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Tax Traps Arising From Non‐Resident and Mobile WorkersAnticipate and Avoid Unwarranted Withholding Tax Duties and Nexus Triggers

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JUNE 2, 2011

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Mindy Harada Director Employment Tax Practice PricewaterhouseCoopers San Jose CalifMindy Harada, Director, Employment Tax Practice, PricewaterhouseCoopers, San Jose, Calif.

Chaim Kofinas, Senior Manager, WithumSmith+Brown, Red Bank, N.J.

Hollis Hyans, Partner, Morrison & Foerster, New York

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T T A i i F N R id t Tax Traps Arising From Non‐Resident and Mobile Workers Seminar

June 2, 2011

Chaim Kofinas, [email protected]

Holly Hyans, Morrison & [email protected]

Mindy Harada, PricewaterhouseCoopers [email protected]

Today’s Program

How Mobile Workers Can Trigger Tax Obligations[Holly Hyans]

Slide 3 – Slide 24

Difficulties With Current State Laws, Regulations[Chaim Kofinas]


Administrative Challenges For Taxpayers[Mindy Harada]


Options To Consider In Addressing These Tax Issues [Holly Hyans, Chaim Kofinas and Mindy Harada]


HOW MOBILE WORKERS CAN Holly Hyans, Morrison & Foerster

HOW MOBILE WORKERS CAN TRIGGER TAX OBLIGATIONS

Introduction To This SectionIntroduction To This Section Legal Withholding (by employer for employee) Nexus (for the employer and the employee)

Practical Filing obligations (for the employer and employee) Penalty issues (for the employer and employee)

Need for a reliable tracking systemg y Theoretical goals Nexus and withholding thresholds should be clear and uniform. Nexus thresholds should not be based on de minimis in-state visits or modest telecommuting by employees. The same employee-based nexus thresholds should apply to employers and employees.

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Nexus And TelecommutingNexus And Telecommuting

Under basic nexus rules, telecommuting employees can create nexus for their employers.p y

Under basis nexus rules, telecommuting employees can create nexus for themselves and be subject to personal income tax filingnexus for themselves and be subject to personal income tax filing requirements and liability.

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Employee Withholding: Nexus BasicsNexus Basics

Nexus basics - Individuals Nexus basics - Individuals A state has nexus over a resident and can subject all of a resident’s income to tax, regardless of where the income is earnedearned. A state has nexus over a non-resident to the extent that such individual derives income from in-state activities.

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Employee Withholding: Employer NexusEmployer Nexus

Employer nexus Employer statutory nexus is generally statutorily triggered by “doing business” or “transacting business” in-state, maintaining an office, owning or leasing property, or having employees performing services for the employer in-state. The U.S. Constitution may limit the breadth of statutory nexus. The Commerce Clause of the U.S. Constitution may require y qthat an in-state physical presence exist, although the applicability of the rule to corporate income tax has not been resolved. Quill Corp. v. North Dakota, 504 U.S. 298 (1992) KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308 (Iowa 2010), petition for cert. filed (U.S. Apr. 28, 2011) (No.

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( ), p ( p , ) (10-1340)

Employee Withholding: Employer Nexus (Cont )Employer Nexus (Cont.)

Employer nexus Under basic nexus rules telecommuting employees can create Under basic nexus rules, telecommuting employees can create nexus for their employers. Employers will have an in-state physical presence (the employee at a minimum and perhaps also property and anemployee, at a minimum, and perhaps also property and an office).

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Employee Withholding: N T iNexus Triggers

Examples Hiring an employee to perform back office or software support services from his or her home, in a state other than that in which ,the employer has offices Sending an employee into a state to meet with clients Allowing senior personnel to work from their homes and providingAllowing senior personnel to work from their homes and providing them with or reimbursing them for expenses related to work Allowing a long-term employee who needs to relocate for personal reasons to telecommutepersonal reasons to telecommute

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Employee Withholding:Telecommuting Issues And ChallengesTelecommuting Issues And Challenges

Employers may not be aware that there are tax ramifications from Employers may not be aware that there are tax ramifications from telecommuting and may not have tracking systems in place.

Even if an employer adopts a tracking system employees may not Even if an employer adopts a tracking system, employees may not report telecommuting completely or accurately.

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Practical Impacts Of Withholding On Corporate Exposureg p p

Tax costs of telecommuters to employers can be substantial and may include, in addition to “employer” taxes (withholding, unemployment insurance, workers’ compensation), corporate income and franchise taxes; and may impose on employers a sales tax collection responsibility.

