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Should you have to file a tax return in a state where you babysat for one hour? In 22 states, the answer is technically yes.
In this episode of The Deduction, host Kyle Hulehan and co-host Erica York sit down with Katherine Loughead, Director of State Tax Projects at the Tax Foundation, to break down the tangled mess of state nonresident income tax laws — and why they're a growing problem in the remote work era.
Katherine walks us through how credits for taxes paid to other states are supposed to prevent double taxation, why "convenience rules" in 8 states can saddle remote workers with two full tax bills, how a wild patchwork of filing thresholds creates confusion for workers and employers alike, and what reforms states should adopt to simplify the system.
📄 READ THE FULL PAPER:
"Nonresident Income Tax Filing and Withholding Laws by State, 2026"
https://taxfoundation.org/data/all/state/nonresident-income-tax-filing/
📄 RELATED: "State Individual Income Taxes on Nonresidents: Remote Work & Hybrid Work"
https://taxfoundation.org/research/all/state/state-income-taxes-nonresidents/
📄 "How Burdensome Are Your State's Nonresident Income Tax Filing Laws?" (Interactive Map)
https://taxfoundation.org/data/all/state/nonresident-income-tax-filing-laws/
📄 Mobile Workforce State Income Tax Simplification Act
https://taxfoundation.org/blog/complicated-state-taxes-business-travelers/
———
HOSTS & GUEST:
Kyle Hulehan — Host, Senior Marketing Associate & Creative Producer
Tax Foundation: https://taxfoundation.org/about-us/staff/kyle-hulehan
Erica York — Co-Host, Vice President of Federal Tax Policy
Tax Foundation: https://taxfoundation.org/about-us/staff/erica-york
Twitter/X: https://twitter.com/ericadyork
LinkedIn: https://linkedin.com/in/erica-york-a68ab474
Substack: https://ericadyork.substack.com
Katherine Loughead — Guest, Director of State Tax Projects
Tax Foundation: https://taxfoundation.org/about-us/staff/katherine-loughead
Twitter/X: https://twitter.com/KELoughead
LinkedIn: https://linkedin.com/in/katherine-e-loughead-6020a568
———
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So I do want to just pause here briefly for a moment to talk about the fact that this is crazy like the purpose of taxes
And I mean you could speak to this more Erica and Catherine better than I can as the experts
But my understanding is we get taxed because we their services there's government
We want we want structure and society in our lives. We want schools
We want these different things that taxes provide and if I don't live there
I am not being provided anything
And I'm also not a drain on their system where they need to tax me
That just this seems wild
Yeah, that's absolutely right and the line has to be drawn somewhere
Hello and welcome to the deduction a tax foundation podcast
I'm your host Kyle Holahan and we are back today with another episode with my co-host
Erica York and we are joined by Catherine Lawhead director of state projects at tax foundation
Imagine your babysitter or a nanny and for an hour you babysit across state lines
Should you have to you know file a tax return in that state?
Well the answer is in some states you would which seems like it's absurd
So that absurdity is sort of the jumping off point for today's episode
And I'm wondering Catherine could you kind of explain to us like why this matters
And what's going on here from your perspective?
Yeah well so the issue of people living in one state but sometimes working in another
Is really nothing new at some level people have been doing that for a really long time
And there have always been state income tax implications of doing that
Because one of the basic features of the income tax
Is that states have the authority to tax you both where you live and where you were
And so when those places are one in the same
That's really easy you just file in your home state
But when you live in one state but sometimes or even frequently working in another
Non-resident income tax laws start to come into play
And these laws can get very complex and burden some really quickly
And they can put individuals and employers on the hook for all kinds of filing
With holding and payment obligation sometimes in multiple states
And this can even in the worst situations result in true double taxation for remote workers
So these laws have been around for a really long time
But people are running into them now more than ever
Because with the rise of the internet over the past few decades
And then more specifically with the rise of remote work
Since the pandemic and with even the technological shifts we've seen since COVID
Where we weren't really doing video conferences like this
Until COVID
But now this is just so commonplace
And now people work from everywhere they have internet
And are constantly moving while working
And so people much more quickly run into these non-resident laws now
Then they did even a decade or two ago
But the problem is state tax laws are really not keeping up with this at all
So a lot of these non-resident provisions
We're kind of in place from the beginning of stating income tax laws
Or we're adjusted a little bit over time
With some credits for tax paid to other states being brought in
And different things we'll talk about in this podcast
Like reciprocity agreements
All coming into play over time
But for the most part these are really antiquated laws
That are now really aggressive and binding
For our modern really highly mobile workplace era
And so we're seeing that a lot of people are running into these laws
But most people don't even know about them
And not many people are actually complying
And then enforcement is also really low too
Where state tax departments for the most part
Aren't going after people other than really high income earners
So there's just a big mess of a lot of different burdens
A lot of complexity and different systems
So it would really be great to try to sort some of this out
And the ball is really in the court of states to try to do that
Sounds like a really big mess
So you have these old laws on the books
The non-resident income tax filing requirements
But you have these big shifts in how people are working
And an increase in remote work
I mean like Kyle and I both work remote for tax donation
So like two-thirds of the people on this podcast right now work remote full-time
And Katherine I think you the people
Well, you're now remote too, right?
