The purpose of The Uniform Withholding Tax and Unemployment Tax Wage Bases Act (hereinafter the "Act") is to provide a common definition of wages so items of income subject to income tax withholding will be included in the unemployment insurance tax and benefits wage base in all States. Adoption will make compliance with withholding and unemployment insurance wage base requirements the same in each State. Additionally, both the income tax withholding and the unemployment insurance tax regimes within each adopting State will be the same.

Problematically harmonization of the tax withholding provisions with the unemployment insurance provisions requires the meshing of two different, and somewhat conflicting, policies within each single jurisdiction as well as among the multiple jurisdictions. On the one hand the policies driving income tax withholding are focused on the single issue of collection, almost a simple ministerial act. The question of what income should be taxed has been determined elsewhere and is unrelated to the question of how to collect the tax. Items subject to income tax will continue to be subject to that tax even if the item is not subject to withholding.

On the other hand, policies underlying unemployment insurance programs are concerned with dispersal of benefits as well as the collection of sufficient revenues to provide for those benefits. For purposes of unemployment insurance, items placed in the wage base are important on two counts. First, an item added to the unemployment insurance wage base makes it easier for an employee to meet the threshold amounts of income needed to qualify for benefits; and, second, an item of income added to the wage base increases benefits payable (up to statutory maximums) to an unemployed former employee. Consequently, putting the issue of complexity momentarily aside, the income tax withholding regime is indifferent as to items in the wage base whereas the unemployment insurance tax regime is deeply concerned about the items in the wage base. For purposes of unemployment insurance each item placed in the wage base and subject to unemployment insurance tax will lead to increased revenues available for distribution to those in need.

In attempting to harmonize the two separate code constructs there must be a careful balancing of the need for simplicity, and thus compliance cost reduction, with the need not to compromise benefits that a state has deemed appropriate for its unemployed. The Act, if adopted by the States, will create substantial conformity, and thus simplification, between an adopting State's income tax wage base and its unemployment insurance wage base as well as substantial conformity of those wage bases among the States⁽⁹⁾.

The fifty states, the District of Columbia, and the federal government have a total of 96 different employment tax laws. Within the 96 employment tax laws, there are almost 500 different components or provisions. Employers must maintain separate wage records for federal income tax withholding, state income tax withholding, the federal insurance contributions act (FICA), the federal unemployment tax act (FUTA), and state unemployment insurance (SUI) taxes. In many cases, employers must report this information to government agencies at different times, on different forms, and on assorted media. ...

In addition to requiring employers to report tax-and wage-related information, employment tax laws require government agencies to process the information reported, verify that the information complies with the laws, work with employers to correct reports that do not comply, and provide assistance to employers attempting to comply. The diversity in current laws and filing dates makes it difficult for government agencies to provide consistent, accurate, and timely service to their customers.

The diverse state and federal laws governing wage taxes and withholding significantly increase employer burden....⁽¹⁰⁾

Reporting complexities are very costly to everyone. Small employers must attempt to understand sometimes subtle distinctions, have knowledge of a large number of definitions and attempt to understand the different requirements of them for two different codes within their state. Large and small employers that do business in more than one state must deal with these issues in each state and the administrative complexities caused by multi-jurisdictional differences. States must maintain two separate taxpayer auditing capabilities (and staffs) to insure compliance with two separate laws.

Though it will be impossible to construct a single code that will conform in totality each State's income tax withholding and unemployment insurance tax provisions or that will cause the various States' statutes to conform to the other States' statutes, it is quite possible to find sufficient areas of commonality to substantially reduce compliance burdens for states and for employers in general and small employers in particular. "Eighty-five percent of employers of the 6.7 million employers in the United States employ 20 or fewer workers. ... [T]hese 'small' employers deal with fewer of the component provisions found in .... federal [and state] employment tax laws."⁽¹¹⁾

The Commissioners believe that the Act creates the proper balance between efficiency and cost savings on the one hand and the necessary flexibility required by each State to meet its citizens' unique needs. The Commissioners recognize that issues of jurisdictional integrity and different needs of the various States could create stumbling blocks to harmonization. Nonetheless, the Commissioners believe that adoption of this Act will lead to significant simplification and cost savings for employers and States.