Implementation of tracking system may be costly.

Employees may not comply with the tracking system to avoidEmployees may not comply with the tracking system, to avoid potential personal income tax obligations.

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Corporate Withholding IssuesCorporate Withholding Issues Withholding thresholds vary from state to state. Visit thresholds E.g., Connecticut and New York (14 days) Day count methodology may vary

Income thresholds Fixed dollar Idaho ($1,000)

Tied to personal exemption New Jersey, West Virginia

Withholding for employees can lead to taxability inquiries. Some statutes explicitly provide that withholding standing alone is not a nexus-generating event.Withholding “does not in itself” create nexus for the withholding

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agent. N.C. Gen. Stat. § 105-163.4

Corporate Withholding Provisionsg

Sample withholding provisions Georgia: Georgia defines an employer as “any person for whom an individual who is a resident or domiciliary of this state performs or performed any service of whatever nature ... ” Ga. Code Ann. § 48 7 100(5)§ 48-7-100(5) New Jersey: Every “employer maintaining an office or transacting business within this State and making payment of any wages subject to New Jersey personal income tax or making payment ofsubject to New Jersey personal income tax or making payment of any remuneration for employment subject to contribution under the New Jersey ‘unemployment compensation law’ ... to a resident or nonresident individual shall deduct and withhold from such wages

” N J St t A § 54A 7 1( )... ” N.J. Stat. Ann. § 54A:7-1(a) North Carolina: North Carolina requires an employer to withhold income tax from wages of all residents regardless of where earned N C Gen Stat § 105-163 1(4)

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earned. N.C. Gen. Stat. § 105 163.1(4)

Corporate Income And F hi T EFranchise Tax Exposure

Employers may be viewed as “doing business” or “transacting business” in the state of the telecommuter. P.L. 86-272 prohibits the imposition of a net income tax by a state if

the only activities performed in the state relate to solicitation of sales of tangible personal property.Wisconsin Dep’t of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 231 (1992) (although case recognized that de minimis non-solicitation activities will not cause the loss of P.L. 86-272 protection, the replacement of gum by sales representatives was deemed sufficient to cause the company to lose the protection) Does not protect companies that solicit sales of intangible property, e.g., software

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Corporate Income And F hi T E (C t )Franchise Tax Exposure (Cont.)

Many states impose taxes that are not “income” taxes, and thus companies are not protected under P.L. 86-272. For example:

Ohio commercial activity tax, Washington business and O y , goccupation tax Lamtec Corp. v. Dep’t of Revenue, 246 P.3d 788 (Wash.), petition for cert. filed (U.S. Apr. 19, 2011) (No. 10-1289) (during p ( p , ) ( ) ( geight-year period, employees in the state for some part of 50 to 70 days were sufficient for nexus)

Even if employers have protection for net income tax under P.L. 86-272, that protection will not eliminate the employers’ responsibility to withhold income tax, pay unemployment and disability insurance,

d k ’ ti

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and workers’ compensation.

Sample Of State Positions, And Developments On Telecommuting Creating Corporate

I T NIncome Tax Nexus

New Jersey: Software developer that “regularly and consistently permits” an employee to work from her home in New Jersey is doing business in the state and is subject to New Jersey’s corporation business tax. Telebright Corp. v. Director, Div. of Taxation, 25 N.J. Tax 333 (N.J. Tax Ct. Mar. 24, 2010) Common elements of telecommuting (use of company-owned property, no other in-state company connection) Contact was not “sporadic, occasional or intermittent.”p , The physical presence of employee was sufficient “substantial nexus.”

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I T N (C t )Income Tax Nexus (Cont.)

Illinois: State’s position is that having even one employee in the state working from his or her home, if the activities are not protected under P.L. 86-272, is sufficient for tax nexus and requires registration for withholding purposes and the filing of corporate income and replacement tax returns. General Information Letter (GIL) No IT 09 0004 (Ill Dep’t of Revenue General Information Letter (GIL) No. IT 09-0004 (Ill. Dep t of Revenue Feb. 9, 2009) (suggested that a single employee who telecommutes from Illinois, out of the corporation’s 400 employees, was sufficient to create nexus. The GIL recognized that because the corporation made no sales to Illinois customers, no income would be allocated to the state. Company would be required to withhold income tax under 35 Ill. Comp. Stat. §5/701.) Private Letter Ruling No IT 93 0042 (Ill Dep’t of Revenue Apr 7 1993) Private Letter Ruling No. IT 93-0042 (Ill. Dep t of Revenue Apr. 7, 1993) (employee working from her home, and using company-provided computer and leased phone line, exceeded mere solicitation and was sufficient to constitute nexus)

