensive use of 

the marketplace in the State without making a contribution in 

terms of income tax paid. 

Second, it represents a very substantial and radical departure 

from current State tax policy with respect to income taxes. Namely, 

States employ the source tax principle as does the Federal Government. And income is generally taxed where the services giving rise 

to the income are performed. This bill with the 60-day threshold 

will substantially turn that on its head for any number of employees and individual and convert the country to essentially a residency-based system. 

There are States that use the residency-based. There are States 

that have reciprocal agreements with one another. But they have 

chosen to do so voluntarily, generally, where the economies of those 

States match up and the tax systems of those match up. This 

would be a mandated reciprocal arrangement by the Congress. 

And finally, we believe that H.R. 3359 goes well beyond where 

the Congress has been in the area of regulating individual income 

taxation in the past. If you look across the various enactments, 

they are generally of two types. The first is where there is a substantial Federal interest involving either Federal employees, members of the military service, employees on Federal installations. 

The second is where the workers are regularly engaged in interstate commerce: the railway workers, the airline workers, the 

motor carriers where it is their job to travel from State to State. 

56 

Those are really the only two areas where the Congress has enacted bills in the individual income tax area. To step in to the extent that this one does, we think, is a radical departure. 

This is not to say that we have our head in the sand or are unmindful of the burdens that are imposed by the current system. 

Complying with the current system where there is no de minimis 

threshold on either liability or withholding is indeed difficult and 

probably impractical. That is why a number of States, several 

States have moved to address the issue on their own. That is why 

we have worked with the Council on State Taxation to try to fashion legislation that could be workable. 

If you desire to move forward in this, we have raised a number 

of issues in my written remarks that we would ask that you address and we would be willing to work with you. Two most important ones are first, the 60-day rule. 

The 60-day rule, we believe, goes well beyond what is necessary 

to deal with the burden issue. If in 60 days you can’t figure out 

where you are going to be, then I think we have some more issues 

than just withholding. 

You can deal with it in far less than 60. Sixty days gives a person a quarter of a year of operating within a State without owing 

a tax liability. And we think it goes well beyond what is necessary. 

The second issue that we have raised for you is that our policy 

provides that if a threshold in a bill such as this is enacted that 

it should have a dollar component as well. And we would suggest 

that the withholding can be triggered off of days, but there needs 

to be a backstop on if the employee’s income exceeds some threshold in a State, he or she has a liability to that State. 

Otherwise, State revenue systems are exposed. And we believe 

that the days only threshold leaves the systems too exposed. We 

believe a days and a dollar can be done in a fashion that substantially alleviates the burden and doesn’t expose State systems to the 

risk that they would under the bill that is introduced. 

Thanks very much. We look forward to working with you in the 

future. 

[The prepared statement of Mr. Duncan follows:] 

57 

PREPARED STATEMENT OF HARLEY T. DUNCAN


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Ms. SA ́ NCHEZ. Thank you, Mr. Duncan. I appreciate your testimony. 

And finally, I would invite our final witness, Mr. Hellerstein, to 

please begin his testimony. 

TESTIMONY OF WALTER HELLERSTEIN, FRANCIS SHACKELFORD DISTINGUISHED PROFESSOR OF TAXATION LAW, UNIVERSITY OF GEORGIA SCHOOL OF LAW, ATHENS, GA 

Mr. HELLERSTEIN. Thank you very much, Madam Chairwoman. 

I am very grateful for the opportunity to testify before this Subcommittee and to have the special privilege of testifying before a 

fellow Georgian, Congressman Johnson. 

My testimony addresses three specific questions, the first two of 

which I think should not be controversial at all. First, does Congress have the constitutional authority to enact H.R. 3359? Second, 

is there historical precedent for Congress enacting legislation analogous to H.R. 3359? And finally, the more controversial question, 

is this an appropriate exercise of congressional power? 

Question one, I think it is clear the Congress has the authority 

under the commerce clause to enact H.R. 3359. The case law in this 

area is clear that Congress has extremely broad powers to enact 

legislation that affects interstate commerce. Indeed, when the court 

has dealt with or addressed issues involving State taxation in particular, it has stated in very broad terms that Congress essentially 

can do what it wants in this area. 

Just to read you one quote, ‘‘It is clear that the legislative power 

granted by Congress—to Congress by the commerce clause would 

amply justify the enactment of legislation requiring all States to 

adhere to uniform rules for the division of income.’’ So presumably 

they can also create uniform rules for the withholding of income or 

when tax liability occurs. I think that really should be a noncontroversial issue. 

The second question is whether there is precedent for this kind 

of legislation. Congress has never enacted really broad-based legislation regulating State taxation. There is no uniform apportionment formula. There are no broad-based rules that limit the States 

in what they can do. 

But there is a lot of precedent, really, I think, quite analogous 

to H.R. 3359, for Congress enacting specific legislation targeted at 

specific problems. Indeed, Harley Duncan just referred to one type 

of legislation, taxes on employees engaged in interstate transportation. They are quite analogous, I think, although certainly a narrower target, to dealing with the problems of income taxation of 

employees engaged in water transportation, air transportation, 

motor carrier transportation. 