You move
Okay, I'm going to put this call as remote and this stuff
All of this are remote now
And then for the folks at tax foundation in the DC office
They're like hybrid
So some of the time they are working remote
And we all travel a lot
What just states do right now to keep people from being taxed twice
On the same dollar of income
So when two states can both stake a legitimate claim to taxing your share of income
Whether that's a day's worth of your income or your entire salary
If no other adjustments are made that would obviously be double taxation
So that's obviously not desirable
And it's costly for taxpayers
And in many cases that would violate the Constitution's dormant commerce clause
Because that requires that taxes be fairly apportioned
And prohibit states from just discriminating against interstate commerce
So we want to avoid double taxation
And to do that states have adopted these credits for taxes paid to other states
Or other state tax credits
And basically what they do is that in every state with an income tax
They have these credits now
And so they are most commonly paid out by your home state
And they either offset the amount you actually paid in income taxes to other states
That you may have traveled to
Or the amount that you would have paid on that same share of your income
If it had been taxed exclusively by your home state state
So whichever amount is less
Is what gets offset by these credits
So if you live in one state but go on a business trip somewhere else
Your home state can tax all your income from all sources
Including the income you earned in that other state
But the other state can also tax the income you physically earned
Or that you earned while you were physically present there
So that's what would otherwise create this double taxation
And so when you claim a credit for the taxes paid to that non-resident state
That's offsetting
And so you have to figure out do you actually have to file these other states
Because that's a whole question in and of itself
But assuming you do actually have to file there
The credit for taxes paid to other states
Does a great job of preventing double taxation in most normal circumstances
How long example you could walk through
So to give you a sense of just how these credits for taxes paid to other states
I'll give you a really simple example
So let's say you live in a state with a 6% income tax rate
But you take a business trip to a state with a 4% rate
So assuming you do actually have to file in that other state
Your home state will offer you a credit against that other state's income tax liability
To fully offset the amount you actually paid to that other state
Under its lower income tax rate
And then you'll pay the residual amount to your home state
But say the reverse is true and you live in a state with a 4% rate
But travel for work to a state with a 6% rate
You will pay that full 6% to the state you travel to
And then when you go to file your home state tax return
You'll claim that credit for taxes paid to the other state
But because your home state would only have taxed that income at 4%
Your home state will only offer you a credit for the 4%
Or the amount you would have paid on that same income under your home state's tax rate
So that will wipe out any income tax liability on that income
That you would have otherwise owed to your home state
If your home state is the lower tax state
But the net of all this regardless of which state has a higher or lower tax burden
Is that when some or all of your income is taxable in two states
Your total state income tax liability on that portion of your income
Will always equal the amount you would have paid to the higher tax state
But the credit for taxes paid to other states is the mechanism
By which that revenue gets apportioned between the two states
So the bottom line is credits for taxes paid to other states
Really do a good job of preventing double taxation
But they don't do anything else besides that for the taxpayer
So you still do have to file in both states
Which is burdensome time consuming costly all of that
And so you know it doesn't do a whole lot for taxpayers
Actually other than just removing that double taxation burden
Now just to give them the listeners I think a little image
Because this is this is tricky is I live in New Jersey
And let's just say I'm gonna go work in California for a while
And let's say I don't make the top right
But let's let's say I get paid the big bucks
And I'm charged that the top right in both states
So we're at like 10 11% in New Jersey
And then it's like 12.5 or something in California
And at that rate
So I'm there's still that 2% gap that's basically happening
That 1 2% gap between California New Jersey that exists
Is what I'm still paying and I get no credit for that
You might apportion your income between the two states
But you would still pay on net the higher amount
So you can't like avoid the higher tax state by virtue
Like if you're truly exposed to both states income taxes
You're gonna end up paying the higher amount
So it doesn't benefit you to like work in a lower tax state
For instance because your home state still contacts all the income
That you earned in the higher tax state
And so it's ultimately kind of a wash
You have to pay that or not a wash
But you have to pay the higher amount
But how is apportion depend on if you're
Falling under a normal credit the scenario
Or under a reverse credit scenario
Which is even more complex
And it's not worth getting into all the details there
But it's worth being aware that some states
