State Tax Nexus Considerations and COVID-19

The onset of the coronavirus pandemic has led to an increase in the number of employees telecommuting for work.  While this telecommuting trend may be temporary, some of these employees are now working in states other than the state of their office or primary worksite, and that may lead to state tax nexus considerations for their company. Prior to COVID-19, the majority of states imposed nexus on a business if the business had a telecommuter in its state unless the telecommuter’s activity was protected under P.L. 86-272 -- i.e., the telecommuter’s activity was limited to solicitation of sales of tangible personal property.  The current expansion in work from home raises a number of issues for companies, including nexus concerns for corporate income/franchise tax and sales and use tax. (Payroll considerations, including withholding obligations, will be addressed in a separate article.) 

A number of states have issued specific guidance related to nexus resulting from temporary COVID-19 work-from-home orders, but many have not specially addressed the issue or have indicated they will assert their current nexus standards.  Members of the U.S. Senate recognized that state taxation issues resulting from employees temporarily working from home create problems and potentially burden employees and employers with more tax obligations. 

As a result, Senators John Thune (R-SD) and Sherrod Brown (D-OH), introduced the Remote and Mobile Worker Relief Act (S. 3995), which addresses a number of employee and employer income tax issues generated as a result of the pandemic.  Specifically, the act would provide nexus relief from state business income tax for temporary situations where employees worked in a state other than their primary worksite due to COVID-19.  The nexus relief provided by the act is generally limited to a “coverage period,” which ends on the earlier of December 31, 2020 or the date employees are allowed to return to their primary worksite by their employer.  The act was introduced on June 18, 2020, but it remains to be seen whether it gains any traction.  Notably, provisions from S. 3995 have been included in the Republican-led HEALS Act proposal, but negotiations with the Democrats are currently at a standstill.

Most states have been silent on the nexus and taxation issues resulting from telecommuting as a result of COVID-19, with only a minority issuing formal guidance.  The following information summarizes the positions of the states in which many of our clients reside[KSG1] :


The Department of Tax and Fee Administration has not issued any formal nexus guidance as a result of COVID-19. 

District of Columbia

The Office of Tax and Revenue is not pursuing the imposition of franchise tax nexus if employees work from home in the District temporarily.  The Office’s position only applies to periods declared a public emergency.  The Office has indicated that the nexus waiver does not apply to sales and use taxes.


The Indiana Department of Revenue issued guidance stating that it will not assert nexus for income tax based on an employee’s temporary remote work as a result of COVID-19.  The protections offered cover periods where an official work-from-home order is in place as issued by federal, state or local government or based on the order of a physician.  The Department of Revenue has indicated that the nexus waiver does not apply to sales and use taxes.


The Comptroller of Maryland issued an alert stating that it will not use the change in workplace resulting from COVID-19 for purposes of imposing business nexus.  The Comptroller has also indicated that it will not impose sales tax nexus if the seller’s only connection with the state is an employee temporarily working in Maryland.


The Department of Treasury has not issued any formal nexus guidance as a result of COVID-19. 

New Jersey

The Division of Taxation has issued guidance waiving nexus as a result of the presence of employees working from home temporarily.  The Division is also waiving the nexus standard for sales tax as long as the seller has no other presence in the state and it does not exceed the state’s economic nexus thresholds.

New York

The Department of Taxation and Finance has not issued any formal nexus guidance as a result of COVID-19. 


The Department of Taxation has not issued any formal nexus guidance as a result of COVID-19. 


The Department of Revenue has issued guidance stating that it will not impose nexus for Corporate Net Income Tax as a result of temporary activities resulting from COVID-19.  The Department’s guidance also applies to sales and use taxes.

West Virginia

The State Tax Department has not issued any formal nexus guidance as a result of COVID-19. 

Companies with employees working remotely should promptly evaluate whether those employees impact the company’s state tax obligations.  An employee suddenly working from home in a new state may not immediately impact state corporate income tax filings until the following year, but the telecommuting employee may result in a contemporaneous obligation to file a sales tax return.  Businesses with telecommuting workers should track and document employees working from home during COVID-19. 

This employee work location information may become critical in determining state tax filings and obligations. 

In addition, when the pandemic or emergency periods end, any temporary nexus waivers issued by state and local governments will expire, and traditional physical presence nexus considerations for income tax and sales tax will remain.  If employees continue to work from home after the pandemic, businesses will need to reevaluate their nexus footprint and should be prepared for more state tax obligations. 

Please consult your state and local tax adviser if you have any questions on telecommuting and state tax nexus.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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