- What is traditional nexus?
- Learn more about Congress’s position on nexus.
- Discover how Indiana is addressing nexus rules due to COVID-19.
- Learn how Massachusetts is revising its nexus rules due to COVID-19.
- Find out how Oregon is handling COVID-19-related nexus issues.
- Learn how South Carolina regards nexus due to COVID-19.
Ever since the coronavirus pandemic began impacting the United States, businesses around the country have responded by instituting work-from-home policies. While it’s unclear how long we will remain in the crisis, social distancing is likely to remain for many organizations. Some of the country’s most recognizable brands, including Facebook and Google, have already announced a work-from-home option that will extend through July 2021, for all of their employees. Meanwhile, others have made the ability to work remotely permanent.
As more and more organizations let their staff work from home, permanently or long-term, they must consider nexus. This is especially true as state governments begin to address work-from-home employees in terms of nexus rules and tax revenue.
Traditionally, a state establishes a tax obligation when a business has a physical presence within its borders. That is what creates nexus. If a Floridian goes to New York for a temporary job, they must pay income tax in NY for money they earn there. And if a California company places employees in Texas, the company must follow Texas laws and pay Texas sales tax.
New York’s Governor Andrew Cuomo explicitly continued that practice when COVID-19 struck, making temporarily remote employees in New York liable for state income tax. However, several states (including Massachusetts and Pennsylvania) made clear that the virus-related remote work would not trigger nexus obligations, at least until official work-from-home orders or states of emergency lasted. As mandates lift but companies still allow or enforce work from home, states must reconsider their position.
Fiducial provides guidance below regarding Congress’ stated position thus far regarding nexus. Additionally, we offer the position of several states that have published their position.
While not every state has begun to address the tax ramifications of working-from-home due to COVID-19, Congress has. On July 27th, 2020, they introduced new legislation aimed at limiting the amount of state income tax charged on income earned in one state to residents of another state. The proposal revises Section 403 of the American Workers, Families and Employers Assistance Act (S. 4318), which says in part:
“No part of the wages or other remuneration earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction shall be subject to income tax in any taxing jurisdiction other than: (A) The taxing jurisdiction of the employee’s residence, (B) Any taxing jurisdiction within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.”
The revision would extend the 30 days in part (B) to 90 days for calendar year 2020 “in the case of any employee who performs employment duties in any taxing jurisdiction other than the taxing jurisdiction of the employee’s residence during such year as a result of the COVID-19 public health emergency.”
Indiana Addresses Nexus Rules Following COVID-19
The Indiana Department of Revenue recently posted information regarding the intersection of nexus and COVID-19 on its website. Their post indicated that they would “not use someone’s relocation, that is the direct result of temporary remote work requirements arising from and during the COVID-19 pandemic health crisis, as the basis for establishing Indiana nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporary relocated employee.”
Despite this assurance, the department went on to explain that nexus could be established for an out-of-state employer if their employee “remains in Indiana after the temporary remote work requirement has ended,” and that the employer could not “assert that solely having a temporarily relocated employee in Indiana [due to an official work-from-home order or a physician’s order related to a COVID-19 outbreak or diagnosis] creates nexus for the business or exceeds the protections of P.L. 86-272 for the employer.”
If you do business or have employees in Indiana and need more information, visit the Indiana Department of Revenue website.
Massachusetts Addresses Nexus Rules Following COVID-19
The Massachusetts Department of Revenue proactively announced new rules regarding nexus well before the public felt the full weight of the COVID-19 crisis. Their anticipation of the changing landscape has led to them again issuing a statement to preempt any questions about taxation. The department issued rule TIR 20-05 with the intent of minimizing the impact of the COVID-19 state of emergency on employers and employees. It read in part:
“One or more employees working from home solely due to the COVID-19 pandemic will not subject a business to a sales and use tax collection obligation or to the corporate excise by reason of that fact” from March 10 until the conclusion of the state of emergency. That rule has now been revised with the intent of ensuring “that businesses have sufficient time to prepare for the cessation of these temporary rules.”
Massachusetts’ revised guidance
Revised Guidance on the Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic makes clear that TIR 20-05 will be in effect “until the earlier of December 31, 2020, or 90 days after the state of emergency in Massachusetts is lifted. As of that date, the rules set forth in this TIR will cease to be in effect, and the presence of an employee in Massachusetts, even if due solely to a Pandemic-Related Circumstance… will trigger the same tax consequences as under Massachusetts law more generally.”
The new guidelines go on to define a pandemic-related circumstance as including:
- A COVID-19-related government order
- A COVID-19-related remote work policy adopted by an employer in good faith compliance with federal or state government guidance or public health recommendations
- A worker’s COVID-19-related compliance with quarantine, isolation directions relating to a COVID-19 diagnosis or suspected diagnosis, or a physician’s advice.
The new guidance indicates that any business asserting that it qualifies for an exemption based on these definitions will be responsible for substantiating and documenting any evidence supporting their claim. It also states that without that verification the nexus exemption may be denied. If you do business or have employees in Massachusetts and you need more information, visit the website of the Massachusetts Department of Revenuefor more details.
Oregon Addresses Nexus Rules Following COVID-19
While the state of Oregon’s Department of Revenue has provided an exemption of corporate excise/income tax for COVID-19-related teleworking employees between March 8, 2020 and November 1, 2020, the explicit indication of the exemption ending on November 1st makes plain that traditional imposition of nexus will resume on November 2, 2020.
The Oregon Department of Revenue has also clarified how employees temporarily based in the state may affect nexus. The department explains:
“For the purposes of Oregon corporate excise/income tax, the presence of teleworking employees … in Oregon between March 8, 2020 and November 1, 2020, won’t be treated by the department as a relevant factor when making a nexus determination if the employee(s) in question are regularly based outside Oregon.”
Do you do business or have employees in Oregon and need more information? Visit the website of the Oregon Department of Revenue for more details.
South Carolina Addresses Nexus Rules Following COVID-19
Much like the finite period of time that the Oregon Department of Revenue has provided for the suspension of normal nexus rules, the South Carolina Department of Revenue issued its Letter #20-11 which outlines its suspension of establishing nexus, with the southern state’s expiration falling on September 30th, 2020.
If you do business or have employees in South Carolina and need more information, visit the website of the South Carolina Department of Revenue for more details. Your Fiducial representative can also guide you regarding questions of nexus. Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations for more information. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.