Do have reverse credits where the credit is offered
By the non-resident state
Enclaimed against the person's non-resident income tax liability
The offset the taxes that they pay to their home state
And so this does a good job of helping
Ensure that the home state isn't
Isn't doesn't end up in a situation where they don't have any revenue
That wouldn't make a lot of sense from a public finance perspective
Because for the most part
Even if you work 40 hours a week in another state
Your home state is the one where you're gonna receive most of the public services
Probably you spend more time on that states
Roads the local police and fire protection protect your home
It's more likely that you'll need state services
In your home state
And so we want to make sure that states
Home states get a lot of that revenue
But under a traditional credit scenario
They can miss out on a lot of that revenue
Or potentially all of that depending on how long
And how much of your income is being taxed by this other state
So this is what happens
And it's a little confusing and complicated
When things go right
But what happens when it goes wrong?
So there's a lot of different ways that this can go wrong
And I think one of the biggest examples of how this goes wrong
Is with what are called convenience rules
Which is basically what happens when a state
Aggressively decides that they will tax remote workers
Whose employer is based in an office in that state
Even if that employee themselves
Barely even makes any contact
With that state
So these rules are in place in eight different states
Alabama, Connecticut, Delaware, Nebraska, New Jersey, New York, Oregon, and Pennsylvania
Some are more aggressive than others
But basically they'll say like if you work technically out of a New York based office
But you live in Colorado because you like to hike and ski
And you want to live in Colorado
If that's not a necessity of doing the job
And that's just because you want to live in Colorado
Your employer lets you live in Colorado
New York would say hey
Still owe income taxes on all of your salary that you earned
From that employer
Even if the contacts that state are very minimal
So maybe you make one visit to the office
For like a staff meeting or something like that
It depended the rules very state to state
But very minimal contacts
Could require that your whole entire salary
Even though you physically earned it in Colorado
Beap taxed by New York
And so how this breaks down though is because you would still have to obviously file in Colorado too
Because you lived there
You physically performed the work there
But when you go to claim the credit for taxes paid to New York
You won't be able to do that
Colorado will probably deny it
Because that work was physically performed in Colorado
And so this has created a lot of issues
There was a lot of litigation over during COVID
There was a lawsuit between New Hampshire and Massachusetts over this
Where a New Hampshire was upset that people who previously lived in New Hampshire
But worked from an office in Massachusetts
And previously had to pay Massachusetts income tax
Now we're working full time from New Hampshire
And so they were barely stepping foot into an office in Massachusetts
That entire year, potentially two years
After the pandemic started
And so New Hampshire was saying hey
These people shouldn't have to pay Massachusetts income taxes anymore
Because they're not even in Massachusetts
Ultimately the Supreme Court decided not to hear that case
So it still remains to be determined
Whether convenience rules like this are actually constitutional
There's a lot of reasons for they might be a violation of the dormant commerce clause
But for now they do remain on the books in several states
So it's really important if you are a remote worker
To be aware of these
Because you could end up facing full double taxation on your entire salary
If your employer is based in one of these convenience rule states
And that also creates unintended consequences
If you're an employer that wants to offer remote work flexibility
But you're based in a convenience rule state
Your employees and I can be happy about that
If they suddenly are surprised to find out that they owe two complete income tax bills
To two entirely separate states
So that's one of the biggest ways this can go wrong
But there's also a ton of complexity in other areas
Including in how it's determined when individuals have to file and pay
And when employers have to withhold
So that's just the tip of the iceberg there
I do want to just pause here briefly for a moment
To talk about the fact that this is crazy
Like the purpose of taxes
And I mean you could speak to this more Erica
And Katherine better than I can as the experts
But understanding is we get taxed
Because we there are services
There's government we want
We want structure in society in our lives
We want schools
We want these different things that taxes provide
And if I don't live there
I am not being provided anything
And I'm also not a drain on their system
Where they need to tax me
That just this seems wild
That's absolutely right
And the line has to be drawn somewhere
You know, their employer is maybe headquartered in New York
But just because your employer is headquartered in New York
New York's not trying to tax every single person
Who works for a company that has headquartered there
The line has to be drawn somewhere
And you know, there's talk about like
How much are you availing yourselves of the state's economy
And again, it's not exactly clear
Where that line gets drawn
