Are your employees still working remotely? When the pandemic first hit, many businesses were forced to transition to a remote working model for safety reasons.
In the time since, some companies have returned to the office, while others have adopted a hybrid model or continued with remote working due to ongoing concerns regarding COVID-19 variants.
Regardless of your specific situation, one thing that every company should be paying close attention to is how these workers can impact tax obligations. In this article, we’ll share updates to the situation and how they might impact your business.
In previous posts, we’ve delved into the history of this situation. The short version of the story is that ordinarily, remote workers that live in a different state than they work can create “nexus,” which is the amount of contact from a company needed in order to be obligated to collect sales tax in a state, or to be subject to income tax or gross receipts type taxes.
Due to the pandemic, many states chose not to assert nexus on companies whose employees were working remotely specifically due to the pandemic, while others simply waived these nexus obligations for a period of time. Other states did not offer guidance at all.
Now, fast forward to today. Similar to other pandemic-era tax waivers or forgiveness programs, these remote working tax programs may soon be ending (or have already ended) and businesses will be required to deal with the full brunt of the tax liabilities created by their remote employees.
Starting July 1, Pennsylvania resumed enforcement of its pre-pandemic telework tax policy, which includes corporate income tax, withholding tax and sales and use tax.
New Jersey made headlines when its Division of Taxation released guidance stating that the temporary rules put in place, that waived certain tax obligations created by remote workers, will be lifted starting on Oct. 1. This guidance applies to sales tax and business tax purposes, as well as employer income-tax withholdings.
A long-standing situation in New England also saw an update recently. In June, the U.S. Supreme Court denied a motion for leave from New Jersey, which challenged controversial regulations from Massachusetts. These regulations required that nonresident employees who worked in the state prior to its state of emergency would have to source their wages to Massachusetts, “in the same proportion as immediately before the pandemic, regardless of the location from which these employees telecommuted to Massachusetts.”
While many workers are hoping to stay remote, a recent survey by Bloomberg Tax & Accounting shows that under “normal” circumstances, a majority of states would find “a minimal number” of remote workers who do not conduct solicitation activities would be enough to create nexus. Mississippi was the only state to respond that a remote employee would not create nexus under any of the circumstances included in the survey.
In the long run, the pandemic has undoubtedly pushed many businesses towards a remote or hybrid work model, but there will be tax ramifications to be dealt with. To stay ahead of these obligations and ensure compliance, companies must be proactive about their tax liabilities. That’s where Miles Consulting can help.
To stay on top of your tax obligations due to remote workers, or any other state tax situations, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