Congress has also acted to restrict the power of States to tax 

nonresidents, retirement income. And I have this whole litany in 

my testimony, and I don’t want to use all my time up on this list. 

But just to go through some of the areas, Congress has limited 

States in their power to tax interstate businesses when they sell 

tangible property and do no more than solicit in the State. Congress has limited power, limited the States’ power to tax—to impose discriminatory taxes on railroads, on motor carriers, and on 

air carriers. 

72 

Congress has limited the States’ power to impose taxes that affect a pension plan under the Employees Retirement Income Security Act. So it seems to me this is something for which there is 

really quite substantial precedent. Just 2 days ago by voice vote, 

Congress unanimously re-extended the Internet Tax Freedom Act, 

another example of targeted legislation. 

Finally, and this is a more—probably the only controversial question here is—is this an appropriate exercise of congressional power. 

And in my opinion, I think it is. 

First, I really do wish to make it clear that I believe the States 

have a legitimate interest in assuring that workers who earn income in the State pay their fair share of the State tax burdens for 

the benefits and protections that the State provides to them. But 

this legitimate interest has to be balanced against the burdens that 

are imposed on multi-state enterprises and on the conduct of interstate commerce by uncertain, inconsistent, and unreasonable withholding obligations imposed by the State. 

Yes, I think it is telling that the States themselves recognizing 

this problem have to some extent tried to alleviate it through their 

own voluntary reciprocal exemption agreements. As Bill Gates 

would say, a known problem. 

In the end, although there may well be room for additional fine 

tuning of the statutory language to assure that the right balance 

is struck between the States’ legitimate interest in revenue raising 

and the Nation’s interest in preserving our national common market, I believe that a targeted response to the specific problem reflected in H.R. 3359 is an appropriate exercise of congressional 

commerce power. Thank you. 

[The prepared statement of Mr. Hellerstein follows:] 

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PREPARED STATEMENT OF WALTER HELLERSTEIN


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Ms. SA ́ NCHEZ. Thank you very much for your testimony. 

We are now going to begin our questioning. And I will begin by 

recognizing myself for 5 minutes. 

Mr. Lindholm, in your written testimony for today’s hearing you 

argue that a dollar amount threshold as opposed to a days worked 

threshold like the one in H.R. 3359 would be more burdensome because each employee would have to be tracked on a daily basis. 

And it seems that in either a days worked or a dollar amount 

threshold the employer is going to need to be tracking the employee 

anyway. So I am interested in knowing why you think that one is 

a superior method than the other. 

Mr. LINDHOLM. Well, two points, Madam Chairwoman. Let me 

address first with respect to the 60 days. Most travel is temporary 

in nature. And most employees don’t travel anywhere close to the 

60 days. So they automatically would not be within that pool of employees that an employer would track. 

Secondly, with respect to the dollar threshold itself, it really does 

require not just a tracking of their whereabouts, but a tracking of 

very sensitive payroll data within the company. And it increases 

the exposure of that payroll data among employees of the company, 

which obviously is a very sensitive thing. 

And, you know, I think the FTA has proposed a combination dollar-day with a dollar backstop. The other issue there is that it 

would, in effect, separate the liability question, could make that 

rule distinct from the withholding obligation. And when you have 

got those two operating under separate rules, it increases the complexity greatly. 

Ms. SA ́ NCHEZ. But how would you respond to Mr. Duncan’s concern that 60 days is quite a long time before triggering the liability? 

Mr. LINDHOLM. You know, Congress has enacted several, as Professor Hellerstein pointed out, several protective or analogous 

pieces of legislation. Airline employees—it is their resident State or 

the State where they earn 50 percent or more of their pay. For 

motor carrier employees, rail carrier employees, Members of Congress, they, in effect—Congress has, in effect, enacted a 365-day 

threshold. 

And, you know, the—from our standpoint, a number of States 

also have enacted reciprocal agreements, which are, in effect, a 

365-day threshold. So in our sense, the 60-day pretty much draws 

a very effective line in the sand for those traveling employees. 

Ms. SA ́ NCHEZ. Mr. Duncan, I want to give you an opportunity to 

respond to some of these complexities. Now, you are advocating a 

clarification of the definition of what a day worked is. Can you talk 

about that? 

Mr. DUNCAN. Yes, that is right. In our testimony, we have suggested that the definition of day needs to be changed. As it is contained in the bill—and I apologize I don’t have a copy in front of 

me. But it says a day is defined as a day in which the employee 

performs more than 50 percent of the work duties in a State. 

To me, I don’t know what that means. I don’t know what performing more than 50 percent of the work duties are. Is it by time? 

Is it by value? Is it—I don’t want to be flip, but how hard it was? 

85 

So we have suggested that it should be—a day should be a day or 

any part of a day. 

And remember we say that because that is the easiest thing to 

count. That is the least controversial thing. And we are only using 

it to determine whether the threshold is met. And for that reason, 

we think the day or any part of a day is workable. 

That is the way a number of States are now. That is the way 

Federal law with respect to the taxation of nonresident aliens that 

are working in the State operates as well. 

Ms. SA ́ NCHEZ. Thank you, Mr. Duncan. 

Ms. Nelson, I am interested, since you are the expert on payroll, 

under the 60-day threshold, if an employee hits the 60-day threshold late in the year, the employee’s paycheck would reflect withholding for the 60 days. For some employees that could be a huge 

dent in their paycheck. 