1. DEFINITIONS:
1. "Act" means this Uniform Withholding Tax And Unemployment Tax Wage Bases Act.
2. "Annuity" means a contract providing for an individual's investment in exchange for guaranteed payments from the other contracting party in determinable annual installments for a fixed period of years or until the death of the one receiving payments under the annuity contract.
3. "Deferred compensation plan" means a plan maintained by an employer whereby the payment of a portion of an employee's compensation for services currently rendered in the capacity of employee is deferred to future taxable years.
4. "Disability" means the inability of an employee to perform significant employment activity for the employer from which, or on behalf of which, the employee is being provided benefits and/or compensation during the period of such inability to engage in significant employment activity.

This is a relatively loose definition of disability. However, the Act is dealing primarily with withholding requirements and unemployment wage base issues as they effect employers' payments for forms of compensation. This provision takes the position that if an employee's condition is sufficient to satisfy the employer or the employer's insurer that disability payments should be made that is sufficient evidence that a disability is extant.

1. "Employee" means every individual performing services for another individual or entity if the relationship between him or her and the person or entity for whom or which he or she performs such services is the legal relationship of employer and employee.

This definition does not address the question of whether an individual relationship is that of employer/employee or customer/independent contractor and leaves the resolution of that characterization to federal and state judicial, regulatory or statutory determination. Generally this is not a major issue, however in those situations when the distinction is both important and unresolved the determination of status is left unaddressed here. The focus of the Act is a determination of which items of wages shall be included for purposes of income tax withholding and unemployment insurance tax and benefits wage base calculation. The Act is not concerned with the issue of characterizing items of income as being or not being wages.

It should be noted that IRC Section 3401(a)(3) provides that wages "...paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority are not considered wages for purposes of the withholding tax requirements. Nonetheless, they are not excluded from wages under???? or state unemployment insurance tax or wage base calculations. See, e.g., Cal. Unemployment Insurance Code Sections 682 - 684.

1. "Employee Achievement Award" means a payment by an employer to an employee that meets all the requirements of IRC Sections 74(c) and 274(j)
2. "Employer tax deferred compensation plan" means a tax deferred plan qualifying under the provisions of IRC Sections 401, 403, 408(k), 408(p), and 457.
3. "Employer" means an individual or entity engaging an individual in the capacity of an employee.
4. "FICA" means the Federal Insurance Contributions Act [CITE], commonly referred to as "social security."
5. "FUTA" means the Federal Unemployment Tax Act [CITE] under which employers are assessed taxes, in conjunction with state unemployment insurance acts, for purposes of funding state determined unemployment benefits.
6. "Gratuity" means a payment by a person other than an individual's employer for services rendered by the individual in the course of his or her employment with his or her employer.
7. "IRC" means Title 26 of the United States Code [CITE] (more commonly referred to as the Internal Revenue Code) as in effect on January 1, 2003, and as thereafter from time to time amended.
8. "Qualified dependent care program" means a program maintained by an employer for its employees that is in conformance with the requirements of IRC Section 129.
9. "Qualified group-term life insurance" means amounts excludeable from an employee's remuneration subject to income taxation under IRC Section 79.
10. "Sick pay" means any payment (other than a payment due to disability as defined in this Act) to an employee by an employer, or on behalf of an employer, pursuant to an employer plan whereby the employee receives remuneration in lieu of that which is payed to said employee by the employer for employment services performed and such remuneration is paid by virtue of an employee's absence from work due to temporary sickness or personal injury.
11. "State" means each of the 50 states and the District of Columbia.
12. "Tip" means gratuity as defined at section J., above, of this Article II.
13. "Wages" means, except as specifically excluded by this Act, all forms of remuneration, whether in cash or in a medium other than cash, paid to an employee by an employer within the context of his or her employment for (1) services rendered for the employer by the employee, and (2) for vacation pay paid by the employer.

