Covid-19 has had created many changes to our workforce. Companies were quickly forced to adopt a work-from-home model for employees and as a result, many are going to transition that way permanently. Many employees moved to states outside of the state where they were assigned. This has raised questions about whether the company will have the nexus to tax corporate income and sales and use taxes in the states where its remote employees are located. Also, whether the company should start withholding wages earned by remote employees based upon their geographic location and whether they should file a nonresident return in the state where she is working remotely.
States will generally assert that an employee who works from home or remotely within the state is subject to nexus. The state will then subject the company to its tax laws such as corporate income, franchise taxes, sales and use taxes.
There have been many different approaches that states have taken in relation to nexus relief because of the COVID-19 pandemic. However, there has been very little guidance. State-specific approaches to nexus relief for corporate income tax and sales tax vary depending on which state they are in. Some states say that nexus will not only be established if employees work remotely as a result of the pandemic. Certain states limit such nexus relief to franchise tax and corporate income tax.
Companies need to track their employees and understand the tax laws and guidelines in each state. This will help determine if they will be subject to income, franchise, sales, and use tax filing requirements.
If you would like to discuss this or any other areas where we can help your small business we will be happy to help.