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Virginia: Business, professional and occupational license (BPOL) tax is not imposed unless there is an in-state “definite place of p pbusiness”; an employee working from a home office is not a definite place of business for the employer, unless the employer holds itself out as a business at that location. Va. Public Doc. Ruling No. 10-154 (July 28, 2010)

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What is the implication, for the employer’s nexus, of a rule that attributes an l ’ i t t t th l ’ h t t ?employee’s in-state presence to the employer’s home state?

New York: Has a “convenience of employer” rule, which deems days worked outside New York for the convenience of the employee to be days worked in New York. Huckaby v. New York State Div. of Tax App., 829 N.E.2d 276 (N.Y.), cert.

denied, 546 U.S. 976 (2005) (An individual working for a New York-based employer from his home in Tennessee had his entire income sourced to New York, even though he spent only 25% of his time in New York.), g p y ) Zelinsky v. Tax App. Trib., 801 N.E.2d 840 (N.Y. 2003), cert. denied, 541 U.S.

1009 (2004) (An NYU law professor who worked from his home in Connecticut and taught in New York City a few days a week was held not to be working from home for the convenience of the employer Taxing him on 100% of hisfrom home for the convenience of the employer. Taxing him on 100% of his NYU salary did not violate the Commerce Clause.) In re Kumar, DTA No. 822747 (N.Y.S. Div. of Tax App., Admin. Law Div. May

6, 2010) (An individual who never came to the employer’s New York office was not liable for New York personal income tax )

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not liable for New York personal income tax.)

Other Corporate Tax Implications Of TelecommutingImplications Of Telecommuting

Apportionment General rule Only wages for employees reported on unemployment tax reports

are includible in the payroll factor. Amounts reported on Form 1099 are not wages.

If the wages are paid to telecommuting employees, to which state(s) should the wages be apportioned? St t id h th th i id d i t t i States may consider whether the service provided in-state is

connected to an in-state or out-of-state “base of operations.” States may consider whether the employee is a state resident.

If the general payroll apportionment provision does not properly reflect If the general payroll apportionment provision does not properly reflect employees’ in-state activities, then a request for discretionary adjustment to the factor should be considered

Note: More states are shifting to single-sales factors.

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Note: More states are shifting to single sales factors.

Other Corporate Tax Of (C )Implications Of Telecommuting (Cont.)

Sample state payroll provision (Massachusetts) “Compensation is paid in this commonwealth if:

1. The employee’s service is performed entirely within this commonwealth, or

2. The employee’s service is performed both within and without this commonwealth, but the service performed without this commonwealth is incidental to the employee’s service within this commonwealth; orcommonwealth; or

3. Some of the service is performed in this commonwealth, and i. The base of operations or, if there is no base of operations,

the place from which the service is directed or controlled is in pthis commonwealth; or

ii. The base of operations or the place from which the service is directed or controlled is not in any state in which some part of

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the service is performed, but the employee’s residence is in this commonwealth.” Mass. G.L. ch. 63, § 38(e)

Federal LegislationFederal Legislation Mobile Workforce State Income Tax Simplification Act of 2011, H.R.

1864, 112th Cong. (introduced May 12, 2011)Would address the taxation of non-resident employees (with the exclusion of professional athletes, professional entertainers, and certain public figures)Would set a 30-day threshold below which a state could not subject the non-resident to state income tax or require employers to withhold tax Previous attempts to enact such legislation have failed. H.R. 6167 (2005), 109th Cong. (2006); H.R. 3359, 110th Cong. (2007); H.R. 2110, 111th Cong. (2009)

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MTC’s Position Mobile Workforce Withholding and Individual Income Tax model statute Sets a 20-day threshold of days, below which a state could not subject y y , jthe non-resident to state income tax, and employers would not be required to withhold taxes Requires an aggregated day count for employees working for affiliated employers Travel through a state is not considered in the day count. If an employee is in multiple states on the same day, presence will count toward threshold for each state.

