The complexion of how U.S. companies conduct their businesses changed drastically when many were forced to temporarily close their physical locations and send their workforces to their homes to work remotely, during the recent health crisis. From a tax perspective, this simultaneously opened the door to the question of how this change in work location because of COVID-19 would impact the issue of state tax nexus for employers.
State Tax Nexus Before COVID-19
Prior to the COVID-19 outbreak, states were generally permitted to assert state tax nexus (including: corporate income tax, sales and use tax, employment tax, and tax on gross receipts) on employers who had employees working remotely from states other than those in which the employer had actual brick and mortar locations. In the current environment, employers who may never have had to contemplate the implications of state tax nexus may now have to contend with it.
Individual States to Decide
While it is up to the individual states to determine whether or not they will consider employers to have state tax nexus, several have come out early to declare they would not enforce their right to impose nexus on employers who found themselves with suddenly displaced workforces as a direct result of the COVID-19 pandemic. Indiana, Maryland, Massachusetts, Mississippi, New Jersey, Pennsylvania, and Washington, D.C. have been early adopters of information policies that state they will not place additional burdens on employers who are already contending with so many other factors in order to keep their businesses operational. However, these states have also been clear that the enforcement for state tax nexus will be waived only temporarily, while employees are working temporarily from their homes or other remote locations during the time of COVID-19. Once stay-at-home orders are lifted and employees return to their usual place of business, those who remain in a work-from-home situation will essentially subject their employers to it.
Of course, many states have also been hard-pressed to keep their coffers filled due to the economic factors dramatically impacting their ability to stay afloat during mandatory COVID-19 shelter-in-place orders. For some, imposing state tax nexus could potentially prove to be a means of increasing depleted yet much-needed revenue for the state.
Because each state is different and not all states have addressed the issue of state tax nexus during the present times, it’s important that you consult with your Untracht Early advisor to determine whether or not your organization is subject to nexus in states where your employees are currently working.