But there's definitely way more
I think justification for
You are physically present in the other state
You know, New York doesn't get to tax you
Just because you are based out of an office there
You know, maybe if you spend over a month working from that office
Sure, there might be a case to be made for that apportioning
That share of your income
But should they really get to tax your whole entire salary
I would definitely argue no
And I think a lot of others would as well
But the jury is still out on this
It feels common sense
Like it feels like a common sense answer
Or just say no
They should not get to tax you on your entire income
If you're barely even stepping foot there
But there are some crazy laws as your paper lays out, Catherine
And really it's a patchwork
Things are different across each state
In terms of filing requirements
With holding thresholds for employers
Can you walk us through what that patchwork looks like now
As you laid out in your paper
It's quite a wild patchwork of things
And really in doing the research for this paper
It took quite a while to dig into all the state statutes
To figure all of the ways that states can vary on this
Because I was kind of surprised to find out that most states don't actually
Fill it out as clearly as maybe they should
On their non-reservate income tax forms and instructions
You oftentimes do have to go to the statute itself
And in some cases the filing and the withholding parts of the statute
Are in completely different parts of the code
And if you have a convenience role that might be in a completely other part of the code
But actually figuring out even when you are subject to this
That itself is a difficult question to answer
Even if you specialize in this all the time
But basically there's a wide range of this patchwork
So there are 22 states that have very aggressive laws
Where if you spend even a single day working in the state
Technically under the letter of the law
You are supposed to file a non-resident income tax return there
And you might have to pay depending on if you get to claim
A paraded standard deduction or personal exemption and things like that
So you may or may not actually have to pay
But in 22 states you have to file for a single day of work
And how whether you know what constitutes a single day of work
Very state-to-state as well
In some states if you earn any income at all there
So that babysitting example
If you spend an hour working across state lines
There are some states where you do tactically
Probably have to file and pay
Although I'm sure probably anyone does that
So there's a lot of aggressive states like that
But there are also some states that have made good progress on this
With a lot of states doing so even just since COVID
So we've seen six states adopt
Much more reasonable filing and withholding thresholds since 2020
Which is really great to see
And so right now there are four states that have 30 day filing
And withholding thresholds
Where you're allowed to work in the state for up to 30 days
Before any filing payment or even withholding obligations are triggered
No matter which state you come from
And so that really goes a long way to relieve compliance burdens
For people who have a quick business trip
Maybe spend a day or two in a state
Or even a week long conference
And are only spending a short time there
So those laws are the most generous
But then there are some states
That have what's called mutuality requirements
Where they claw back some of that relief for certain taxpayers
And basically how that works is
Some of these states determine that if you come from a state
Or they will only allow you to have relief under the filing and withholding threshold
If you come from a state with no income tax
Or a state that offers a substantially similar exclusion
And no state has done a good job of defining that
So who knows what actually constitutes a substantially similar exclusion
It's unclear even to tax prepares
If like a $2,000 income threshold in one state
Would be sufficient to be substantially similar to
A 38 threshold in another state
But basically states are saying we will only provide relief to your state's residence
If you provide relief to our state's residence
And while that may be understandable at face value
I think it's kind of petty
And I also think it creates a lot of non-neutrality
Because you are applying different laws to different people
For no decision of their own, no behavior of their own
Like one state was there or one person can be in your state from one state
And they get taxed as soon as they're there
Another person can spend 30 days there
And it's just because of the laws at place in their own state
So it really be great to see more states adopt these 30 days
Filing and withholding thresholds without those mutuality requirements
Because not only are they very not neutral
But they create a lot of complexity too
Because if you see that your state has a threshold
You probably assume it applies to you
You might not read the fine print and see that
Oh, actually it doesn't
Depending on which state you come from
And sorry we can't even define what a substantially similar exclusion actually is
So yeah, it's quite a mess
So when it comes to all of the different ways
States go about doing this
You could even imagine two co-workers traveling to a conference in one state
And depending on what their state's policy was
One of them may owe taxes for traveling to that conference
And one may not, that is so wild
Yep, that's exactly what would happen