Delaware is the only state in which vacation pay is not always an element of wages for purposes of both income tax withholding and unemployment insurance tax assessment and wage base benefit calculation. Delaware excludes as wages vacation pay paid during a period of unemployment

The reasons harmonization is difficult between a single State's income tax and unemployment tax provisions is not immediately obvious; but, in fact the tensions between income tax and unemployment tax policies are more difficult to reconcile than intra-State harmonization of either the items subject to income tax withholding or the items composing the unemployment insurance wage base. To understand these tensions policies pursued by the income tax withholding laws and the unemployment insurance laws need to be kept in mind. The purpose of the income tax withholding laws is primarily to establish a procedure by which taxes are to be collected and secondarily assist in the characterization of certain income⁽¹²⁾ while the unemployment tax structure is intended to raise revenue from employers for a specific employee benefit, and most importantly, to provide a basis upon which benefits are calculated⁽¹³⁾. For example, whether employer provided meals are income is determined under income tax statutes independent of the withholding requirements. In other words, taxes will be withheld only if it is a prior determined that there is a tax to be collected. Unlike income tax withholding, however, the unemployment insurance provisions make two indivisible determinations: (1) whether, as to the item of payment, the relationship between payor and payee is that of employer-employee, and (2) if so, whether the item in question is income⁽¹⁴⁾.

For example, an employer's reimbursement to an employee for purchases made by the employee at the direction of and for the sole benefit of the employer would not be income subject to tax under the income tax regime⁽¹⁵⁾ or under the unemployment insurance regime. However, if an employee receives from an employer meals that qualify as exempt from income tax under statutory provisions similar to Internal Revenue Code §119⁽¹⁶⁾, they will be considered income for purposes of establishing the employee's wage base and amount of benefits available under unemployment insurance. Consequently, the value of these meals will be subject to an unemployment insurance tax on the employer and be considered part of the wage base for determining an unemployed individual's unemployment benefits. Not all income for unemployment insurance purposes is income for tax withholding purposes. Any attempt to harmonize the income tax withholding provisions with the unemployment insurance provisions within a given state will have to recognize the difficulty of dealing with these two different policy concerns.

Harmonizing the income tax withholding provisions among the States that impose an income tax is more easily accomplished. Though there are differences among the States as to various definitions, there is already significant similarity between existing statutes making the harmonization process less problematic. However, there is significant variation of filing dates that must be addressed to fully harmonize the requirements of the income tax reporting among the states and, as a matter of fact, harmonize the filing and payment date requirements for income tax withholding and unemployment tax withholding within each state.

1. Any payment made to, or on behalf of, an employee or his or her beneficiary pursuant to an election by said employee or beneficiary under a plan meeting the requirements of Internal Revenue Code Section 125, or any successor thereto.

This provision provides that benefits otherwise excludeable from an employee's gross income and subject to income tax and unemployment insurance tax will not be considered includeable in either the income tax or unemployment insurance wage base merely because of constructive receipt issues. IRC Section 125 permits taxpayers to select from a group of benefits provided by their employer. Individually, these benefits are permitted, under the Internal Revenue Code, to be provided on a tax free basis to an employer's employees. Without the intervention of this code provision, however, the fact that employees have the opportunity to select which tax free benefit, from a variety of offerings, they prefer to have is sufficient to make these otherwise tax free benefits taxable under the doctrine of constructive receipt. It appears that all states currently have extant a similar provision for income tax withholding purposes. However, many states do not exempt items paid under IRC Section 125 plans from tax liability (or benefit calculation) for unemployment insurance purposes. For any state that does not have a provision excluding from either wage base the items contemplated under IRC Section 125 it will be incumbent upon that jurisdiction to adopt such a conforming provision. In the absence of such provision in the unemployment insurance arena compensation will be paid.

1. The value of any meals or lodging furnished to an employee by or on behalf of an employer if at the time of such furnishing such value is excluded from the employee's income pursuant to Internal Revenue Code Section 119, or any successor thereto.

