Stay-at-home orders in effect across the country have forced a large portion of the American work force to work from home. Businesses transitioning their normal operations from an office environment to working from home in employees’ residences could possibly create state income tax nexus that would trigger a state tax obligation that the company would not otherwise have. States are beginning to release guidance stating that temporary telecommuting employees as a result of the COVID-19 pandemic will not create nexus; these declarations are being made as a form of economic relief to employers.
Telecommuting nexus had been a hot-button issue in state taxation prior to the pandemic. Before the pandemic, some states, including Pennsylvania, considered the presence of a telecommuting employee as an income tax nexus-creating activity by an employer.
In order to ease business obligations during these volatile times and in response to the large shift to employees now working from home, many state tax departments have stated that temporary telecommuting employees will not create nexus during the pandemic.
Recently, the Pennsylvania Department of Revenue has stated that employees temporarily working from home as a result of the COVID-19 pandemic will not be a basis by which the Department imposes nexus on taxpayers for Corporate Net Income Tax. The Department released this guidance through their Find Answers page where the Department provides customer service to taxpayers. The Department will likely be releasing formal guidance on the issue in the upcoming weeks.
Pennsylvania joins Mississippi, New Jersey and the District of Columbia, which are proactively relaxing their enforcement of nexus created by temporary telecommuting employees. It is likely that additional states will continue to issue guidance with similar treatment. The Tax Advisors at Schneider Downs will continue to monitor these developments.
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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.