I. Introduction

The purpose of this Technical Information Release (TIR) is to explain the Massachusetts income tax and withholding rules for employees of certain interstate motor and rail carriers. On July 6, 1990, the United States Congress enacted Public Law 101-322, the "Amtrak Reauthorization and Improvement Act of 1990" (the "Act"). This Act changed state taxation of certain interstate motor and rail carrier employees.

Because many states tax the compensation of nonresidents who are employed within their state, employees whose jobs require them to work in several states may face multiple state tax liabilities and filing requirements. Although each state only imposes a tax on the portion of the employee's compensation that is earned in that taxing state, the multiple filing requirements can be burdensome for the employee. The interstate transportation industry employs large numbers of employees who perform their duties in more than one state and, therefore, can be subject to numerous and varying state withholding and filing requirements. In order to reduce these burdens for certain interstate motor and rail carrier employers and their employees, Congress preempted certain state nonresident income tax provisions by limiting a state's power to tax the compensation of these employees.

II. Massachusetts General Rules

As a general rule, Massachusetts imposes a tax on all income, after deductions, exemptions and credits, of residents of the state. G.L. c. 62, § 2. Residents whose income is also taxed by another state may claim a credit against their Massachusetts tax for income taxes due to another state. G.L. c. 62, § 6(a). Massachusetts taxes the income of nonresidents only if the income is derived from sources within this state. G.L. c. 62, § 5A. Compensation from a nonresident's employment in Massachusetts is Massachusetts source income.

III. Preemption of State Law

Section 11504 of Title 49 of the United States Code, limits a state's ability to impose its income tax laws on certain employees of interstate motor and rail carriers. Generally, when a state law conflicts with a federal law, the federal law prevails under the Supremacy Clause of the United States Constitution. 1 Therefore, regardless of Massachusetts law to the contrary, § 11504 governs the ability of Massachusetts to impose its income tax laws on certain employees of interstate motor and rail carriers.

IV. Former Federal Limitations on State Taxation and Withholding

A. Taxation

Prior to July 6, 1990, 49 U.S.C. § 11504, as applied to employers and employees in Massachusetts, restricted Massachusetts wage withholding on nonresident interstate motor and rail carrier employees earning compensation in Massachusetts although it did not affect the Massachusetts income taxation of such compensation.

B. Withholding

Prior to July 6, 1990, 49 U.S.C. § 11504 limited a state's ability to require interstate motor and rail carriers to withhold state income tax and to file state income tax information returns. Interstate motor and rail carriers were required to withhold Massachusetts income tax only for Massachusetts residents who did not earn more than 50 percent of their compensation in another state and for nonresidents earning more than 50 percent of their compensation in Massachusetts. Revised Interstate Commerce Act, Pub. L. No. 95-473, § 11504, 92 Stat. 1446 (1978)(originally enacted as Income Taxation - Interstate Carriers and Employees, Pub. L. No. 91-569, §§ 1, 2(b), 3(a), 84 Stat. 1499 (1970)).

V. Current Federal Limitations on State Taxation and Withholding

A. Taxation

49 U.S.C. § 11504, as amended, provides that no part of the compensation paid on or after July 6, 1990 to an employee who performs regularly assigned duties in more than one state by a rail or motor carrier providing transportation subject to the jurisdiction of the Interstate Commerce Commission or by a motor private carrier, shall be subject to the income tax laws of any state or subdivision of that state, other than the state or subdivision of the employee's residence. Under the Act, Massachusetts may impose its income tax only on interstate motor and rail carrier employees who are Massachusetts residents or who are Massachusetts nonresidents who perform all of their regularly assigned duties in Massachusetts.

B. Withholding

The July 6, 1990 Act amending 49 U.S.C. § 11504, as applied to employers and employees in Massachusetts, provides that interstate motor and rail carriers are required to withhold Massachusetts state income tax only from the compensation of Massachusetts residents and from the compensation of Massachusetts nonresidents who perform all of their regularly assigned duties in Massachusetts. In addition to withholding requirements, interstate motor and rail carrier employers are required to file other information returns for these employees, including wage and new hire reports under G.L. c. 62E and 830 CMR 62E.2.1.

C. Compensation and Employees Affected

These federal provisions apply only to interstate motor and rail carriers and their employees subject to the jurisdiction of the Interstate Commerce Commission and to motor private carriers ("interstate motor and rail carriers"). The restriction applies to compensation paid on or after July 6, 1990.

VI. Abatement

A nonresident employee of an interstate motor or rail carrier who has paid Massachusetts taxes on compensation earned in Massachusetts and paid on or after July 6, 1990, and who performed duties in a state other than Massachusetts, may be entitled to an abatement. Applications for abatement are made on Form CA-6. Contact Taxpayer Assistance for further information at 1-800-392-6089.

VII. Examples
 

  1. Mr. Ron is an employee of a rail carrier that is under the jurisdiction of the Interstate Commerce Commission. Mr. Ron is a nonresident of Massachusetts and performs his regularly assigned railroad duties in Massachusetts, Maine, and Connecticut. Mr. Ron is not subject to income taxation in Massachusetts and his employer is not required to withhold Massachusetts income taxes.
  1. Ms. Brown is an employee of a rail carrier that is under the jurisdiction of the Interstate Commerce Commission. Ms. Brown is a nonresident of Massachusetts and performs all her regularly assigned railroad duties in Massachusetts. Ms. Brown is subject to Massachusetts income taxation on her rail carrier compensation because she performs all her regularly assigned duties in Massachusetts. Ms. Brown's employer is required to withhold Massachusetts income taxes and to file any required Massachusetts income tax information returns.
  1. Mr. Derek is an employee of a motor private carrier under the jurisdiction of the Interstate Commerce Commission. Mr. Derek is a resident of Massachusetts and performs his regularly assigned motor carrier duties in Massachusetts, New Hampshire, and Vermont. Mr. Derek is subject to Massachusetts income taxation on his motor carrier compensation because he is a resident of Massachusetts. Mr. Derek's employer is required to withhold Massachusetts income taxes and to file any required Massachusetts income tax information returns.

Mitchell Adams
Commissioner of Revenue

April 20, 1993




1. "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof...shall be the supreme Law of the Land; and the Judges of every State shall be bound thereby, any Thing in the Constitution or Law of any State to the Contrary notwithstanding." Article VI, Clause 2.