Does not set a de minimis income thresholdoes ot set a de s co e t es o d Requires reciprocity by the home state of the non-resident Provides exceptions for professional athletes, professional entertainers, “persons of prominence,” construction workers, and persons who are “key employees” under IRC § 416(i)employees under IRC § 416(i) Provides for an employer “safe harbor” for failure to withhold penalties due to a miscalculation of days where the employer has relied on: (1) a time and attendance system; (2) if such system does not exist, employee travel records; or (3) if the system or travel records do not exist, employee

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( ) y p ytravel expense reimbursement requests. Does not address local withholding or local income tax imposition

State Mobile Workforce LegislationState Mobile Workforce Legislation

North Dakota Effective beginning 2013 (L 2011 § 2) S B 2170 62nd Leg Effective beginning 2013 (L. 2011, § 2) S.B. 2170, 62 Leg. Assemb. (N.D. 2011) Closely mirrors the MTC model law Only applies if state of residence adopts a similar statute Only applies if state of residence adopts a similar statute

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DIFFICULTIES WITH CURRENT Chaim Kofinas, WithumSmith+Brown

DIFFICULTIES WITH CURRENT STATE LAWS, REGULATIONS

NEXUS: WHAT IS IT?

• Nexus is contact with a state that is sufficient to establish a connection allowing the state to impose a tax.

• Protection from states overreaching to claim nexus comes from two sources:

• The US Constitution: The Due Process Clause and the The US Constitution: The Due Process Clause and the Commerce Clause, and their meanings as interpreted in the federal and state courts

• Federal Law: Public Law 86-272 Federal Law: Public Law 86 272

WithumSmith+Brown, PC ▪ BE IN A POSITION OF STRENGTH30

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NEXUS, OR “DOING BUSINESS”STANDARDS VARIES BY STATESTANDARDS, VARIES BY STATE

• In some states, the mere presence of a telecommuting employee gives an employer business tax nexus.

• NJ Admin Code 18:7-1.9 also says, “the employment in New Jersey of agents, officers and employees” creates nexus. Sounds very inclusive

• NC Code 5C0102, on the other hand, says, “rendering of a service to clients or customers in North Carolina by agents or employees” to clients or customers in North Carolina by agents or employees seems to limit nexus creating activity to businesses actually servicing or selling to NC residents.


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BNA APRIL 22, 2011STATE TAX DEPT SURVEYSTATE TAX DEPT. SURVEY

• 37 jurisdictions indicated that they consider that the activities of telecommuters create employer nexus (for all business taxes).

• KY, MD, MS, OK and VA said the telecommuters would not create employer nexus.

• 2011 survey asked if answer would change if no sales were made into the state. There seemed to be no difference. This question, prompted by a WS+B tax manager indicates that states generally prompted by a WS+B tax manager, indicates that states generally view the presence of a telecommuting employee in their state as creating business tax nexus.


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GENERAL WITHHOLDING REQUIREMENTREQUIREMENT

• States typically require withholding on wages paid to employees performing services within their borders.

• Telecommuters create withholding tax nexus for employers.

• Two types of telecommuters• Two types of telecommuters Itinerant Regular (Telebright case)


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SAMPLES OF TYPICAL STATE WITHHOLDING REQUIREMENTSWITHHOLDING REQUIREMENTS

• AL: An employer who is a resident of Alabama must withhold tax from the wages of employees who are not Alabama residents, only to the extent that the wages are earned in Alabama.

• AZ: An employer who is a resident of AZ must withhold tax from the wages of employees who are not AZ residents, only to the extent g p y , ythat non-resident was present in AZ for 60 or more days in a year.

• CA: Every employer paying wages to resident employees for CA: Every employer paying wages to resident employees for services in- or out-of-state, and non-resident employees for services in-state, must withhold personal income tax from such wages.


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NJ TELECOMMUTER WITHHOLDING REQUIREMENTWITHHOLDING REQUIREMENT

• NJ: For non-resident telecommuters who never enter the company’s home state to perform work or services New Jersey uses company s home state to perform work or services, New Jersey uses a “physical presence” test. Using this test, only the telecommuting employee’s home state will tax the income.


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NY TELECOMMUTER RULENYS TSB M 06(5)I NYS: TSB-M-06(5)I

• NY taxes all wages earned from an employer in one of those states, unless a non-resident’s work must be performed from his or her out-of-state home or location by necessity. This is called the “convenience rule.”

• TSB-M-06(5)I: Non-resident telecommuter is not earning NY taxable income when telecommuting, if the home office is a “bona fide employer office” AND the telecommuting is a result of employer necessity, not employer or employee convenience. NY withholding is allocated as a result.

• Note: NY is known to require that the employer prove the telecommuting is out of necessity.


