Many users of the Domicile365 App are focused on monitoring their day counts in various state or local jurisdictions to ensure they don’t become statutory residents of a jurisdiction and consequently become subject to state or local taxation on 100% of their income from any sources. However, one should not lose focus of the fact that if you perform work in a state for as little as one day, you may become subject to state or local taxation on any income derived from this in state or local activity and an employer may have a state or local tax withholding obligation for any wages paid. While efforts have been under way for some time by groups such as the Council on State Taxation (“COST”) to limit in state taxation and withholding to situations where someone exceeds a 30-day threshold, to date their model mobile workforce legislation has attained only limited traction with lawmakers. However, the Louisiana legislature just has passed a bill (S.B. 157), which if signed by the Governor, would be effective January 1, 2022 and provide relief to individuals who spend 25 or fewer days in Louisiana during a calendar year. The bill is based on the COST mobile workforce legislation.
Under the legislation, wages would be exempt from Louisiana income tax if the person worked in the state for 25 days or fewer during the calendar year. An employer would not be required to withhold taxes on those wages. Notable is that the legislation only applies to employer-employee arrangements and does not address independent contractors or other self employed individuals who may still be subject to local tax for any day worked in state (even if only 1 day). The exemption does not apply to professional athletes, professional entertainers, public figures and certain other individuals who work on entertainment production companies or for sports teams.
Notable also is that the exclusion will only apply if the individual’s domicile state either has no income tax (i.e., Florida, Texas, Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Washington and Wyoming) or provides a similar exemption for non-residents. Also unclear is whether this provision will apply in respect of residents the State of Washington which recently adopted a capital gains tax on certain investment gains, but otherwise has no income tax.
This bill illustrates the need to accurately track the days an individual is present in various locations throughout the year. Use the Domicile365 App to track your tax days.