Although a lower threshold is a possibility and would seem like 

less of a hardship on an employee once they hit that, what are 

some of the things that a payroll department or company could do 

to perhaps lessen the hardship of a 60-day trigger? You know, 

could they spread those out, those withholdings out over several 

paychecks? Do you have any thoughts on that? 

Ms. NELSON. Well, I think just addressing some kind of threshold 

across all States would first just ease my burden as a payroll professional. 

Ms. SA ́ NCHEZ. I understand. 

Ms. NELSON. Yes, and so—— 

Ms. SA ́ NCHEZ. Maybe you could look at it from the perspective it 

also keeps you employed. 

Ms. NELSON. Yes, there is that. But because of DOL I have plenty of those job securities. 

So to answer your question, yes, we could find a way to, you 

know, pass those payments off during, you know, each check retrospectively for however many pay periods. I mean, there would be 

ways to manage it. 

Ms. SA ́ NCHEZ. You mean there are ways to help minimize that? 

Okay. 

Ms. NELSON. Yes. 

Ms. SA ́ NCHEZ. My time has expired. 

And at this time, I would invite Mr. Johnson for his 5 minutes 

of questions. 

Mr. JOHNSON. Madam Chair, my friend from North Carolina has 

an important engagement that he needs to attend to, so I would 

yield my position and allow him to move in front of me, if that is 

okay with the Chair. 

Ms. SA ́ NCHEZ. Excellent. I think that is fine. 

Mr. Watt, you are recognized for 5 minutes. 

Mr. WATT. I thank the wonderful Chairperson of this Subcommittee. And I thank my colleague from Georgia for allowing me 

to go in front of him. 

I think maybe before I ask a question I will confess that our 

Chairperson who Chairs this Subcommittee may be now understanding why I opted not to become the Chair of the Subcommittee. 

It was the combination of Internet taxation. This individual issue 

that we are having the hearing about today, remote sales taxation, 

86 

and collection of those remote sales, and physical presence—those 

are about the four most difficult taxation issues that are really out 

there. And so, I decided that Chairing a Subcommittee on financial 

services and dealing with predatory lending was actually easier 

than dealing with this. 

But I am delighted that the Chair is taking on these issues because there needs to be more discussion about it. And she has done 

a masterful job of passing the Internet taxation moratorium. And 

I saw the Senate and everybody is now onboard with that. So if she 

can pull that rabbit out of that hat for Internet taxation, maybe 

she has got three more rabbits in the hat. And if anybody can do 

it, I have confidence that my Chair—— 

Ms. SA ́ NCHEZ. But no pressure, right, Mr. Watt? 

Mr. WATT. No pressure, no pressure. But I am confident that she 

can do it. 

These are difficult issues. And as Ranking Member of the Subcommittee for two or three or however many—it seemed like forever, I got an appreciation of how difficult the issues are. 

Let me ask Mr. Duncan first. One of the things that always was 

told to me in the context of both this issue and the remote sales 

issue was that there was a series of negotiations going on and 

there might be some possibility that all the stakeholders would find 

common ground and make this easier for us. I think in the remote 

sales area, we even passed some kind of threshold that said if a 

certain number of States passed a model statute then the Federal 

Government would act. 

Talk to me, Mr. Lindholm and Mr. Duncan, about the impediments to you all getting together and working something out that 

is mutually satisfactory. Because the States obviously have a very 

serious interest in this issue, as do businesses and employees. 

What is the status of those discussions? And are you all just deluding us when you say these discussions are going on and we are 

going to work this out at some point? 

Mr. DUNCAN. I don’t think we are trying to fool you. I don’t know 

anything about financial services, but maybe I could learn so I 

could leave these issues sometime, too. 

Mr. WATT. If you want to go over and tackle the massive foreclosures that are going on, we will welcome you over there. 

Mr. DUNCAN. No, thank you. As I indicated in our testimony, we 

have been in conversations and discussions with the business community about this. We have had a working group of State people 

to make sure that we understand the bill and that we try to get 

some real world experience from them. 

In addition, I can guarantee you that our people understand the 

burden issues and the difficulties of compliance. We have not at 

this point had a board action from our organization that says we 

are prepared to begin negotiating or at least, you know, enter into 

something to resolve this issue with the Council of State Taxation. 

I am to report back based on this hearing and we will, I am certain, have further conversations because our people do understand 

the burden issue and that it needs to be addressed. 

Mr. WATT. I know you want to respond. But let me just say I applaud the Chair for taking on the issue. It seems to me that the 

ramping up of this as an issue and the movement of employees as 

87 

much as they move kind of ramped up at the same time that technology was ramping up. And one would hope that there would be 

some technological answer to this that would allow the movement. 

I don’t know that technology or the system—as you say in one 

place in your testimony, Ms. Nelson, there is no system to take 

care of this, the way it is being done now. But I don’t see any system, any payroll system to take care of it under the 60-day threshold, either. And that is not a knock on the 60-day threshold. 

I just think there are some real technical problems. And I hope 

technology will make some advances at the same time that movement makes advances to make this easier. I mean, it is just a very, 

very difficult issue. 

