New England Biz Law Update
For businesses with employees who travel or work remotely across state lines, navigating the complex web of state income tax obligations has long been a compliance nightmare.
Currently, many states technically require nonresident employees to file tax returns and employers to withhold income taxes after just a single day of work within their borders.
This “one-day rule” creates significant administrative burdens that often far outweigh the actual tax revenue generated. Employees must file multiple state tax returns, while employers face complex tracking and withholding requirements for workers with minimal presence in a state.
The result is widespread non-compliance and unnecessary administrative costs for both businesses and tax authorities.
Recent legislative initiatives in Alabama and Minnesota, as well as at the federal level, aim to address this problem by establishing more reasonable thresholds before nonresident taxation kicks in.
Alabama considers 30-day threshold
HB 379, introduced by House Ways & Means-Education Committee Chair Danny Garrett (R), initially proposed a 24-day threshold before nonresident employees become subject to Alabama income tax. However, the Council On State Taxation (COST) has urged lawmakers to amend the bill to a 30-day threshold, which would align Alabama with several other states that have adopted similar provisions.
Garrett has reportedly agreed to amend his bill to more closely align with COST’s model legislation, including adding an exemption for disaster relief workers.
Minnesota proposes similar relief
Meanwhile, Minnesota is considering Senate File 46, introduced by Senate Taxes Chair Ann Rest (D) on March 10, 2025. The bill would also establish a 30-day threshold before temporary workers are subject to filing and withholding requirements.
Minnesota’s current system requires nonresidents to file if their gross income exceeds $14,575, regardless of how many days they work in the state or how much income is earned there.
National movement toward uniformity
The Alabama and Minnesota bills come as part of a broader national movement toward standardizing nonresident income tax rules. Several states have already enacted similar laws, including Illinois, Indiana, Louisiana, Montana, and West Virginia, designed after COST’s model legislation. (Arizona and Hawaii each have a 60-day threshold.)
On April 10, 2025, Senator John Thune (R-South Dakota) introduced federal legislation aimed at creating nationwide standards for mobile workforce taxation. The federal bill would establish a uniform standard across all states, potentially eliminating the patchwork of different thresholds and requirements.
Benefits for employers
In general, the proposed legislation would benefit organizations across multiple sectors:
- Companies with traveling sales teams or service technicians
- Organizations sending employees to temporary assignments
- Employers with remote workers who occasionally visit company locations
- Non-profits, government agencies, and educational institutions with mobile staff
- Emergency workers and disaster relief personnel
Both the Alabama and Minnesota bills include provisions to protect employers from penalties if they make good-faith efforts to comply with the new requirements, including using time and attendance systems or other reasonable methods to track employee work locations.
Organizations would no longer need to register, withhold, and remit state income taxes for employees working fewer than 30 days in states with these provisions. However, most state laws are written with reciprocity clauses, meaning the 30-day thresholds only apply when the employee’s home state has similar provisions, creating incentives for states to adopt uniform standards.
High profile earners still on the hook
Under the COST model legislation, states would maintain their current tax treatment for specific categories of high-earning mobile workers. The 30-day exemption typically does not apply to professional athletes, entertainers, public figures, or qualified production employees.
These exceptions ensure that states can continue to collect tax revenue from high-profile, high-earning individuals who may generate substantial income from brief appearances, while providing relief to ordinary business travelers and remote workers who create much less tax revenue relative to the compliance burden.
