Yet another tax headache – U.S. interstate business travel
Interstate Tax – Not that long ago, interstate business travel in the United States wasn’t yet the tax headache it’s become today. In fact, many who traveled beyond their home states for business didn’t realize they could be taxed by other states on the income they earned while there. Many employers, who would have been required to withhold and report on this income, were also largely unaware.
Now though, awareness has increased exponentially, due to a greater likelihood of financial consequences for noncompliance with interstate tax rules. As the result of new technologies that have made it faster and easier to identify tax violations, states with income taxes are now generating substantial additional revenue by penalizing those not in compliance.
In some instances, penalties can be significant. One company, for example, recently received a $10 million assessment for withholding and reporting violations in New York.
As might be imagined, this has created numerous challenges for companies with many U.S. interstate business travelers. Because there’s considerable variation from state to state around withholding thresholds and requirements (or a lack of them), staying compliant can be an enormous and highly complex task.
To manage this, many have found it helpful to bring in compliance specialists, who can help determine the size of the issue, identify risks and objectives, define mitigation processes, and promote collaboration among all applicable departments (e.g., mobility, HR, payroll, finance, and tax). Third party consultants can also facilitate senior leadership buy in, which will further promote compliance efforts and clarify the benefits to the company.
In addition, companies wishing to successfully mitigate their risk are implementing rigorous data management processes. Components include maintaining accurate employee location data and amounts and types of compensation. In addition to base salary, the latter includes long-term bonuses and awards and equity awards/stock options.
In order to streamline this task, many are using travel tracking technology. This not only saves time and money, but mitigates risk even further: should there be an audit, it attests to the fact that a company is making a good faith effort to be compliant.