I don’t envy you, Madam Chair. But I am going to yield back my 

time to you and rely on you to pull those other three rabbits out 

of the hat. 

Ms. SA ́ NCHEZ. Thank you, Mr. Watt. And we appreciate your participation in today’s hearing. 

Now I think it is appropriate that we hear from one of the bill’s 

authors and allow him to ask questions that he may have. 

So, Mr. Johnson, you are recognized. 

Mr. JOHNSON. Thank you, Madam Chair. 

Mr. Duncan, you have indicated in your testimony or you stated 

that complying with the current system is burdensome and impractical for businesses. Is that a fair assessment? 

Mr. DUNCAN. I think the way I framed it was that where there 

is no de minimis standard in a State, where there isn’t a 15-day 

or 20-day de minimis threshold and where liability and withholding 

presumably would trigger on day one, I think we would all say that 

is impractical. 

Mr. JOHNSON. And we just have a multiplicity of rules now 

among the States that make the entire effort to collect income 

taxes from nonresidents, temporary workers impractical and burdensome at this point, even for the tax administrators. Is it not? 

Mr. DUNCAN. There are certainly issues in terms of collecting tax 

from nonresidents. First of all, you have to have the information 

flows and reports so that you know who has performed services, 

the income earned from the State. Then there is the collection 

issues as well. 

Mr. JOHNSON. Pretty much voluntary information and collections 

that have to be forwarded to you by the businesses. And it definitely can impact the amount of money that States collect for income taxes due. Is that correct? 

Mr. DUNCAN. Yes. I mean, there is—you know, what we would 

like to have is the withholding, the voluntary remittances withholding following up with the information reports. I think it is 

not—— 

Mr. JOHNSON. It is difficult for businesses to comply, say a small 

business, a number of small businesses. It is difficult for them to 

understand what the rules are and then perhaps they will not forward those payments in, if you will. 

Mr. DUNCAN. Just two quick points. I think you are right, that 

if we can make the rules clear and administerable, compliance can 

improve, particularly in the small business community. Second, 

there are a number of States with significant enforcement proVerDate Aug 31 2005 15:17 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6601 H:\WORK\COMM\110107\38642.000 HJUD1 PsN: 38642
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grams in the nonresident area. But I wouldn’t argue your central 

point that if it is simpler and clearer, compliance will improve. The 

question, of course, is one of balance as to how to construct the 

threshold and where that threshold ought to be. 

Mr. JOHNSON. Let me ask this question. Has there been a collective effort by the States to come up with uniform and simple method for the collection for nonresidents? 

Mr. DUNCAN. There has not been an effort that has gathered the 

41 States together to do it. We have areas where the States share 

borders, share economies, have similar tax systems where they 

have had reciprocity agreements. I think what—— 

Mr. JOHNSON. It would be ideal, would it not, that there would 

be some national uniform standard that everyone could stand easily and comply with? 

Mr. DUNCAN. That would certainly make the task of withholding 

knowing when one has an obligation simpler. 

Mr. JOHNSON. But you have no objection to a Federal solution to 

this problem? You just have a problem with the substance of the 

solution that has been proposed. Is that a fair assessment? 

Mr. DUNCAN. The position of our group is that the bill as introduced goes too far and that we are in a position to have to oppose 

the bill as it has been introduced. We have tried to lay out the 

issues as clearly as we can. 

Mr. JOHNSON. Okay. I understand. So you really would like to 

see a dollar threshold along with a threshold as far as number of 

days? 

Mr. DUNCAN. We believe that that can bring all the benefits of 

the burden reduction and at the same time, minimize the risk and 

exposure of States, yes, sir. 

Mr. JOHNSON. Do you have any specifics on both of those points? 

How many days would be suitable to tax administrators and what 

dollar amount would be suitable? 

Mr. DUNCAN. I am not in a position to be able to give those to 

you today. We don’t have those at this point. In part there is a couple of moving parts here. There is a seesaw function to it that if 

the days threshold is relatively high, then perhaps the dollar 

threshold needs to be relatively lower or vice versa because we are 

trying to achieve a balance and reduce risk and exposure. And so, 

I think—I don’t have a ready-made solution to provide you today 

on that. 

Mr. JOHNSON. Mr. Lindholm, would you care to weigh in on that? 

Mr. LINDHOLM. Yes, thank you, Congressman Johnson. First of 

all to address the issue of our efforts to resolve some of our differences, I very much appreciate the—you know, we have met with 

Harley and his group several times to talk about this issue. And 

I think we have a fundamental difference in perspective in that I 

think the States’ viewpoint is a collective viewpoint of how this 

issue affects each administrator of a specific State. 

And that is rightly so. That is the job that they are hired to do. 

That is the job that they are appointed to do in some cases. 

But I would submit that we should view this from the perspective of how many more people would be in compliance. I think 

there is a tendency to say from a State administrator’s perspective 

to look at this bill and say how many people are paying now that 

89 

would not be paying in our State because of this change in the law. 

But if you look at this from a national perspective, then you can 

point a finger to how many more people would be able to comply 

with this law. 

Secondly, if I could address Mr. Watt’s question about the technology, can we come up with technology to do this. Yes, it is possible, but at great expense. And I think the question that this Committee ought to address is although it is possible whether it is sensible to force companies to do so when a simple and practical solution is at hand that would prevent that. 