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ILLINOIS TAXATION OF THE TELECOMMUTERTELECOMMUTER

• In General Information Letter IT 09-0004-GIL, the IL DOR determined that not only did a telecommuter performing accounts receivable duties violate the requirements for 86-272 protection and create nexus for a seller of TPP, but also her presence also required the company to “withhold Illinois income tax on the entire amount of her compensation.”

• IITA Sect. 701 was cited as support for the determination. That section of the code requires withholding on compensation paid “to a resident by a payor maintaining an office or transacting business within this State.”


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MASSACHUSETTS

• Mass. Tax Law Code 830 CMR 62.5A.1 says that a telecommuter will only be subject to tax on the income earned while in MA. The code y jgives the following example: “A telecommuter works for a Massachusetts firm, mainly out of her home in Ohio. The telecommuter works a total of 240 days during the tax year, and is in Massachusetts on 60 of those days. Her salary is $120,000 per year. Her Massachusetts source income is $30,000.”


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MAXINE ALLEN AND THE NY COMMISSIONER OF LABOR COMMISSIONER OF LABOR • Telecommuting has had adverse impacts on the worker.

• In the 90s, Maxine Allen was a fulltime telecommuter from FL for her NY employer.p y

• In 1999 she was let go and she applied for unemployment in FL, but was turned downwas turned down.

• She subsequently applied in NY and was also rejected.

• According to NY’s Labor Law at the time, unemployment insurance only covered “localized” work.


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• Case was decided in 2003.

OHIO

• However, the Ohio DOT has concluded that employees who telecommute from within its borders as a result of a hardship, such as aging parents or a child with special needs do not create nexus for aging parents or a child with special needs, do not create nexus for their employers.


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OREGON

• In 2007, OR issued a bulletin titled, “Withholding/Transit Tax Information: Out-of-state/Nonresident Employers.” / p y

• The publication cited Oregon law by stating that employers must withhold income tax from employees working in Oregonwithhold income tax from employees working in Oregon.

• The notice focused on telecommuters.


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WISCONSIN

• An non-resident employee who telecommutes for a Wisconsin An non resident employee who telecommutes for a Wisconsin employer is subject to WI income tax on amounts earned for days present in WI. WI employer must withhold from the telecommuter if the total of WI income is more than $1,500 per year. $ , p y

• Also, Wisconsin will not tax the wages of residents of IL, IN, KY or MI, due to reciprocal agreements with those statesdue to reciprocal agreements with those states.


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HOW DOES A STATE CATCH A TELECOMMUTER’S EMPLOYER WITH

BUSINESS TAX NEXUS?• States have a variety of ways to discover non-filers.

• Nexus surveys: Employees (telecommuters)/agents in state?”

• Cross-matching tax types, e.g. (telecommuter) payroll tax, corporate income tax

Y h t b k t th fi t d h d (fi t i t t • You may have to go back to the first day you had nexus (first in-state telecommuter) and file returns that will include interest and penalties.

• Some states only go back eight or nine years on nexus discoveries• Some states only go back eight or nine years on nexus discoveries.

• Best mitigation measures available: Voluntary disclosure agreements (VDAs) and amnesties


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(VDAs) and amnesties

RECIPROCAL AGREEMENTS

• AZ, CA, IN, OR and VA

• DC MD and VADC, MD and VA

• MI, IL, IN, KY, MN, OH and WI

• NJ and PA

• PA, IN, MD, NJ, OH, VA, and WV

• VA DC KY MD PA and WV


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VA, DC, KY, MD, PA and WV

THRESHOLDS

• Dollar one: Most states

• Days count: AZ and NYDays count: AZ and NY

• Dollar count: VA and WI

• Other: GA and HI

• No-tax states: Alaska, DC (non-residents only), Florida, Nevada, South Dakota, Texas and Wyoming


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INCOME SUBJECT TO WITHHOLDINGWITHHOLDING

• Salaries/wages Days count/hourly count

• BonusBonus Prior-year service performance

• Deferred compensationSt t h d f d State where deferred

State at time of payment• Options

Grant to vest Grant to exercise


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EMPLOYER’S RECORDKEEPINGRECORDKEEPING

• Employee liability on which an employer must act

• Registration for withholding creates a trail for income tax and sales tax nexus.

• Employee activity-tracking Expense reports Cell phone records


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ADMINISTRATIVE Mindy Harada, PricewaterhouseCoopers

CHALLENGES FOR TAXPAYERS

Administrative Challenges And Options

Trends in audit

• States actively auditing employer withholdingy g p y g

― New York

• States actively auditing employee personal income tax

― California

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Administrative Challenges And Options (Cont.)

