Indiana, Illinois, and Montana were the top-ranked states with an income tax for how easy their tax code makes fulfilling paperwork obligations for nonresident workers, according to a new report released Wednesday by National Taxpayers Union Foundation (NTUF).
The Remote Obligations and Mobility (ROAM) Index measures how burdensome each state’s tax compliance obligations are for nonresident workers.
“States should seek to reduce unnecessary compliance burdens on nonresident workers and out-of-state businesses by waiving tax compliance obligations for nonresidents who only work briefly in-state as well as those nonresidents’ employers. They should also seek to enter into income tax reciprocity agreements that minimize the number of state tax codes with which commuters have to comply,” report author Andrew Wilford said.
Highly-ranked states have made significant efforts to limit the amount of tax filing complexity working in that state can create, while lower-ranked states have done little to protect taxpayers from nuisance tax obligations.
Tied for first on the ROAM Index are states without a state income tax. Indiana, Illinois, and Montana follow closely because they have enacted sensible thresholds to protect taxpayers from wasting time filing additional state tax returns over trivial obligations.
“These thresholds and agreements are important, pro-taxpayer efforts to take some of the unnecessary nuisance and confusion out of state income taxes in an increasingly mobile economy,” Wilford said.
The lowest-ranked states have passed laws or implemented rules that actively complicate the tax returns of remote-working taxpayers. In some states, a taxpayer is required to file a tax return after working a single day in that state.
Delaware, New York, and Massachusetts are the lowest-ranked states because of high compliance requirements.
As more states address their treatment of nonresident taxpayers, states that have yet to do so increasingly stand out in a negative way. On the other hand, relatively simple changes can shoot a state rapidly up the ranks.
Read the full report and view the interactive map.