CPP Multi-State Payroll Compliance 3

Question 1

Under the federal Interstate Commerce Tax Act (P.L. 86-272), which employees are protected from a state's income tax withholding obligations imposed on their employer?

Accepted Answer

Employees whose only in-state activity is soliciting orders for tangible personal property approved and filled from outside the state

Answer

P.L. 86-272 limits a state's ability to impose net income tax on businesses whose only in-state activity is soliciting sales of tangible personal property fulfilled from outside the state.

Question 2

A traveling salesperson works in seven states during the year. Which threshold concept determines when the employer must begin withholding income tax for each state visited?

Accepted Answer

De minimis or safe-harbor thresholds set by individual states (days worked or income earned)

Answer

Many states provide de minimis safe harbors (commonly based on days worked or dollar thresholds) below which employers are not required to withhold income taxes.

Question 3

How does SUI (State Unemployment Insurance) apply when an employee works in multiple states during the year?

Accepted Answer

SUI is paid to one state only, determined by a four-step localization test under the FUTA guidelines

Answer

Under FUTA guidelines, SUI is paid to a single state using a four-factor localization test: localized work state, base of operations, direction/control state, or employee's residence state.

Question 4

An employee is 'localized' in State A under the FUTA four-factor test but temporarily assigned to State B for eight months. Where should SUI be paid?

Accepted Answer

State A, because localization takes priority in the four-factor test

Answer

Localization—working predominantly in a single state—is the first and highest priority factor in the FUTA test, so SUI goes to State A even during extended temporary assignments.

Question 5

Which states require employers to use their own state withholding form instead of the federal Form W-4?

Accepted Answer

Several states (e.g., California, New York, Maryland) require or use their own state-specific withholding certificates

Answer

States such as California (DE 4), New York (IT-2104), and Maryland (MW507) have their own withholding forms that employees must complete in addition to or instead of the federal W-4.

CPP - Certified Payroll Professional Practice Test

CPP - Certified Payroll Professional Practice Test

CPP Multi-State Payroll Compliance 3