MANUFACTURING INSIDER

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1 MANUFACTURING INSIDER VOLUME 7 :: ISSUE 4 In This Issue: Mobile Workforce - Do You Know Where Your Employees Are? North American Automotive Production Forecast Summary - Q sufficient to create an income/franchise tax business filing requirement for the employer, would likely be considered conducting business for income tax withholding purposes. LACK OF STATE NONRESIDENT WITHHOLDING UNIFORMITY Every state has its own laws regarding state income tax withholding for nonresident employees. While some states provide for either a day or dollar de minimis threshold, the majority of states require employers to withhold from the very first day or dollar earned in the state. This lack of uniformity requires employers who deploy a mobile workforce to comprehend and apply a patchwork of state rules. MOBILE WORKFORCE - DO YOU KNOW WHERE YOUR EMPLOYEES ARE? Many manufacturing companies are expanding their multi state and international footprint. This expansion often includes hiring or deploying a mobile workforce. These employees could potentially travel across state lines several days a week to visit external clients or internal colleagues from other offices, to attend meetings and conferences, and otherwise to conduct business. Many of these companies are unaware of the complexities of each state s personal income tax rules, withholding and reporting requirements. An independent member of UHY International When a nonresident employee performs services or works on behalf of the company in another state, the employer could be required to withhold and remit state income taxes on the wages earned in the nonresident state, the state where the company is not based or where the employee is not a resident. Withholding on wages of nonresidents is required of an out-of-state employer if the employer conducts business in the state. Operating or engaging in business by an employee on behalf of the employer in a state, even though these activities are not Several states have entered into reciprocal agreements exempting employers in neighboring states from withholding taxes of employees earning income in a neighboring state. For instance, Maryland has entered into reciprocal agreements with three border states - Pennsylvania, Virginia, West Virginia - and the District of Columbia. These agreements provide that Maryland businesses sending employees into Continued on Page 2... The next level of service

2 2 UHY LLP MANUFACTURING INSIDER Continued from Page 1... the border state are not required to withhold the other state s income tax on the compensation paid there, and vice versa. Other states have similar reciprocal agreements. Please consult with your local advisor. COMPLIANCE BURDEN FOR THE EMPLOYER Given this lack of uniformity, it is not surprising that employers do not always know or follow these state rules. Many employers fail to understand their obligation to withhold the other state s income tax from the employee s income earned outside their home state. The lack of uniformity creates complexity for employers that want to be compliant. Accurately tracking employees time and wages in other states means having to adjust timekeeping and payroll systems. Employers must be able to flag when an employee is working in another state. Another complication is how to handle salaried employees who are not paid hourly wages and do not have to track time at all. Thus, tracking of these employees is generally a manual process. This data could be further skewed if the traveling employee does not remit, or excludes, a certain day s worth of information, whether they intended to or not. Telecommuting can also present significant issues for withholding. Typically the default is for employers to withhold income tax for the state in which the employee performs services. However, an employee may telecommute from State A but report to State B. In most instances, the employer will have to withhold from State A because that is where the services are performed. Employers that are required to deduct and withhold state income tax from wages of nonresident employees could be liable for the payment of the associated tax whether or not it is collected from the employees. In addition, substantial interest and penalties can accrue for not complying with state(s) nonresident withholding requirements. COMPLIANCE BURDEN FOR THE EMPLOYEE Employees must determine if their activity in a nonresident state is subject to tax even if their employer withheld payroll taxes for the state. Thus, employees often file multiple state individual income tax returns to either pay additional taxes or claim a refund on income incorrectly withheld. Spending several hours to complete and file a few or numerous nonresident state tax returns resulting in aggregate a few hundred dollars in state income tax is something an employee wants to avoid and is not high on the list after traveling and working possibly a 10+ hour day. Most so-called road warriors do not file the nonresident returns or have income tax withheld in these states. What if one employer does withhold from the employee s paycheck for the nonresident state(s) and another employer in the same industry does not do this for their mobile employees? All else being equal, the employee could consider working for the other employer to avoid dealing with the nonresident state income tax return compliance. NEED A UNIFORM STANDARD With a new 114th Congress just sworn in, The Mobile Workforce State Income Tax Simplification Act, which has been proposed several times in Congress, most recently in Nov. 2013, was passed by the House Judiciary Committee on June 17 and is gaining strong bipartisan support. A state is entitled to tax income earned within its borders. The Act would limit state and local government authority to tax income of nonresident employees working within their borders on temporary assignments by providing a 30-day bright-line rule before a state can impose tax on the employee or withholding obligations on the employer. This would apply uniformly to all 50 states. Such laws will certainly ease the employer s compliance issues of withholding income taxes from traveling employees. While this simplifies things for employers, employers still have the burden to prove time and wages of employees working in multiple states. CONCLUSION As states have different withholding rules, employers must be cognizant of where their employees are earning income and properly withhold taxes when income is earned outside the employee s home state, as well as what exemptions are available. Additionally, an employee s physical presence, depending on the extent and frequency, will likely create other state tax obligations for the employer, such as sales tax collection obligations or corporate income/franchise tax liability. By Tracey Powell, Senior Manager (Columbia, MD) Accurately tracking employees time and wages in other states means having to adjust timekeeping and payroll systems.