Ms. SA ́ NCHEZ. Mr. Johnson, your time has expired. But if you 

have further questions, I don’t think there would be objection to 

some additional time. 

Mr. JOHNSON. Thank you, Madam Chair. 

Ms. SA ́ NCHEZ. I will recognize you for an additional 3 minutes of 

questions. 

Mr. JOHNSON. Mr. Lindholm, would the Council on State Taxation be opposed to the threshold requirement that—a dollars feature as well as days? Is that something that you oppose in principle, and why? 

Mr. LINDHOLM. I think we would, Congressman. And I think the 

difficulty there is that any time you have a dollar threshold, you 

are forced to track, as I said, every employee that conceivably could 

spend time there and not just for those—for the day period, but for 

the—you know, everybody’s dollar amount if they exceed that 

threshold. 

The second issue is that under their proposed solution, there is 

a tendency to look at—it bifurcates the tax liability with the—from 

the withholding obligation. And anytime you do that, you have got 

employees that are potentially under-withheld or over-withheld. 

And it complicates things tremendously for employers trying to 

withhold for the proper allocation of proper States. 

Mr. JOHNSON. Isn’t it a fact, by the way, that most employees 

who have been—whose wages have been withheld to do their work 

in other States—isn’t it a fact that most of them end up getting 

credits from that State because the amount of tax and the amount 

of wages earned is below the amount necessary for taxation? 

Mr. LINDHOLM. That is precisely correct. And let us say I, for example, travel to 10 States and happen to trigger whatever the—either the wage threshold or the day threshold in those States, I am 

then required to file a return in each of those States and then file 

a credit against my return in the state of Virginia. And again, all 

those 10 returns where I entered that threshold would not be necessary, since I am getting a lot of credit for that anyway. 

It ends up being a wash between State-to-State, unless, of 

course, there is a differentiation between the rates. But effectively 

the 60-day threshold would allow the resident State to continue 

withholding regardless of where they traveled, unless it was clear 

that that employee was on a long-term assignment and expected to 

be on a long-term assignment within that State, within the nonresident State. 

Mr. JOHNSON. Thank you. 

Ms. SA ́ NCHEZ. Thank you, Mr. Johnson. And I think this has 

been a very enlightening hearing trying to figure out how we can 

90 

balance the interests of State and local governments’ concerns 

about loss of revenue while eliminating some of the complexities 

and not having a uniform national standard. 

And it is an ongoing battle. While obviously there is not a complete agreement among everyone, my hope is that they will be able 

to incorporate some of the information that you have shared with 

us today and try to bring about a solution that is acceptable. 

I want to thank all of the witnesses for their testimony today. 

Without objection, Members will have 5 legislative days to submit 

any additional written questions which we will forward to the witnesses and ask that you answer as promptly as you can so that 

they can be made a part of the record. And without objection, the 

record will remain open for 5 legislative days for the submission of 

any additional materials. 

Again, I thank everybody for their time and their patience. And 

this hearing on the Subcommittee of Commercial and Administrative Law is adjourned. 

[Whereupon, at 1:09 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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ANSWERS TO POST-HEARING QUESTIONS FROM DOUGLAS LINDHOLM, PRESIDENT AND

EXECUTIVE DIRECTOR, COUNCIL ON STATE TAXATION, WASHINGTON, DC 


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ANSWERS TO POST-HEARING QUESTIONS FROM DEE NELSON, PAYROLL MANAGER, 

ALUTIIQ, LLC AND SUBSIDIARIES, ANCHORAGE, AK, ON BEHALF OF THE AMERICAN

PAYROLL ASSOCIATION


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ANSWERS TO POST-HEARING QUESTIONS FROM HARLEY DUNCAN, EXECUTIVE

DIRECTOR, FEDERATION OF TAX ADMINISTRATORS, WASHINGTON, DC 


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ANSWERS TO POST-HEARING QUESTIONS FROM WALTER HELLERSTEIN, FRANCIS

SHACKELFORD DISTINGUISHED PROFESSOR OF TAXATION LAW, UNIVERSITY OF

GEORGIA SCHOOL OF LAW, ATHENS, GA 


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PREPARED STATEMENT OF THE AMERICAN INSTITUTE OF

CERTIFIED PUBLIC ACCOUNTANTS

The American Institute of Certified Public Accountants (AICPA) appreciates the 

opportunity to submit this statement for the record to the Committee on the Judiciary, Subcommittee on Commercial and Administrative Law for the hearing on H.R. 

3359, the ‘‘Mobile Workforce State Income Tax Fairness and Simplification Act of 

2007.’’ 

The AICPA is the national, professional association of CPAs, with more than 

350,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. It sets ethical 

standards for the profession and U.S. auditing standards for audits of private companies; federal, state and local governments; and non-profit organizations. It also 

develops and grades the Uniform CPA Examination. 

Approximately 42% of our membership is made up of members in public practice. 

Of our members in public practice, approximately 75% are in firms of 10 people or 

less. This numbers 46,500 firms. 