Trends in audit (Cont.)

• What will the auditor look at?• What will the auditor look at?

― Is withholding performed in the correct state?

― Review of accounts payable documentsp y

― Travel records

― Review of accounts receivable

― Tracks contracts, and hence employees

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• Are the withholding rates correct?

Some states are actually looking at calculations to ― Some states are actually looking at calculations to determine if they are correct.

― New York and California

― Should supplemental rates have been used?

― Do you have state-equivalent to a W-4?

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• Local taxes• Local taxes

― Localities are now looking for revenue.

― Activity on San Francisco business tax, Ohio, y , ,Pennsylvania, New York

― City of Wilmington, Dela. imposes steep penalties d i t tand interest.

― Employee- or employer-based tax

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Trends in audit (Cont )Trends in audit (Cont.)

• IRS national research project

― Focus on executive compensation, employee fringe p , p y gbenefits and worker classification

― 2,000-plus employers each year over three years

• State unemployment audits

― How are state unemployment audits initiated?

I f ti h i ith IRS― Information sharing with IRS

― Independent contractor tries to collect benefits

Employee misclassification― Employee misclassification

― Is state unemployment in the correct state?53


• HR, stock plan, relevant payroll systems

• Deferred compensation

• Stock options• Stock options

• Bonus plans

• RelocationRelocation

• Labor law

― Whose rules are you subject to?y j

― Overtime, hourly rate calculations

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• Challenges with employee movement

• Do you know where your workers are?• Do you know where your workers are?

• Do you have a mechanism to capture time in each location?

• Do you have the ability to compute and submit withholding in local jurisdiction?

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• Challenges with employee movement (Cont.)

• How tax specialists can help• How tax specialists can help

― Employee-tracking systems

― Nexus studies

― State rules on resident/non-resident taxation

― Review of “what’s possible vs. what’s not”

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Holly Hyans, Morrison & FoersterChaim Kofinas, WithumSmith+Brown

OPTIONS TO CONSIDER IN

Chaim Kofinas, WithumSmith+BrownMindy Harada, PricewaterhouseCoopers

ADDRESSING THESE TAX ISSUESISSUES

Possible SolutionsPossible Solutions Federal legislation

B t h t hi if bl l t dd i i i f Best hope to achieve uniform, reasonable rules to address issues arising from worker travel and telecommuting Hearings held on May 25, 2011 before the U.S. House of Representatives

Committee on the Judiciary Subcommittee on Commercial and Administrative Law COST d th AICPA t th bill COST and the AICPA support the bill. COST noted the de minimis (.01%) cost to states. AICPA recommended that withholding should only cover work performed

after the 30-day threshold is met, in order to avoid a withholding cliff. Federation of Tax Administrators (FTA) opposes bill as “an unwarranted

intrusion into legitimate state tax authority and sovereignty.” Claims the bill “invites tax avoidance” Objects to language that would allow the employer to rely on the

employee’s own determination of time in-state, unless the employer has actual knowledge of fraud Objects to 30-day threshold Advocates for a dollar threshold in addition to a day threshold

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Objects to the definition of “day,” which the bill requires be based on where a “preponderance” of the employee’s duties are performed.

Possible Solutions (Cont )Possible Solutions (Cont.) Withholding Communicate potential reporting and withholding issues to employees, with particular focus on highly-compensated senior employees Adopt system for tracking employee travel and days spent working remotely Review requirements and thresholds in all applicable states q pp

Nexus If employee travel may have created past nexus issues, employer and/or employee may want to consider voluntarily disclosing pastand/or employee may want to consider voluntarily disclosing past liabilities. Most states have voluntary disclosure programs, which limit the lookback period and may eliminate or reduce interest and

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the lookback period and may eliminate or reduce interest and potential penalties.

POSSIBLE SOLUTIONS (CONT.)( )

• Recognize the issue

• Review your available documentation systemsReview your available documentation systems

• Develop a plan of attack

• Work the plan

• Repeat items 2-4 at regular intervals


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P ibl S l i (C )Possible Solutions (Cont.)

• Perform internal audit of accounts payable function to see where your skeletons exist

• Review vendor list and focus on employees paid through ev ew ve do l st a d ocus o e ployees pa d t oug AP

• Make sure you include outside travel firm, if used

• Track travel through expense reimbursements and identify exposure

• Perform exposure analysis• Perform exposure analysis

• Determine possible level of compliance

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