B-125572, FEBRUARY 29, 1956, 35 COMP. GEN. 486

B-125572, FEBRUARY 29, 1956, 35 COMP. GEN. 486

STATE INCOME WITHHOLDING TAXES - FEDERAL EMPLOYEES' SALARY DEDUCTIONS - COVERAGE UNDER THE STATE INCOME TAX WITHHOLDING ACT OF JULY 17, 1952, THE MARYLAND STATE INCOME TAX IS REQUIRED TO BE WITHHELD FROM THE COMPENSATION OF A FEDERAL EMPLOYEE WHO IS REGULARLY EMPLOYED IN MARYLAND EVEN THOUGH HE IS NOT A RESIDENT OF THAT STATE.

TO THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, FEBRUARY 29, 1956:

REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 19, 1955, REQUESTING A DECISION CONCERNING THE LEGALITY OF WITHHOLDING FOR MARYLAND STATE INCOME TAX PURPOSES FROM THE COMPENSATION OF A FEDERAL EMPLOYEE WHO IS REGULARLY EMPLOYED IN THAT STATE BUT WHO IS NOT A RESIDENT OF THE STATE.

THE ACT OF JULY 17, 1952, 66 STAT. 765, 5 U.S.C. 84B, WHICH AUTHORIZES THE WITHHOLDING FOR STATE INCOME TAX PURPOSES ON THE COMPENSATION OF FEDERAL EMPLOYEES PROVIDES IN PERTINENT PART AS FOLLOWS:

THAT WHERE---

(1) THE LAW OF ANY STATE OR TERRITORY PROVIDES FOR THE COLLECTION OF A TAX BY IMPOSING UPON EMPLOYERS GENERALLY THE DUTY OF WITHHOLDING SUMS FROM THE COMPENSATION OF EMPLOYEES AND MAKING RETURNS OF SUCH SUMS TO THE AUTHORITIES OF SUCH STATE OR TERRITORY, AND

(2) SUCH DUTY TO WITHHOLD IS IMPOSED GENERALLY WITH RESPECT TO THE COMPENSATION OF EMPLOYEES WHO ARE RESIDENTS OF SUCH STATE OR TERRITORY, THEN THE SECRETARY OF THE TREASURY, PURSUANT TO REGULATIONS PROMULGATED BY THE PRESIDENT, IS AUTHORIZED AND DIRECTED TO ENTER INTO AN AGREEMENT WITH SUCH STATE OR TERRITORY WITHIN ONE HUNDRED AND TWENTY DAYS OF THE REQUEST FOR AGREEMENT FROM THE PROPER OFFICIAL OF SUCH STATE OR TERRITORY. SUCH AGREEMENT SHALL PROVIDE THAT THE HEAD OF EACH DEPARTMENT OR AGENCY OF THE UNITED STATES SHALL COMPLY WITH THE REQUIREMENTS OF SUCH LAW IN THE CASE OF EMPLOYEES OF SUCH AGENCY OR DEPARTMENT WHO ARE SUBJECT TO SUCH TAX AND WHOSE REGULAR PLACE OF FEDERAL EMPLOYMENT IS WITHIN THE STATE OR TERRITORY WITH WHICH SUCH AGREEMENT IS ENTERED INTO. NO SUCH AGREEMENT SHALL APPLY WITH RESPECT TO COMPENSATION FOR SERVICE AS A MEMBER OF THE ARMED FORCES OF THE UNITED STATES.

PURSUANT TO THIS ACT THE PRESIDENT ISSUED EXECUTIVE ORDER NO. 10407, DATED NOVEMBER 6, 1952, PRESCRIBING REGULATIONS GOVERNING AGREEMENTS TO BE ENTERED INTO BETWEEN THE SECRETARY OF THE TREASURY AND ANY STATE OR TERRITORY PURSUANT TO THE PROVISIONS OF THE ACT. SECTION 2 OF THE EXECUTIVE ORDER PROVIDES IN PART THAT:

EACH SUCH AGREEMENT (A) SHALL PROVIDE THAT THE HEAD OF EACH AGENCY OF THE UNITED STATES SHALL COMPLY WITH THE REQUIREMENTS OF SUCH LAW OF THE STATE OR TERRITORY CONCERNED WITH RESPECT TO EMPLOYEES OF SUCH AGENCY WHO ARE SUBJECT TO SUCH TAX AND WHOSE REGULAR PLACE OF FEDERAL EMPLOYMENT IS WITHIN THE STATE OR TERRITORY WITH WHICH SUCH AGREEMENT IS ENTERED INTO *