The AICPA supports H.R. 3359, the Mobile Workforce State Income Tax Fairness 

Act of 2007. Businesses, including small businesses and family businesses that operate interstate, are subject to a significant regulatory burden with regard to compliance with nonresident state income tax withholding laws. These burdens translate 

into an administrative burden on these entities that takes resources from operating 

their business. Also, the cost must be passed on to the entity’s customers and clients. Having a uniform national standard for state nonresident income tax withholding would significantly ameliorate these burdens. And concomitant with this is 

the need for a de minimis exemption from the multi-state assessment of state nonresident income tax. 

Accounting firms, including small firms, do a great deal of business across state 

lines. Many clients have facilities in nearby states that require an on-site inspection 

during the conduct of an audit. Additionally, consulting, tax or other non audit services that CPAs deliver may be provided to clients in other states, or to facilities of 

local clients that are located in other states. Many small business clients of CPAs 

also have multi-state activities. All of these small businesses, accounting firms and 

their clients are affected by nonresident income tax withholding laws. 

There are 41 states that impose a personal income tax on wages and partnership 

income, and there are many differing tax requirements regarding the withholding 

for income tax of nonresidents among those 41 states. A number of states have a 

de minimis threshold, or exemption for nonresidents working in the state before 

taxes must be withheld and paid. Others have a de minimis exemption based on 

the amount of the wages earned, either in dollars or as a percent of total income, 

while in the state. The rest of the states that impose personal income taxes on nonresident income earned in the state require only a work appearance in the state. 

Further complicating the issue is that a number of these states have reciprocity 

agreements with other, usually adjoining, states that specify that they will not require state income tax withholding for residents of the other states that have signed 

the reciprocity pact. 

It is not difficult to understand that the recordkeeping, especially if business travel to multiple states occurs, can be voluminous. And the recordkeeping and withholding a state requires can be for as little as one day’s work in another state. Additionally, the amount of research that goes into determining what each state law requires is expensive and time consuming, especially for a small firm or small business that does not have a great amount of resources. A small firm or business will 

often be required to engage outside counsel to research the laws of the other states. 

And this research needs to be updated yearly to make sure that the state law has 

not changed. Having a uniform national standard would eliminate the burden of 

having to research state law for each state where work is performed. 

In addition to uniformity, there needs to be a de minimis exemption. AICPA believes that the 60 day limit contained in H.R. 3359 is fair and workable. The economic changes that have occurred as our country has gone from local economies to 

a national economy are huge. Where businesses once tended to be local, they now 

have a national reach. This has caused the operations of even small businesses to 

move to an interstate basis. Because of the interstate operations of these companies, 

many providers of services to these companies, such as CPAs, find that they are also 

operating, to some extent, on an interstate basis. And with the ease of communication through the internet, and the ease of travel, the ability to provide some services 

far from home is not an issue, as it once was. What once were local taxation issues 

have now become national in scope, and burdens must be eased in order to promote 

this interstate commerce and insure it runs efficiently. 

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1For purposes of identification only. This statement expresses my personal views, not the 

views of any institution or group with which I am affiliated, professionally or otherwise. 2 H.R. 3359, Section 2(a)(2). 

Many smaller firms and businesses use third party payroll services instead of performing that function in house. A number of third party payroll service providers 

are unable to handle multi-state reporting. They often limit, for example, reporting 

to two states, the state of residence and the state of employment. Additionally, third 

party payroll service providers generally report on a pay period basis (e.g., twice per 

month, bi-weekly, etc.) as opposed to daily, which can be a necessity when interstate 

work is performed. These reporting issues require employers to track and manually 

adjust the reporting and withholding to comply with various state requirements. 

The alternative is to pay for a much more expensive payroll service. H.R. 3359 

would provide significant relief from these burdens. 

The 60 day limit in the bill ensures that the interstate work for which an exemption from withholding is granted does not become a means of avoiding being taxed 

or shifting income tax liability to a state with a lower rate. Instead, it insures that 

the primary place(s) of business for an employee are where that employee pays state 

income taxes. 

There is one amendment to the bill that the AICPA would recommend. Once the 

60 day threshold is reached, the employee should pay withholding and state income 

taxes in the host state for all wages earned going forward. The withholding should 

not be made retroactive for the first 60 days. To do so would be unfair to the employee. If the reach is retroactive, then on the 61st day of working in the other state, 

the employee would owe withholding to that state for the 60 day period. This could 

be a substantial amount, which could even cause the employee to immediately be 

in an underpayment penalty situation. It would be unfair to require the employee 

to pay this much money, especially where the employee is a resident of one of the 

other 40 states that imposes a state income tax. In that situation, the employee 

would have double paid withholding and would not receive a refund from the home 

state until tax returns are filed and refunds paid. Even should a state allow for current withholding and filing in the open payroll period, this could cause cash flow 

challenges for employees should they find themselves in a high tax rate jurisdiction. 

The AICPA appreciates the opportunity to submit this statement in support of 

H.R. 3359. 

