This issue has been around since the very early years of the unemployment insurance (UI) program in the United States: Where do you report an employee’s wages if the employee works in more than one state or in a different state than the employing company is located?
While in general, workers’ wages are reported to the state where the work is performed, it became clear early on that many employers had workers that crossed state lines and they wanted to avoid duplicate taxation of these wages. Therefore, an agreement was signed between the states providing a methodology known as “localization of work” to determine where wages should be reported. The US Dept of Labor developed model legislation that was passed into law in every state during the 1940’s. An agreement between Canada and the United States was signed in 1947 to include Canada in the localization of work agreement to avoid duplication of taxation when workers crossed the border.
To insure uniform interpretation of the localization of work provisions, the US Dept of Labor issued an Unemployment Insurance Program Letter (UIPL) No. 291 on July 1, 1952. I had the distinct pleasure, as Chief of Tax for the US Dept of Labor, of updating and re-releasing this information on May 10, 2004, as UIPL No. 20-04. This UIPL still serves as a guide to the business community, all states, and Canada for determining where wages should be reported.
In a nut shell, localization of work provisions should be applied in the following sequence in order to determine where wages are to be reported:
(1) Is the individual's service localized in this state or some other state?
(2) If his/her service is not localized in any state, does he/she perform some service in the state in which his/her base of operations is located?
(3) If the individual does not perform any service in the state in which his/her base of operations is located, does he/she perform any service in the state from which the service is directed and controlled?
(4) If the individual does not perform any service in the state from which his/her service is directed and controlled, does the individual perform any service in the state in which he/she lives?
For further explanation and examples, UIPL No. 20-04 may be found in its entirety by following the link below:
http://wdr.doleta.gov/directives/corr_doc.cfm?DOCN=1565
Rett Hensley TALX Consultant