State & local, Canadian activities top TEI's spring agenda: comments also filed on cafeteria plan regs, employment tax rules for disregarded entities.

• Position: Tax Executives Institute

TEI's technical committees have had a busy spring, preparing comments on issues as diverse as a federal law to provide a uniform standard for taxing out-of-state workers, Alabama's add-back statute, and the reduction of the paperwork burden in Canada. The Institute also commented on efforts to revise the Uniform Division of Income for Tax Purposes Act (UDITPA) and to update Canadian bulletins and circulars. Comments were filed on the proposed cafeteria plan regulations and recent changes in the procedures for employment tax obligations.

TEI President Robert McDonough noted that the submissions demonstrated the breadth and depth of TEI's interests. "Our committees work hard all year round," he stated, "but the past few months have been especially busy."

Mobile Workforce Act

TEI has urged Congress to enact the Mobile Workforce State Income Tax Fairness and Simplification Act of 2007. In comments filed with the House Judiciary Subcommittee on Commercial and Administrative Law, the Institute said Congress should exercise its authority under the Commerce Clause to limit States' ability to tax the employees present in the state for only short periods of time. The proposed legislation (H.R. 3359) limits state or local taxation of the compensation of any employee who performs duties in more than one state to the employees' residence state and any state in which the employee is physically present performing duties for more than 60 days.

In its May 13, 2008, comments, the Institute explained that employers "have a direct stake in the development of fair and uniform rules governing nonresident taxation and withholding, regardless of whether they are large multinational corporations or small businesses that pursue opportunities outside their home State." Employees also have an interest in the enactment of the legislation, "not only to minimize their exposure to unfair taxation but to bring a measure of certainty to an area of the tax law that can impede economic growth and efficiency."

"H.R. 3359 represents a balanced approach toward ameliorating employer and employee uncertainty in respect of individual State income taxation and withholding for individuals temporarily present in another State while discharging their employment responsibilities and preserving the States' ability to impose taxes commensurate with the benefits accorded nonresidents," the organization said.

"Given the current various taxing regimes that are designed to address the specific needs of individual States," TEI concluded, "the likelihood of a solution to this problem by the States is not very high. A federal legislative solution is required. H.R. 3359 addresses the current concerns regarding the taxation of nonresident individuals."

TEI's letter on H.R. 3359 is reprinted in this issue, beginning on page 209.

Alabama's Add-Back Statute

On April 29, TEI filed an amicus brief in VFJ Ventures, Inc. v. Surtees, asking the Alabama Supreme Court to determine that royalties paid by VFJ to its subsidiaries were deductible pursuant to the "unreasonable" exception to the Alabama add-back statute.

In Alabama and several other states, the computation of "taxable income" begins with federal taxable income but then requires various additions and subtractions peculiar to each state's taxing regime. After these adjustments are made, the state applies its unique...