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PREPARED STATEMENT OF EDWARD A. ZELINSKY, MORRIS AND ANNIE TRACHMAN

PROFESSOR OF LAW,1 BENJAMIN N. CARDOZO SCHOOL OF LAW, YESHIVA UNIVERSITY

I strongly support H.R. 3359, the Mobile Workforce State Income Tax Fairness 

and Simplification Act of 2007. H.R. 3359 is a useful, indeed a long overdue, effort 

by Congress, using its authority under the Commerce Clause, to begin to rationalize 

the states’ income taxation of nonresidents. The core concept of H.R. 3359 is compelling: In any calendar year, a state may tax the income of a nonresident employee 

only if such employee is ‘‘physically present performing duties’’ in the taxing state 

‘‘for more than 60 days.’’ 2

However, H.R. 3359 in its current form is not enough and may unintentionally 

prove counterproductive. To be fully effective, H.R. 3359 must be conjoined with 

H.R. 1360, the Telecommuter Tax Fairness Act of 2007. H.R. 3359 lacks any definition of physical presence and fails to forbid states from adopting doctrines like New 

York’s ‘‘convenience of the employer’’ rule, doctrines which pretend that taxpayers 

are present in-state when in fact they are not. 

Consequently, H.R. 3359, if enacted into law without H.R. 1360 and its definition 

of physical presence, will likely be flouted by New York, deploying its employer convenience doctrine to push nonresident taxpayers over H.R. 3359’s sixty (60) day 

minimum by treating out-of-state work days as days spent in New York. Moreover, 

H.R. 3359, if adopted without the safeguards of H.R. 1360, may encourage other 

states to emulate New York’s employer convenience doctrine and thereby eviscerate 

the requirement that nonresident employees be physically present in the taxing 

state. 

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3 A joint hearing of this subcommittee and the Subcomittee on the Constitution was held on 

May 24, 2005. My testimony is on page 32 of the printed transcript of this May 24, 2005 hearing 

(Serial No. 109–27) and at 36 STATE TAX NOTES 713 (2005), 2005 STT 101–2. 4 1 N.Y.3d 85 (2003), cert. denied 541 U.S. 1009 (2004). 

5See, e.g., Nicole Belson Goluboff, New York Makes It Official: Double Taxing of Telecommuters Will Continue, 40 STATE TAX NOTES 877 (2006); Walter Hellerstein, 1 STATE TAXATION (3rd ed. 2007)at para. 20.05[4][e][i] (the Zelinsky decision ‘‘does not withstand analysis’’); 

William V. Vetter, New York’s Convenience of the Employer Rule Conveniently Collects Cash 

From Nonresidents, Part 1, 42 STATE TAX NOTES 173 (2006); William V. Vetter, New York’s 

Convenience of the Employer Rule Conveniently Collects Cash From Nonresidents, Part 2, 42 

STATE TAX NOTES 229 (2006). 6 4 N.Y.3d 427, 440 (2005), cert. denied 126 S.Ct. 546 (2005). 

7 H.R. 3359, Section 2(d)(1). 

8Though not an ideal definition, as it leaves unclear the metric for measuring whether the 

‘‘more than 50 percent’’ test is satisfied. Is this a test of time spent on the job during the day 

in question? Or of the value of the employee’s services? Or the relative importance of the tasks 

the employee performs during the day? H.R. 3359 does not say. 9Tax Injunction Act, 28 U.S.C. Section 1341. 

BACKGROUND

In 2005, I was privileged to testify before this subcommittee on the subject of nonresident income taxation and New York’s employer convenience doctrine.3 I am 

something of a poster boy on this subject, having been the unsuccessful litigant in 

Zelinsky v. Tax Appeals Tribunal.4 In that case, New York took its standard position 

that the days I worked at my home in New Haven, Connecticut were, for tax purposes, to be deemed days I was present in New York, even though I was not. At 

its most basic, New York’s notion of employer convenience decimates the concept of 

physical presence by treating nonresident employees, particularly those who work 

at home, as being in New York even when they are not. 

New York’s practices in this respect have been widely and correctly condemned 

as unsound as a matter of policy and unconstitutional as a matter of law.5 Most 

recently, three dissenting judges of New York’s highest court condemned in the 

strongest terms New York’s use of the employer convenience doctrine to impose New 

York’s nonresident income taxes on Mr. Thomas Huckaby for working at his home 

in Nashville, Tennessee by pretending that, on those Tennessee days, Mr. Huckaby 

was in New York.6

Nevertheless, the New York Department of Taxation and Finance, supported by 

a majority of New York’s highest court, persists in pretending that, for income tax 

purposes, nonresidents are present in New York on days when they are not. New 

York will not let logic stand in the way of revenue—particularly when the payors 

of that revenue are nonvoting nonresidents. 

DEFINING PHYSICAL PRESENCE

Consider against this background the definition of ‘‘day’’ embodied in H.R. 3359. 

Under that definition, a nonresident employee is deemed to have performed a day 

of services in the taxing state only ‘‘if the employee performs more than 50 percent 

of the employee’s employment duties in such State or locality for such day.’’ 7 This 

is a reasonable definition,8 perfectly appropriate for a sensible world. 

But, in this context, we do not live in a sensible world. If the past is any indication (and I think it is), New York will respond to H.R. 3359 and its current definition of ‘‘day’’ by flouting that definition, declaring that a nonresident employee, 

under the employer convenience doctrine, is deemed to perform services in New 

York on days when such employee works at his out-of-state home or at any other 

out-of-state location which New York characterizes as having been chosen for the 

employee’s convenience. New York will thereby propel nonresidents over the sixty 

day in-state minimum of H.R. 3359 by declaring (as New York does now) that outof-state days should be treated for tax purposes as days spent in New York. 

