Businesses working through the challenges presented by the COVID-19 pandemic have had no shortage of issues to address. Initially, the forced business closures and stay at home orders gave many no other choice than to drastically cut expenses, terminate employees, contemplate selling or face the prospect of going out of business. After the initial shock, businesses have had to find new ways to operate under government orders. Social distancing, reduced operating hours and limits on the size of gatherings, represent only a few aspects of the “new normal”. Companies with a centralized office staff have elected to allow employees to work from home, limiting the opportunity for virus transmission and to ensure employee safety. However, when an employee lives (and remotely works) outside the state it can trigger nexus issues requiring the business to withhold and pay tax in that state. Leveraging a remote workforce can lend itself to expanding a company’s tax filing responsibilities, but COVID-19 has exponentially accelerated the concern. The good news is many states allow out-of-state businesses to avoid nexus due to COVID-19 under certain circumstances. To help clients, prospects, and others, JLK Rosenberger has provided a summary of key points below.
California Remote Nexus Details
Earlier this year, the California Franchise Tax Board issued COVID-19 FAQs for Tax Relief and Assistance, which outlines the state’s approach to remote workforce nexus issues. It makes clear that California will not treat an out-of-state corporation whose only state connection is the presence of an employee currently teleworking in the state. In addition, California will not include the related employee compensation when determining the minimum payroll threshold calculations.
Oregon Remote Nexus Details
The Oregon Department of Revenue announced that for purposes of corporate income tax, the presence of an employee working remotely, between March 8, 2020 and November 1, 2020, will not be treated as a relevant factor when making a nexus determination when the employee is normally based outside the state. Unfortunately, no additional information has been provided on whether the November 1st deadline has been extended.
Additional Remote Nexus Details
At this time, the Arizona Department of Revenue has not provided any guidance on the topic of nexus related to a remote workforce. In addition, since Nevada does not have a state income tax there is no need for guidance on the topic.
Managing State Tax Implications
The new working environment created by the pandemic requires businesses to regularly review state nexus policies to ensure unexpected liabilities do not arise. It is essential to be aware of the expiration of exemptions, issuance of new regulations, changes to existing exemptions and impact of permitting employees to work remotely long term. This is an important consideration because most exemptions cover employees that are temporarily working remotely due to COVID-19.
The state nexus created by employees temporarily telecommuting from another state appears to be manageable. Although some states have not formally issued guidance, it is expected they will provide some type of exemption. This is welcome relief for many businesses struggling to deal with COVID-19 complexities. If you have questions about the information outlined above or need assistance with a tax or account issue, JLK Rosenberger can help. For additional information call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.