AND SECTION 6 (D) THEREOF PROVIDES:

THE TERM "REGULAR PLACE OF FEDERAL EMPLOYMENT" MEANS THE PLACE WHERE AN EMPLOYEE ACTUALLY PERFORMS HIS SERVICES, IRRESPECTIVE OF HIS RESIDENCE, EXCEPT WHEN SUCH SERVICES ARE PERFORMED IN A TRAVEL OR TEMPORARY DUTY STATUS, IN WHICH CASE HIS "REGULAR PLACE OF FEDERAL EMPLOYMENT" WILL BE THE PLACE TO WHICH HE WILL NORMALLY BE EXPECTED TO PROCEED FOR THE PURPOSE OF PERFORMING FURTHER SERVICES IN CONNECTION WITH HIS FEDERAL EMPLOYMENT ON THE TERMINATION OF TRAVEL OR TEMPORARY DUTY STATUS.

IT THUS APPEARS THAT THE EXECUTIVE ORDER CONTEMPLATES THAT WITHHOLDING WOULD BE MADE FROM THE SALARY OF ALL EMPLOYEES WHO ARE SUBJECT TO THE STATE TAX AND WHOSE REGULAR PLACE OF FEDERAL EMPLOYMENT IS WITHIN THE STATE COVERED BY SUCH AGREEMENT WHETHER HE IS A RESIDENT OF THAT STATE OR NOT. IT IS POINTED OUT IN YOUR LETTER, HOWEVER, THAT THE AGREEMENT WITH THE STATE OF MARYLAND, LIKE AGREEMENTS ENTERED INTO WITH OTHER STATES AND TERRITORIES, CONTAINS NO REFERENCE TO THE MATTER OF RESIDENCE IN THE STATE; NOR DOES ANY SUCH REFERENCE APPEAR IN TREASURY DEPARTMENT CIRCULAR NO. 918, OR IN SUPPLEMENTS 1 THROUGH 8 ANNOUNCING PREVIOUS AGREEMENTS WITH OTHER STATES AND TERRITORIES, EVEN THOUGH THE INCOME TAX AND WITHHOLDING LAWS OF MANY OF THESE OTHER STATES (FOR EXAMPLE, VERMONT, OREGON, AND KENTUCKY) TREAT NONRESIDENTS IN ESSENTIALLY THE SAME MANNER AS THE LAWS OF MARYLAND. IN VIEW THEREOF IT IS STATED THAT IT WOULD APPEAR THE TREASURY DEPARTMENT DID NOT REQUIRE AGENCIES TO WITHHOLD FROM NONRESIDENTS UNTIL THE ISSUANCE OF SUPPLEMENT 9 WITH RESPECT TO THE STATE OF MARYLAND, ALTHOUGH THERE IS NO APPARENT BASIS FOR DIFFERENCE IN TREATMENT AS BETWEEN MARYLAND AND THOSE OTHER STATES.

BY LETTER OF DECEMBER 30, 1955, THE TREASURY DEPARTMENT, IN RESPONSE TO A REQUEST FOR THEIR COMMENTS CONCERNING THIS MATTER, REPORTED THAT SUPPLEMENT 9 DID NOT CONSTITUTE A REVERSAL OF ANY PREVIOUS POSITION OF THAT DEPARTMENT IN THAT SINCE THE SEVERAL AGREEMENTS ENTERED INTO WITH VARIOUS STATES AND TERRITORIES UNDER EXECUTIVE ORDER NO. 10407 PROVIDE THAT THE TERM "REGULAR PLACE OF FEDERAL EMPLOYMENT" AS USED THEREIN SHALL HAVE THE MEANING DEFINED IN THE EXECUTIVE ORDER, IT WAS NOT DEEMED NECESSARY PRIOR TO THE AGREEMENT WITH THE STATE OF MARYLAND TO SET FORTH IN THE REGULATIONS GIVING NOTICE OF SUCH AGREEMENTS ANY REFERENCE TO THE MATTER OF RESIDENCE WITHIN THE STATE OR TERRITORY CONCERNED. THE REFERENCE WAS INCLUDED APPARENTLY TO CLEAR ANY DOUBTS IN THE MATTER.