When a nonresident employee seeks to enforce H.R. 3359 against this illogical approach, he will be required by federal law to challenge New York’s taxes in New 

York’s courts.9 And, as we saw in my case and in Mr. Huckaby’s case, New York’s 

courts, despite all of the U.S. Supreme Court case law to the contrary, uphold the 

New York tax commissioner when he declares, under the rubric of employer convenience, that employees who aren’t in New York should be treated for tax purposes 

as though they are. Nothing in the current language of H.R. 3359 will compel New 

York’s courts or its tax commissioner to reach a different conclusion. It is thus likely 

that New York, continuing current practice, will annually declare nonresidents to 

be in New York more than sixty (60) days based on work these nonresidents perform at their out-of-state homes and other out-of-state locations. 

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10 H.R. 1360, Section 2(a), adding to title 4 of the United States Code section 127(a). 11 H.R. 1360, Section 2(a), adding to title 4 of the United States Code section 127(b). 12 H.R. 1360, Section 2(a), adding to title 4 of the United States Code section 127(c). 

Perhaps some hardy soul will emulate Mr. Huckaby and me and will fight New 

York’s irrationality through the New York courts. Perhaps that intrepid taxpayer 

will also achieve what Mr. Huckaby and I could not, namely, U.S. Supreme Court 

review of New York’s employer convenience fiction. 

It would, however, be better to deal with this problem now as does H.R. 1360. 

H.R. 1360 addresses this problem with such clarity that even New York’s courts and 

tax department will be compelled to acknowledge the inconvenient truth that a 

physical day outside New York is a physical day outside New York. 

Specifically, H.R. 1360 does three important things. First, it forbids a state for 

any income tax purpose from deeming a taxpayer to be physically present in the 

state when he is not.10 Second, H.R. 1360 specifically forbids ‘‘any convenience of 

the employer test or any similar test’’ which could otherwise eviscerate the physical 

presence requirement.11 Third, H.R. 1360 precludes a variety of interpretive techniques which New York and its courts have used to avoid the obvious reality that, 

when nonresident taxpayers work at their out-of-state homes, they are not working 

in New York.12

Thus, together, H.R. 3359 and H.R. 1360 can help achieve the goal of rational income taxation of nonresidents. 

POTENTIAL COUNTERPRODUCTIVE EFFECTS

My concern is not just that H.R. 3359 could prove ineffective because it lacks a 

strong definition of physical presence. I also fear that H.R. 3359, adopted without 

H.R. 1360, will inadvertently prove counterproductive and will cause other states to 

emulate New York and its employer convenience doctrine. If New York is able to 

avoid the more than sixty (60) day rule of H.R. 3359 by pretending that nonresidents work in state on days when they do not, other states will be tempted to 

take the same course to continue taxing nonresidents. 

The U.S. Supreme Court’s refusal to hear either my case or Mr. Huckaby’s case, 

in practical terms, gives a green light to other states desiring to raise income tax 

revenue by pretending that nonvoting, nonresidents work in-state on days when 

they do not. If New York’s courts are prepared to countenance this behavior, why 

should not other states’ courts similarly condone such behavior as well? 

Among the reasons why no other state has so far followed New York’s aggressive 

lead in taxing nonresidents on days when they work out-of-state is that the states 

are watching Congress to see if it will legislate in this area. If H.R. 3359 is enacted 

unaccompanied by H.R. 1360, at least some tax commissioners will inform their respective governors and legislators that there is a way around H.R. 3359 and its 

more than sixty (60) day rule: adopt New York’s employer convenience doctrine to 

declare that out-of-state days shall be deemed in-state days to get nonresidents 

above the sixty day minimum. Some revenue-starved officials will undoubtedly approve of this approach. If so, H.R. 3359 will have accidentally spread the irrationality of New York’s employer convenience doctrine throughout the nation. 

This scenario is avoidable by coupling H.R. 3359 with H.R. 1360 which forbids the 

adoption of the employer convenience doctrine and similar tests for taxing nonresidents on days they are outside the taxing state. 

CONCLUSION

H.R. 3359 and its more than sixty (60) day rule represent a commendable effort 

to begin to rationalize the states’ income taxation of nonresidents. However, H.R. 

3359 in its current form is not enough and may unintentionally prove counterproductive. To be fully effective, H.R. 3359 must be conjoined with H.R. 1360 which 

would forbid states from adopting doctrines like New York’s ‘‘convenience of the employer’’ rule, doctrines which pretend that taxpayers are present in-state when in 

fact they are not. Together, these two pieces of legislation would make more sensible 

our system of nonresident income taxation. 

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PREPARED STATEMENT OF NICOLE BELSON GOLUBOFF, ESQUIRE


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LETTER FROM VARIOUS EMPLOYERS IN SUPPORT OF H.R. 3359 


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LETTER FROM KRISTINA RASMUSSEN, DIRECTOR OF GOVERNMENT AFFAIRS, NATION

TAXPAYERS UNION IN SUPPORT OF H.R. 3359 

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