So the employer would have to keep track of all their remote workers
And be like, oh, you know, oh, Erica
It doesn't have to pay, but Kyle does
Because that's just crazy
They can't be generating enough revenue off of this
For that compliance and administrative burden to even be worth it
Not at all
The cheaper work cost to this has to be so much higher than any potential revenue
Just from like the average taxpayer
I just wanted to hop in and say
It's definitively like not good to have laws
The people don't really follow
Like I think that there's this whole system here
Where it's like, okay
Sure, you go to this state, that state
And you know what, Catherine,
God bless you, that you follow the laws
That you need to for all your work travel
But a lot of people don't
And it, but it's just that's not a good thing
That doesn't like help our tax code
That doesn't like enforce that this is a good tax code
Or that people should be following tax laws
No, it definitely doesn't
I think it's kind of laughable
When you look at these laws and you're like, are you really wanting us to do this
Because no one only varies like higher earners do this
Athletes, professional athletes, professional entertainers
Oftentimes have to do this because of the clawbacks
In different states, CEOs often
Or higher earning people tend to be a bit more careful about these laws
And people who work for very large companies that have major
Compliance departments that can actually adjust your withholding every time you travel
But most employers, I would venture to guess
Probably aren't actually doing this
And when I've talked to different CPAs, a lot of them are like, yeah
Oh, they're not necessarily going out there to encourage people to be like, oh, did you
Tell me all the different states that you spent a day in
No, this isn't happening
So yeah, it doesn't make a lot of sense to keep laws on the books
That people aren't applying with overall
Some certainly do and some instances
It's very rare that someone will file a tax return for a day
Spent working in a state or even a week
You know, people might realize it's a thing when they spend
A month there and start to keep that in mind
I think during COVID when this became a big issue that everyone was talking about
There was more awareness about it
But in your normal day to day
If you might pay like just $6 to a state for a short time spent there
That's going to cost you way more to file those returns
Even just using tax filing software and way way more
If you're using a professional tax preparer
People are going to think that's silly, there's no way
Can't even imagine like lawmakers expect people to do this
Like if it's buried in different parts of the tax code in each state
And you have to like go search the actual statute
And it's not even clear on forms like your obligation to pay
When you talk with lawmakers about this
I'm curious like what is their understanding of the policy
And how do they are they on board with the current patchwork
Or do they understand like this is a mess
If we were starting from scratch and designing something to fit today's economy
Like what do they think?
Yeah, well that's a good question
And it really it depends on the lawmaker
I think a lot
This is such a niche issue and so in the weeds
That a lot of people aren't even aware
Or it's not really on their radar
A lot of people will say yes, we should definitely promote simplicity
You know tax filing is already burdened
Some enough for most Americans why are we making it worse
You know you do see some of a desire not to lose revenue
Especially for more of those high income earners
Like professional athletes and entertainers
And especially if you are a state that gets a lot of that
You're going to be has a tent to give up some of that revenue
And I think that's the major reason why we haven't seen a national
Uniform standard adopted
There has been legislation introduced
Year after year after year
The mobile workforce state income tax simplification act
To try to create a uniform 30-day filing and withholding
Threshold
But the main reason this hasn't been adopted
Is because there are some states that would lose out on this
Even if overall
In order to apportion everyone's income just so
We're making everyone file and pay and basically apportion their income
Wherever they go
And you know from a corporate perspective
There's corporate apportionment
But most people don't think about individual apportionment
But that's really what this has become
And it's really it gets out of hand
You know I recently filed my income taxes a few weeks ago
And I did this mostly because it's an interesting
Thought experiment to try to go through this
And like deal with the pain of trying to like
What is like figure out what states actually want people to do
And go through with that and so I had to go back through
My outlet calendar and be like okay I traveled to these six states
Worked in these six different states
Here's the number of days I spent there
And then actually doing this through tax filing software
They will walk you through like apportioning your income
And in different states different ways
But in one state I had to like add up the number of working days
Versus PTO days versus vacation in sick days
To be able to apportion exactly how much I owed there
And then when you go through all that rigor moral
And some states you don't end up even owing anything
Because you then have to perrate the standard deduction
And personal exemption and benefits like that
So you might have that filing requirement
But still when all is said and done
O zero dollars