IN VIEW OF THE TERMS OF THE EXECUTIVE ORDER AND THE REFERENCE THERETO CONTAINED IN THE AGREEMENTS ENTERED INTO WITH THE VARIOUS STATES IT PROPERLY APPEARS THAT WITHHOLDING IS REQUIRED IN THE INSTANT CASE AND CASES SIMILAR THERETO UNLESS SUCH WITHHOLDING IS OR WOULD BE CONTRARY TO THE PROVISIONS OF THE ACT OF JULY 17, 1952. WE FIND NOTHING IN THE ACT WHICH RESTRICTS ITS APPLICABILITY TO EMPLOYEES WHO RESIDE IN THE VARIOUS STATES, UNLESS IT BE THAT PORTION OF THE ACT WHICH READS "AND (2) SUCH DUTY TO WITHHOLD IS IMPOSED GENERALLY WITH RESPECT TO THE COMPENSATION OF EMPLOYEES WHO ARE RESIDENTS OF SUCH STATE OR TERRITORY.'

UPON CLOSER EXAMINATION IT WILL BE SEEN THAT THIS PROVISION, HOWEVER, MERELY PRESCRIBES ONE OF THE CONDITIONS WHICH MUST BE MET BY THE STATE LAW BEFORE AN AGREEMENT MAY BE ENTERED INTO WITH THE STATE AND DOES NOT IN ANY WAY LIMIT THE APPLICATION OF THAT ACT TO RESIDENTS OF THE STATE. THIS VIEW, ALSO, APPEARS TO BE SUPPORTED BY THE LEGISLATIVE HISTORY OF THE ACT. SEE IN THIS CONNECTION HOUSE REPORT NO. 2474, 82D CONGRESS, WHICH ACCOMPANIED THE BILL, WHEREIN IT IS STATED IN PART THAT--- " THE AUTHORIZATION FOR WITHHOLDING CONTAINED IN THE BILL AS REPORTED IS LIMITED SO AS NOT TO APPLY WITH RESPECT TO THE TAXES OF ANY STATE OR TERRITORY WHICH REQUIRES WITHHOLDING ONLY WITH RESPECT TO NON RESIDENTS.' THE REPORT FURTHER STATES THAT--- " IT IS THE VIEW OF YOUR COMMITTEE THAT EVERY PRACTICABLE STEP SHOULD BE TAKEN TO COOPERATE IN THE AREA OF WITHHOLDING WITH THE STATE AND TERRITORIAL GOVERNMENTS IN VIEW OF THEIR COOPERATION WITH THE FEDERAL GOVERNMENT IN FISCAL MATTERS GENERALLY * * *.' THE REPORT THEN CONCLUDES WITH THE STATEMENT THAT--- " AT THE PRESENT TIME THE TERRITORIES OF ALASKA AND HAWAII, AND THE STATES OF VERMONT AND OREGON, HAVE WITHHOLDING STATUTES WHICH APPLY TO SALARIES AND WAGES OF BOTH RESIDENTS AND NONRESIDENTS.'

IT MIGHT BE STATED ALSO THAT IN COMMENTING ON THE ABOVE PROVISION OF THE ACT THE TREASURY DEPARTMENT REPORTED THAT THE LANGUAGE WAS DRAFTED BY THE STAFF OF THE JOINT COMMITTEE ON INTERNAL REVENUE TAXATION AND REPRESENTATIVES OF THE TREASURY DEPARTMENT AND THAT "THE RECORDS OF THE TREASURY DEPARTMENT DISCLOSE THAT ITS PURPOSE WAS SOLELY TO EXCLUDE THE WITHHOLDING OF STATE INCOME TAXES FROM THE COMPENSATION OF PERSONNEL OF THE FEDERAL GOVERNMENT WHO ARE NONRESIDENTS OF AND STATIONED IN STATES WHICH ONLY REQUIRE WITHHOLDING FOR NON-RESIDENTS.'

ACCORDINGLY, YOU ARE ADVISED THAT, IN OUR OPINION, THE ACT OF JULY 17, 1952, AND THE REGULATIONS ISSUED PURSUANT THERETO AUTHORIZE THE WITHHOLDING FOR STATE INCOME TAX PURPOSES FROM THE COMPENSATION OF ANY FEDERAL EMPLOYEE WHO IS SUBJECT TO THE TAX AND WHOSE REGULAR PLACE OF EMPLOYMENT IS WITHIN THE STATE WITH WHICH SUCH AGREEMENT IS ENTERED INTO EVEN THOUGH THE EMPLOYEE MAY NOT BE A RESIDENT OF SUCH STATE.