This provision excludes from both the income tax witholdings wage base and the unemployment insurance tax and benefits wage base amounts that are excluded because they are items provided by the employer primarily because the physical location for the performance of services requires the employee to live and/or eat on the business premises. No state that imposes income taxes does not already provide such provision or, at least, a provision similar to IRC Section 119 for income tax withholding purposes. However,

At present, 23 states treat meals and lodging as wages in their [unemployment insurance] laws and would be affected by this recommendation [to exclude meals and lodging from the compensation wage base]. These states include California (included in this study), New Jersey, New York, and Texas. They represent in excess of 26% of the nation's work force. In terms of impact on affected claims, analysis of California's data indicate the average benefit claim over its duration is $2,433 and the average value of the exclusion of the meals and lodging component on affected claims is $487, amounting to 20% of the claim of the workers affected. This percentage of reduction, or one close to it, could occur in New Jersey, New York and Texas as well.⁽¹⁷⁾

The report making the above quoted statement pointed out that in California this reduction represents only "...about 0.2% of the total benefit outlay, it represents almost a 20% reduction for the 7600 affected claimants. Additionally, 660 claimants, or 0.1% of the claimant population would lose their eligibility entirely."⁽¹⁸⁾ Of course, for those who have remuneration from their employers other than meals and lodging at or in excess of the maximum taxable unemployment insurance wage base the exclusion of the value of meals and lodging is of no consequence.

1. Payment to, or on behalf of, an employee by the employee's employer to the extent the employer shall reasonably believe that the payment (or portion thereof) will qualify for deduction under Internal Revenue Code Section 217 (as determined without regard to Internal Revenue Code §67) or exclusion under IRC §132(a)(6).

This provision requires the exclusion from the wage base for purposes of income tax withholding and unemployment insurance tax and wage base calculation amounts paid for what are commonly referred to as moving expenses. All states that impose income taxes already provide such a provision except for two states with no provision. Generally it can be presumed that employer paid or reimbursed moving expenses will be paid only to those whose regular wages already exceed the maximum unemployment insurance wage base. Thus, this provision should have no impact on the benefits payable to any employee receiving unemployment benefits nor any employer's unemployment insurance tax liability even if a state's deductions or exclusions are not as generous as those provided under the Internal Revenue Code.

1. Premiums paid for qualified group-term life insurance on the life of an employee.

There is no state that imposes either an income tax or an unemployment insurance tax that does not have either a provision similar to this provision or has no provision that would subject such premiums to income tax or have implications on their unemployment insurance regime.

1. Amounts paid an employee by an employer as an Employee Achievement Award.

1. The amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund to provide for any payment) made to, or on behalf of an employee or any of his or her dependents under a plan or system maintained by the employer which makes provision for all or specific classes of the employer's employees, and their dependents, generally or for a class or classes of the employer's employees (or for a class or classes of employees and their dependents), on account of
1. sickness
1. if mandated under this state's workers' compensation law, and
2. any payment made not mandated under this state's workers' compensation law after six consecutive months from the commencement of such non-mandated payments.
2. accident disability payments received under this state's workers' compensation law,
3. medical or hospitalization expenses in connection with accident disability or sickness, or
4. death;
2. any payment or series of payments by an employer to an employee or any of said employee's dependents which is paid -
1. upon or after the termination of an employee's employment relationship with said employer due to
1. death, or
2. retirement for disability, and
2. under a plan established by the employer which makes provision for his employees generally, or a class or classes of his employees, (or for such employees or class or classes of employees and their dependents), other than any such payment or series of payments which would have been paid if the employee's employment relationship had not been so terminated.
3. by an employer to a survivor or the estate of a former employee after the calendar year in which such employee died provided such payment is not considered income in respect of a decedent in accordance with [cite state law provision].

In general only income from sick pay or wage continuation plans maintained by the employer but not mandated by a state's workers' compensation law are included in an employee's income wage base for purposes of either income tax withholding or unemployment insurance benefit determination or tax assessment . Additionally, amounts paid due to an employee's death but are considered income in respect of a decedent are not excluded.