But the letter of the law says that you technically still have to file
And I can't think of anything that feels more silly
Than paying you know 40, 60, 70 dollars
A way more potentially to file
In a seat that you own nothing to
So yeah, it just gets really out of hand really quickly
And so I do think the more policy makers see
Just how crazy this gets the more likely they are
To want to create some sort of standard
As we've seen in a variety of different states
You know red and blue states alike
We have seen progress made toward 30 day filing thresholds
Illinois is a leader on this
They adopted a 30 day filing in withholding threshold
And it's great to see more and more states moving in this direction
So that would be one of my biggest recommendations to lawmakers
Is just to consider doing something like that
You mentioned that you didn't owe anything
Like you got to the end of the process
And you had zero dollars to pay
But that's definitely not true for some people who travel a lot
Can you talk through some of the exemptions
The exceptions to the rule like for key employees
And athletes and what what it looks like there
So even I owed a little bit to New York
So because I was there long enough
I did actually have to file
I have to pay in New York
But the other states
No didn't owe anything
But a lot of people who are professional athletes
Are entertainers who might spend a day in a state
But they earn a substantial sum of money
For a game they play
Or for a concert they perform at
For those people
There are often clawbacks from these
Filing and withholding thresholds
And they do have to file no matter
How much or little income
Just by virtue of their profession
So that's commonly known as a jock tax
Even in the states that have adopted
30-day thresholds
Most of those states
If not all of them
Do have clawbacks for professional athletes and entertainers
But one of the problems with this
Is that those laws and definitions
Are way too broad
And capture a lot of people who aren't high income earners
You know it's not just capturing Taylor Swift and LeBron James
This is capturing their backup dancers
Or their tour managers
Or their athletic trainers
And even like I live in Nashville now
I'm friends with a lot of musicians
Who haven't made it big yet
But they tour the country
And they perform and they earn money
For the concerts they give around the country
But then they also come home and they're a waitress
Or they do other things to make ends meet
That's not really the type of people
That these laws are trying to go after
But technically
If these people did comply with all these laws
They would be filing in potentially dozens of states
In dealing with all those filing fees
So it's very difficult to imagine any scenario
Where any lawmaker would want to actually capture
Your average person who spends a day
Somewhere else
Or you know earns a small amount of income
Again this is all largely outside of the
You know Taylor Swift LeBron James
This is all largely like a negligible amount of money
This is not people who have or making tons of money
This is just a
An unnecessary burden on on the citizens
And the tax code itself
Yeah
But there's something on top of this
There's also a local layer
To all of this is that right Catherine
Yes we haven't even touched on a local layer
Yes but there is
And so on top of all this
There are numerous states that have local income taxes
So right now there are 16 states
That authorize local income taxes
14 of those do
Sometimes are always applied to non-residents
And so in thousands of different jurisdictions across the country
If you have to
If you spend any amount of time working there
You might not
You might have to pay local taxes
In addition to state taxes
So for instance some states
Like Missouri
You only have to pay in Kansas City
Or St. Louis
Because those are the only two jurisdictions
With a local income tax
But in Pennsylvania
They have over 3,000 different
Local income tax jurisdictions
That are all self collected
So they're administered at the local level
So you have to I guess look up exactly
You know which jurisdictions you worked in
So potentially many different jurisdictions
If you're traveling throughout the state
While you're working there
And then technically you're supposed to
Remit payment
But of course that's going to be such a negligible amount of money
For most people
If you're spending only a day
Or a week or something
Even longer than that working
And it you're paying like
1% of the amount of money you made that day
Or even less
Overall
Local income taxes are complied with
Even far less
By non-residents
But technically they still remain on the books
And I think we have to think about the justification for this
And clearly there's a desire to tax non-residents
But then you have to think about the other ways non-residents
Are remitting revenue to pay for their time in the state
So there are sales taxes
There are excise taxes
They are paying on their restaurant meals
And on their ride shares
And their hotels
And all kinds of different things
So does it really make sense to also require them to pay
Local income taxes
Where it's a very taxpayer active burdens and process
When they're probably going to room it way less under that
Then they would by just paying sales taxes
To states and localities
So we've talked about how
The compliance costs of all of this on the taxpayer
Like the cost to file a form
And then find out you owe zero dollars
Or some small dollar amount is a big waste
It's also a big waste for governments to process
