On June 16, 2021, Louisiana Governor John Bell Edwards signed into law SB 157, which exempts employees from the state's nonresident income tax when they work within the state for fewer than 25 days in the calendar year, and SB 31, which provides an income tax incentive for teleworkers relocating to the state.

Exemption from nonresident income tax for short-term business travelers

• Individual liability for Louisiana nonresident personal income tax (SB 157, Section 248)

Effective January 1, 2022, compensation paid to an employee is exempt from Louisiana nonresident income tax if all the following conditions are met:

• The employee performs services within the state for 25 or fewer days in the calendar year
• The employee performed employment duties in more than one state in the calendar year
• The wages are not paid in the individual's capacity as a professional athlete, staff member of a professional athletic team, professional entertainer, public figure or qualified production employee
• The employee's state of residence either provides a substantially similar exemption or does not impose a personal income tax
• Employer requirements for nonresident income tax withholding (SB 157, Section 112.2)

Also effective January 1, 2022, employers are not required to withhold Louisiana nonresident income tax from wages paid to employees for services within the state of 25 or fewer days in the calendar year. If the working days in the calendar year exceed 25, the employer is required to remit and withhold nonresident income tax from all wages for services performed within the state, including wages earned for the first 25 days.

Employees are considered present and performing employment duties within Louisiana for a day if they perform more of their duties in Louisiana than in any other state during that day. Any portion of the day during which employees are in transit is not considered a working day within Louisiana.

Regarding income tax withholding for the first 25 days when employees exceed the 25-day threshold in the calendar year, the Louisiana Department of Revenue will not require that employers pay penalties or interest for failure to withhold nonresident income tax providing one of the following two requirements is met:

• The employer, at its sole discretion, maintained a time-and-attendance system specifically designed to allocate employee wages for income tax purposes among all taxing jurisdictions in which the employee performs employment duties for the employer, and the employer relied on data from that system.
• The employer did not maintain a time-and-attendance system, and relied on either (1) its own records of the employee's work location maintained in the regular of course of business, or (2) the employee's reasonable determination of the time he or she expect to spend performing duties within Louisiana provided the employer has no actual knowledge the employee's determinations are fraudulent and the employer and employee do not collude to evade taxation in making the determination.

Tax incentive for teleworkers who relocate to Louisiana

For purposes of Louisiana economic development, SB 31 provides an income tax exemption of 50% of gross wages up to $150,000 to qualifying remote workers (referred to as "digital nomads") who establish residency within the state after December 31, 2021. This exemption applies for a period of up two years from 2022 through 2025 and only to those wages earned from remote work.

The law defines a digital nomad as an individual who:

• Is considered a covered person with major medical health insurance
• Works remotely full-time for a nonresident business as provided for by a rule to be published by the Louisiana Department of Revenue
• Is required to file a Louisiana resident or part-year resident individual income tax return for the taxable year in which the exemption is claimed
• Has not established residency or domicile in Louisiana for any of the prior three years immediately preceding the establishment of residency or domicile after December 31, 2021
• Has not been required to file a Louisiana resident or part-year resident individual income tax return for any of the prior three years
• Is performing the majority of employment duties in Louisiana either remotely or at a coworking space

Ernst & Young LLP insights

More than 25 states offer what is termed a "de minimis exemption" from nonresident income tax based on days or earnings; however, employers should note that Louisiana's exemption is uniquely restrictive. Specifically, the employee's resident state must have a substantially similar provision or impose no state income tax at all (e.g., Texas). This exemption will bring welcome relief to residents of Louisiana's neighboring state Texas who travel infrequently to the state for business.

Louisiana joins West Virginia, which earlier this year also enacted a de minimis nonresident income tax exemption as part of its "Ascend WV" program to recruit remote workers to the state. (See EY Tax Alert 2021-0799.)

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