Examples Highlight Complexity of Multi-State Unemployment Tax Rules

The Payroll CompanyPayroll, Taxes

The American Payroll Association’s (APA) 32nd Annual Congress included a virtual workshop called “Multi-State Taxation.” The workshop was conducted by Steve Hodgson, CPP, APA Director of Payroll Training.

The webinar included discussion on where an employer should pay unemployment tax when an employee works in multiple states. All states use the following uniform set of four factors to determine where unemployment tax should be paid if an employee works in more than one state:

 

(1) Where the individual’s work is “localized.”
(2) Where the “base of operations” is.
(3) Where the place of direction or control is.
(4) Where the employee’s place of residence is.

An employee’s services are “localized” in one state if the services performed outside the state are merely incidental to the services performed inside the state (e.g., a temporary assignment to a company division in another state). A “base of operations” can be the place where an employee reports to work or returns from work, or a place where an employee has an office, receives instructions from the employer, receives mail and supplies, or keeps business records. The place of direction or control is the employer’s facility from which the employer exercises or can exercise immediate control over the employee’s services.

The above factors are applied in the order noted above. For example, if an employee’s work is localized in one state, there is no need to look at any of the other factors.

Hodgson provided the following examples to support the above concepts.

Example 1.  An employee, based in Wisconsin, performs most of his services in Wisconsin. His work is directed from Illinois. He also performs temporary services in Indiana.

In this instance, his services should be reported to Wisconsin for state unemployment insurance (UI) purposes, since most of his services were performed there (i.e., his services were localized in Wisconsin), and he only performed services in Indiana on a temporary basis.

Example 2.  An employee, based in Nevada, performs services in Nevada, California, and Arizona. She lives in California. Her work is directed from Arizona.

In this instance, her services should be reported to Nevada for state UI purposes, since she performed services in Nevada where the base of operations is located. Her work could not be localized since she performed work in several states.

Example 3.  An employee who lives in Alabama performs services in Alabama, Georgia, and Florida. Her work is directed from Florida.

In this instance, her services should be reported to Florida for state UI purposes, since the employee does not have a base of operations and some services were performed in Florida, which was the place where the employer could provide her with direction. Her work could not be localized since she performed work in several states.

Example 4.  An employee who lives in Louisiana performs services in Louisiana and Oklahoma. His work is directed from Texas.

In this instance, his services should be reported to Louisiana for state UI purposes since: (a) his work cannot be localized; (b) there is no base of operations; (c) he did not perform any services in Texas, and (d) some services were performed in the state (i.e., Louisiana) where the employee resides.