California last week passed a state measure allowing companies to file a single income tax return for all their international business travelers who visit the state.
The newly passed law, known as A.B. 2660, “allows companies to file a composite return on behalf of all visitors to California,” said Lorraine Cohen, leader for the Americas of Deloitte’s Business Travel Analytics practice, who had proposed the solution to the state. Employers need to track all employees’ travel to the state, gather relevant compensation information and remit taxes quarterly.
“Anyone who travels to California for work is subject to income tax,” Cohen said. “Their employers are obliged to report and withhold that tax. That’s the law. From a practical perspective, many companies don’t do that. There is a very large amount of noncompliance, particularly because it’s so hard to comply.”
Until now, companies in California faced two impractical choices if they attempted compliance. They could put visiting employees on the payroll in the U.S. so they could be given a Social Security number, even though many overseas business travelers do not qualify for one. Alternately, they could obtain a federal tax ID and then file a California tax return, although this made little sense as the United States at a federal level has treaties with many countries that exempt visitors from tax obligations.
California is one of several states that do not accept the federal government’s international tax treaties. According to Cohen, California and New York are the most aggressive for pursuing noncompliance, which they carry out by auditing payroll reports and checking them against booking records and expense data.
California Gov. Gavin Newsom signed the bill into law Sept. 18 after it had passed the state assembly and senate without opposition this summer.