1. Any payment made or incurred or benefit provided by the employer which affords an employee dependent care assistance pursuant to a qualifying dependent care program as set forth at [cite state law] if at the time of such payment or such provision of a benefit it is reasonable to believe that the employee will be able to exclude such payment or benefit from his or her federal and state taxable income.

This provision excludes the value of benefits provided by an employer to an employee under an employer provided dependent care plan providing non-discriminatory access to dependent care for young children who are dependents and dependent adults who are unable to care for themselves due to physical or mental incapacity. It is intended that these individuals be the same as those defined as "qualifying individuals" at IRC Section 21(b)(1). It is further intended that the State statutory provisions will require a written, non-discriminatory plan similar to that under and meeting the requirements of IRC Section 129. Inclusion of this provision will require many states to adopt dependent care provisions not currently extant. Currently, 42 states have concurring statutes and 1 state has no provision (9 states have no income tax). On the unemployment insurance side of the ledger, however, only 15 states' statutes conform to these requirements, and 35 states have no provisions dealing with this issue. Two states, Alabama and Michigan provide that payments made directly to the care giver or care facility are not wages to the recipient employee while benefits provided through a wage reduction plan are considered wages to the recipient employee (presumably because of some degree of constructive receipt).

1. Any fringe benefit provided to or for the benefit of an employee or any cash reimbursement for any such benefit paid to an employee if, at the time of provision or reimbursement, it is reasonable to assume that such benefit will be excluded from the employee's taxable income pursuant to [cite state code similar to Internal Revenue Code Section 132].

Of those jurisdictions imposing an income tax forty-two have provisions that provide this treatment for purposes of income tax withholding and one state has no provision. For purposes of unemployment insurance withholding only thirty-three states have provisions similar to this provision. Ten states currently have no or minimally matching provisions.

1. Any payment that is a reimbursement for expenses incurred on behalf of, or as an allowance provided by an employer, for but not in excess of, those expenditures that meet the requirements of Internal Revenue Code Section 62 and that are not in excess of the lesser allowance or those expenses actually incurred by the employee for such expenditures.

Though the THWC report indicates that all states provide this exclusion for both income tax and unemployment insurance tax purposes, there are numerous states that do not currently comply with the reporting requirements set out in the Internal Revenue Code. If those states should adopt reporting requirements similar to those mandated for federal tax purposes no additional compliance costs would be incurred by employers or employees who are currently complying with the federal requirements.

1. Any payments made to, or on behalf of, an employee or the employee's beneficiary from or to a plan or plans described in IRC Section 3306(b)(5)(A) through (F).⁽¹⁹⁾

This provision deals with contributions to pension, profit-sharing and similar arrangements that meet the requirements for tax exemption under Internal Revenue Code Sections 501 and 401, et. seq. All states provide similar exclusions for both income tax and unemployment insurance tax purposes but the provisions for many states are complex and could be simplified. It should be noted that these amounts are subject to FICA taxes when contributed to such a plan.

1. Gratuities, which in the aggregate for an employee do not exceed $20 during any given month, paid by third parties or by an employer on behalf of third parties, for services performed as part of the employment relationship.

In general all States currently provide that tips or gratuities are wages and that the employer has a duty to withhold and to make unemployment insurance contributions on those wages. This provision assumes that each state has or will have a reporting measure similar to the federal requirement that the employee provide a monthly statement in writing to the employer stating the amount of tips earned during the preceding month. Because services for which tips are a significant form of remuneration are frequently paid for via credit and debit cards the record keeping requirements for both employer and employee are somewhat less burdensome than they may have been when such payments were generally made in cash.

1. Remuneration earned by an individual engaging in the interstate transportation of goods or people as the result of transitory passage through this state.

This provision makes it unnecessary for an employer of common carrier vehicle drivers to allocate income among states through which a truck, train, bus, airplane or other similar vehicles transporting merchandise or people through a state, so as to be able to withhold taxes from or pay unemployment insurance taxes based on amounts earned simply because of travel through a state. Seventeen States currently have such a provision and the remaining States' statutes are silent on the matter. Nonetheless, those states that have not addressed the issue statutorily appear, to apply this non-withholding and unemployment insurance wage base exclusion.