3 UHY LLP MANUFACTURING INSIDER 3 NORTH AMERICAN AUTOMOTIVE PRODUCTION FORECAST SUMMARY - Q Summary includes economic outlook, light vehicle sales outlook, current production drivers, production capacity and long-term trend, model launches and investments. NORTH AMERICA ECONOMIC OUTLOOK US Economy resilient despite global headwinds. Fed rate increase on watch. Slow pace of recovery is basis for lack of recession in forecast horizon. Canada Economy was in a technical recession in H1, dragged down by shrinking business investment. Declining oil prices had negative impact on economy, but spending remained strong, rebound in H2 still expected. Mexico Outlook has been reduced as Q2 growth moderated to 2.2% YoY structural issues constrain growth. Expect economy in H2 to gain with robust pace. Expansion to continue to gain traction in 2016 with export growth and consumption-driven activity. GDP GROWTH Source: LMC Automotive Continued on Page 4...

4 4 UHY LLP MANUFACTURING INSIDER Continued from Page 3... NORTH AMERICA LIGHT VEHICLE SALES OUTLOOK CURRENT NA PRODUCTION DRIVERS Source: LMC Automotive

5 UHY LLP MANUFACTURING INSIDER 5 NA PRODUCTION AND CAPACITY LONG-TERM TREND Demand driven growth adds stability layer Localization and exports drive production expansion - utilization remains 90% NORTH AMERICA PRODUCTION MODEL LAUNCHES Opportunities and competition increases as market fragments and OEMs locally source models Source: LMC Automotive Continued on Page 7...

6 6 UHY LLP MANUFACTURING INSIDER THE US ECONOMY IS RESILIENT DESPITE GLOBAL HEADWINDS

7 UHY LLP MANUFACTURING INSIDER 7 Continued from Page 5... INVESTMENT POURS INTO NORTH AMERICA Investment in Mexico: BMW San Luis Potosi Daimler Aguascalientes (COMPAS) w/ Renault-Nissan FCA Toluca Ford Cuautitlan General Motors San Luis Potosi Honda Celaya Hyundai Monterrey Mazda Salamanca Renault-Nissan Aguascalientes 2 & COMPAS Toyota Guanajuato Volkswagen San Jose Chiapa Investment in the US: Aston Martin AM Alabama BMW Spartanburg Daimler Vance, North Charleston (DG) 2 FCA Sterling Heights Fuji Heavy Lafayette Geely Ridgeville GM Hamtramck, Lansing Grand River, Spring Hill, Wentzville Honda Greensburg Hyundai West Point Toyota Georgetown 3, Tupelo Volkswagen Chattanooga Source: LMC Automotive

8 MANUFACTURING INDUSTRY INSIGHT UHY LLP recognizes that manufacturing companies require their auditors, tax specialists and business advisors to add value to financial reporting activities. That is why we combine the strength of business and financial expertise with a hands-on, shop floor approach to solving complex business decisions in these key segments: Aerospace & Defense Distribution Automotive Suppliers Industrial Manufacturing Consumer Products Our professionals are leaders in the industry and take the steps necessary to ensure our client s future success by identifying and addressing new trends, accounting requirements and regulations. OUR LOCATIONS GA Atlanta MD Columbia MI Detroit MI Farmington Hills MI Sterling Heights MO St. Louis NJ Oakland NY Albany NY New York NY Rye Brook ADDITIONAL UHY ADVISORS LOCATIONS IL Chicago Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. UHY is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members UHY LLP. All rights reserved. [1015]