You Might Owe Taxes in a State You Don’t Live In

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