1. Wages for services performed in a foreign country provided that
1. the foreign country in which the services are performed withholds taxes on the wages paid, and
2. the wages are excluded from United States income pursuant to Internal Revenue Code §911, and
3. the wages are excluded from income under [the statute of the relevant state.]

Forty six states have adopted provisions similar to this provision. In general the exclusion under IRC Section 911 requires that wages be paid (1) for services performed (2) by a citizen of the United States (3) whose tax home is a foreign country and who (4) has been a bona fide resident of foreign countries for an uninterrupted period of at least an entire taxable year or (5) is a US citizen or resident who is present in foreign countries for 330 days within any consecutive 12 month period.

At present no state imposes an income tax on "foreign" wages. If a State did include such income in its taxable base, it would be impossible to enforce a withholding requirement on a foreign corporation that had no presence in the state, but it could enforce withholding requirements on any corporation that is present in the state. Additionally, if a state exercised jurisdiction over a corporation and chose to include this income in the unemployment wage base there would be an impact on an employee's benefit wage base as well as an imposition of unemployment taxes on the employer.

1. Periodic and nonperiodic payments from employer tax deferred compensation plans, commercial annuities and Individual Retirement Accounts provided that the payee elects not to have income taxes withheld on such payments.

This provision applies only to income tax withholding and permits an opt out of withholding. The default is that there will be withholding on these amounts. However, a written election, along with protecting the payor, will require an informed election by the recipient. Because such distributions are currently excluded from the unemployment insurance tax assessments and wage base calculations this provision will have no impact on those state laws.

1. Sick pay unless the payee elects, in writing, to have income tax withheld on such payment.
2. Scholarship or Fellowship paid to an individual who is a candidate for a degree at an educational organization described at IRC §170(b)(1)(A)(ii) and used by that individual for qualified tuition and related expenses (as such term is defined at IRC §117(b)).

Arizona, California, Indiana, Ohio, Kansas, and Mississippi are the only jurisdictions that have provisions comparable to this one. None of the other States or the District of Columbia have any provision dealing directly with this issue, though discussions with the STAWRS team indicates that most states currently follow the federal rule through administrative policy.

The language of this provision is largely the same language of IRC Sections 117(a) and (b). Thus, like the federal law, this provision is intended to exclude from an individual's gross income only those amounts which are used to pay for tuition, fees, books, supplies and equipment required for enrollment at, or to take courses pursuing a degree at, "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on..." IRC Section 170(b)(1)(A)(ii).

1. Filing and Payment Dates

1. For purposes of this Section C. the term "Employment Taxes" shall mean, at any given time, the total of income taxes withheld and unemployment insurance taxes incurred by an employer which are held by the employer and not yet paid to the appropriate government entity.
2. All Employment Taxes are to be reported quarterly unless the total amount of Employment Taxes owed by the employer shall not exceed $2,500 for the calendar year in which case the Employment Taxes are to be reported annually.
1. All reports of Employment Taxes shall be filed and submitted to (insert state rule) on such forms as are prescribed by said agency.
2. All payments of Employment Taxes shall be made in accordance with the schedule set forth at Section C.3. of this Article III of the Act to [insert state agency].

This provision anticipates a rather substantial administrative change in States' physical collection of withholding and unemployment insurance taxes. Currently, these taxes are collected by two separate entities - the income taxing authorities and the entity responsible for administering the unemployment insurance law. As drafted, this section of the Act would require the collection function to be conducted by the same agency or department which would then be responsible for the ministerial act of properly allocating the funds between the State's income taxing authority and the department responsible for enforcing the State's unemployment compensation law.

Ideally, this same "collection" agency will be able to verify compliance with both the income tax withholding and unemployment insurance tax laws because there will be no divergence between those laws regarding the definition of wages; at least to the extent of the conforming items set out in this Act.

1. All Employment Taxes shall be paid according to the following schedule.
1. Provided the total Employment Taxes then currently owed by an employer is equal to or less than $2,500,the Employment Taxes shall be paid to the State no later than January 31 of the year immediately following the end of a calendar year.

