A tidal wave of tax regulations is rising as most states in the U.S. continue to run large spending deficits from a still sluggish economy. As state agencies rethink their budget strategies, many are uncovering areas where revenue isn't being collected — and multi-state taxation is high on the list. 

Multi-state tax regulations: Learn to swim instead of sink

A tidal wave of tax regulations is rising as most states in the U.S. continue to run large spending deficits from a still sluggish economy. As state agencies rethink their budget strategies, many are uncovering areas where revenue isn't being collected — and multi-state taxation is high on the list.


"States are starting to pay more attention to organizations that have employees who travel and work in multiple locations."
— Lance Reschke, VP, Ceridian Product Compliance


"States are starting to pay more attention to organizations that have employees who travel and work in multiple locations," said Lance Reschke, vice president of Ceridian's product compliance team. "Historically, states knew this was going on and didn't place an emphasis on enforcement. But after the economy crashed and budget deficits grew, several states have increased focus on capturing this tax revenue."

Reschke said that multi-state tax regulations can get very complicated when it comes to varying laws regarding residency and reciprocity, which, among other things, determine how much work employees can perform in neighboring states before withholding taxes in those states is required.

By asking the right questions and following best practices for withholding and filing processes, employers can swim instead of sink.


Staying afloat in turbulent tax waters

Reschke says there are two key parts of payroll taxation. "Employers must first get withholding right and then they must correctly file taxes for each state," he said. "If withholding is incorrect, the employer is potentially exposed to penalties when taxes are filed."

And those penalties can be steep, according to Angela Ciminnisi, director of product management, government relations and compliance, Ceridian tax services.

"Punishment can vary from being charged penalty and interest to having the state issue a lien to the employer or even revoke its business license," she said.

With complicated legislation and withholding and filing rules associated with multi-state taxation, avoiding penalties can be tricky. When managing state income taxes for multi-state employees, consider these key factors:

  • Nexus: Does your organization have nexus for states in which employees work?
  • Residency: How is residence defined?
  • Reciprocity: For which state must you withhold?
  • Resident/non-resident withholding: Are you withholding for employees performing work in non-resident states?
Maintaining compliance and mitigating risk

Amid hectic day-to-day and cyclical payroll activities, companies must either bolster their tax staff or outsource to a trusted partner to improve compliance. Emmis Communications Corporation, a publicly held media company with employees in multiple states, decided it needed the expertise of a payroll provider to prevent them from sinking under a deluge of confusing and changing tax filing processes and labor regulations.


"Rather than waiting until month-end, quarter-end or year-end, we're made aware of issues for each pay period, It's really nice to feel comfortable that your payroll is in balance with tax every pay period."
— Shannon Curry, Emmis Communications


"California in particular is very much an employee state, so it poses significant compliance challenges," said Shannon Curry, director of benefits, HRIS and payroll for Emmis. By outsourcing payroll and tax services, Emmis is able to better navigate these complex and varied labor regulations.

In the few situations where Emmis's HR staff must step in to resolve a tax issue — such as a tax code fallout, out-of-balance condition or new jurisdiction — they can rely on their tax vendor's notifications to help. "Rather than waiting until month-end, quarter-end or year-end, we're made aware of issues for each pay period," Curry said. "It's really nice to feel comfortable that your payroll is in balance with tax every pay period."

As a result, Emmis is able to better achieve its goals of focusing on employees and business strategies by:

  • Eliminating its risk for penalty and interest charges
  • Automating and streamlining the multi-state tax withholding and filing process
  • Improving productivity by relying on a dedicated compliance organization to monitor and manage compliance changes

As withholding and filing multi-state taxes become more complex and state agencies continue to focus on enforcement, outsourcing can be a valuable life raft for companies to ensure compliance and minimize risk.

For more information:
  • Watch a recording of our webinar on managing multi-state income tax, presented by APA's James Medlock
  • Read the 3PD, Inc. customer case study on maintaining multi-state tax compliance
  • Learn how Ceridian Tax Services can help you maintain compliance