Utah Legislature Approves Mobile Workforce Bill Based on MTC Model

The Utah State Legislature has approved a bill adopting provisions of the Multistate Tax Commission’s model legislation for taxing nonresident employees working temporarily in the state.

S.B. 39 was approved in the House on a 73–0 vote March 2. The Senate passed the bill in February on a 27–0 vote. It now goes to Gov. Spencer Cox (R) for consideration. 

In accordance with the MTC’s Model Mobile Workforce Statute, the legislation would establish that nonresident employees must work in Utah for more than 20 days in a year before their wage income for work done in the state is subject to taxation. The safe harbor would apply to eligible workers if they have “no other income from sources within” Utah that year and if their home state either provides a “substantially similar exclusion” for nonresident employees or doesn’t have a personal income tax. 

Not all employees would be eligible for the protection, including professional athletes, prominent individuals who provide services on a per-event basis, and higher-paid “key employees” of businesses, among others. The legislation also modifies the state’s withholding rules so that employers obligated to withhold in the state don’t withhold taxes on income paid to their employees in Utah who qualify for the safe harbor provided by the bill. 

The bill’s fiscal note says the legislation could reduce state revenues by $125,000 in fiscal 2023 and $309,000 in fiscal 2024, but it adds that if all states were to "offer a similar exclusion and none of the revenue loss is offset by a revenue gain,” the cost to the state could be $532,000 in fiscal 2023 and $1.3 million in fiscal 2024. 

Proponents of the bill, including sponsor Sen. Curtis Bramble (R), noted that while employers in Utah aren’t obligated to withhold for their employees in the state until the employer has done business in Utah for over 60 days, employees are on the hook for state taxes on their wages for work done in the state starting on the first day they’re in Utah. “You’re subject to tax from day one, and it creates an inconsistent reporting problem,” he said during a February 23 House Revenue and Taxation Committee hearing. He argued that the legislation would provide employees with some protection.

The bill’s main opposition came from the Council On State Taxation, which wants states to adopt its model legislation instead of the MTC's model. Erica Kenney with COST testified at the February 23 hearing that the bill should be modified to more closely reflect provisions of the council's model legislation, including allowing employees to work in the state for 30 days before their income is taxable by the state. She also said the provision in the legislation excluding higher-paid “key employees” from the protection offered by the bill would in practice exclude employees making more than $130,000 from the 20-day safe harbor, which she said would create a compliance burden for businesses by forcing them to track an employee’s ultimate pay, rather than just the time they worked out of Utah. 

“Dollar thresholds are particularly difficult because of the need to track amounts earned instead of days traveled,” Kenney said, urging lawmakers to remove the $130,000 threshold, "which creates additional administrative complexities and a large degree of uncertainty related to the determination of income.”

However, lawmakers opted to pass the legislation without the changes proposed by COST. Notably, three states — Illinois, Louisiana, and West Virginia — have adopted the COST model legislation. The MTC legislation has been adopted by North Dakota. 

Kenney told Tax Notes in a March 4 email that “we appreciate Utah’s efforts to address the nationwide issues of nonresident employees traveling into the state,” but that the final version, because it varies from the model COST has promoted to other states, wouldn’t be compatible with the national standard COST is trying to create.

“COST is committed to seeking a national standard which only works if all states adopt uniform language. If Utah language differs from a national standard, other states operating under the standard will not offer workers traveling from Utah similar protections, thereby placing the state at a disadvantage as an outlier,” she said.

Original post at https://www.taxnotes.com/tax-notes-today-state/nonresident-taxation/utah-legislature-approves-mobile-workforce-bill-based-mtc-model/2022/03/07/7d7y1