1. Provided the total Employment Taxes then currently owed by an employer is greater than $2,500 but equal to or less than $5,000, the Employment Taxes shall be paid to the State on July 30 and January 31 of each year.
2. At any time the total of Employment Taxes then currently owed by an employer is greater than $5,000, but less than $50,000, the Employment Taxes shall be paid to the State no later than the 15^th day of the calendar month immediately following the calendar month in which this $5,000 threshold amount is attained.
3. At any time the total of Employment Taxes then currently owed by an employer is greater than $50,000 but less than or equal to $100,000, the Employment Taxes shall be paid to the State no later than the 3^rd business day immediately following the last Friday of the semi-weekly period at which this $50,000 threshold amount is attained.
4. At any time the total of Employment Taxes then currently owed by an employer is greater than $100,000, the Employment Taxes shall be paid to the State no later than three working days following the day this $100,000, threshold amount is attained.

In general payment thresholds and dates as well as filing dates for both withheld income taxes and unemployment insurance taxes are specified by statute only in general terms. The specifics are left to the various concerned administrative agencies. However, to enhance the possibilities of conformity, this recommended provision is set forth with greater detail than is found in most current state statutes.

Analysis of the various States' filing requirements and payment thresholds show a wide variety of dates and amounts. In fact, there are approximately 90 different threshold amounts and 109 different filing dates among all the 50 States and the District of Columbia. Employers are unlikely to have to deal with more than a few jurisdictions and/or more than a few payment threshold amounts. Consequently, any one multi-state employer will have far fewer than the nearly 200 different filing and payment requirements. Nonetheless, the multitude of dates and amounts with which any one employer may need to comply under the current state of the law is daunting. Further, the burden on small employers doing business in only one or two states can be dramatic because the cost of keeping track of the various filing and payment dates in relation to the size of the employer may be high.

In any event, ignoring transition problems (which may, in some cases, be insurmountable), common dates for compliance will greatly ease burdens imposed on all employers. Further, the costs of auditing and assuring compliance incurred by the States presumably will be reduced simply because complexity is reduced.

This provision also does not provide for a look back period as does the IRC and some state withholding statutes. A look back provision permits payors to base their payment thresholds, and thus frequency of payment of taxes, on prior year compensation history. Because the income taxes withheld and the taxes owed for unemployment insurance purposes are based upon current compensation, it does not appear that look back rules are essential to timely and accurate compliance with the payment rules. In an era of instant information and computerized payroll systems, it does not appear that essential data for proper compliance is difficult to aggregate. On the other hand it is recognized that payments based upon current payrolls may cause cash management problems for employers which have significantly fluctuating payrolls. Nonetheless, payments based upon current compensation rather than look back estimates will make it less likely that employers will become in arrears in payments of their Trust Fund obligations (i.e., their obligations to pay over withholding taxes). For large taxpayers, at least for federal taxes, this is not an issue because regardless of any look back rules at any time an employer has accumulated $100,000 of payroll taxes they must be paid over to the government by the next business day after such accumulation. For mid-size taxpayers, particularly those with quickly growing business or those the business of which is highly volatile, the problem of temptation to use rather than pay over Trust Fund monies may cause them much difficulty and deprive the government of monies owed.

1. The State and Federal agencies represented in this working group were: California Employment Development Department and Franchise Tax Board, Commonwealth of Kentucky, Federation of Tax Administrators, Minnesota Department of Revenue, Montana Department of Labor and Department of Revenue, Nevada Employment Security Division, New York Department of Labor, Social Security Administration, Simplified Tax and Wage Reporting System Program, U.S. Department of Labor, Texas State Comptroller of Public Accounts, U.S. Department of the Treasury (Office of Tax Policy)Wisconsin Unemployment Insurance Division.

2. The private sector representation was: American Bar Association, American Payroll Association, Ceridian Tax Service, Inc., Federal Liaison Services, Inc., Paychex, Inc., Planmatics, Inc.Ronald Moore (private consultant and former Chief, IRS.......)