A lot of these returns that end up, you know
Generating little to to no revenue
And you mentioned some states have adopted reforms
Since the pandemic moving to these
Aligned filing and withholding requirements
That make a lot more sense
But if you were talking to a state legislator right now
What's on your wish list for reform
And how do you pitch lawmakers to care about this issue
So I think the number one reform
Would be to consider adopting a 30 day filing
And withholding threshold
With the filing and withholding thresholds
That match don't make it confusing by making the thresholds different
And avoid clawing back those safe harbors
So avoid things like mutuality requirements
And key employee rules where you're trying to tax
Specifically high income earners
Or executive level people
But not everyone else
Avoid overly broad dock taxes
So make sure that if you are going to claw those back
For people like athletes and entertainers
To make sure those definitions are very targeted
And then adopting reciprocity agreements
Is another good one that I
We haven't mentioned yet
But basically reciprocity agreements
Are an old tool but they have a very good application
To this modern conversation
In that there are a lot of states
Now where if you
Um
Cross state lines and you're a cross border commuter
States will mutually decide that you only have to file and pay
In your home state not the other state
And so these save a ton of
Hustle for people in both states
And they save compliance costs for states
Because you
Are going to have far fewer non-resident returns to process
If you're going to knock out your neighboring states
And say you're not going to process those returns
And then you have far fewer credits
Protects paid to other states that you have to issue
So those are a good reform to consider
And I definitely say either avoid convenience rules
Altogether or if you already have one
To consider repealing that
And then if you have a local income tax
To avoid applying that to non-residents
So there are states like Kansas and Kentucky
That do have local income taxes
But they don't apply those to non-residents
So that's helpful
But I think overall you know
It's a disemplacy argument
Both for taxpayers in the state
Is the best argument here
In favor of moving towards simplification
There is a little bit of revenue at stake potentially
But all things considered
If you're focused on efficiency
And tax-friendlyness
There are a lot of economic growth benefits there
And a lot of potential revenue benefits there
So I think one really interesting study
Is done every year
By C-Vant holding corporation
They have a top 50 meeting destinations in North America list
And in 2024 and 2025
And probably many years before that
A lot of the top meeting destinations
Were in states that either
Have no income tax at all
So those residents and employees definitely
Employers definitely don't have to worry about filing or withholding
Or they're in states that do have at least some amount
Of a non-resident filing and withholding threshold
So of the top 10 cities
In 25 those were Orlando, Vegas, Chicago, Nashville, Atlanta, Dallas
San Diego, DC, Phoenix, and Denver
Five of those cities are in states with no income tax at all
Or that don't tax non-residents at all
And the others Denver is the only one that requires filing and withholding on day one
All the others have some sort of non-resident safe harbor
So tax-friendlyness can really go a long way
In terms of drawing people and businesses to your state
Making it a good place not just to live and work
But also to travel and to work while traveling
So I think as long as states are wanting
To find ways to make their tax codes more competitive
And if that's the goal
These reforms that I just mentioned fit very appropriately
In that type of goal
If your mindset is competitiveness
Where do you think the momentum of all of this is heading
Like what do you do you think we're going to get cleaner
State taxes is going to get better
Hopefully worse
What do you think?
I mean see momentum toward adopting better safe harbor
So there's definitely been momentum since COVID
In more states moving toward 30-day filing and withholding thresholds
Would love to see that momentum continue
Last year I believe it was Alabama adopted
A 30-day filing and withholding threshold for the first time
And then Louisiana increased
The threshold from 20 to 30 days and got rid of their mutuality requirement
Although I do believe Alabama in adopting their threshold
They did include that mutuality requirement
So not all of these laws are perfect
But even last year two states made very good progress
Would love to see more states do so again this year
So the momentum is a little slower
Perhaps then we might like
But there's definitely momentum
And I think the two states that made solid reforms last year
That was really great to see
Ethan
Thank you so much for being on today
Erica thank you for joining as always
As my co-host
I want to point you quickly to our website
textandation.org where you can find Catherine's wonderful paper
Which is titled non-resident income tax filing
And withholding laws by state 2026
Catherine this is wonderful
You broke down all of these complex
Confusing and sometimes inane laws
In a really wonderful way to help listeners understand
For our listeners before we sign off
If you have any burning questions
You can send them our way
You can drop a comment on YouTube
You can email us at podcastatxtrandation.org
Or you can slide into our DMs at deduction pod on twitter
Thank you for listening
