Tax & AccountingApril 24, 2020

Businesses may face unexpected state income tax, even in states where they don’t have physical locations

Businesses with employees working from home because of state Covid-19-related stay-at-home orders likely face corporate income tax nexus in states or territories where they don’t have physical locations.

Why

Employers that now have employees working from home as the result of Covid-19-related stay-at-home orders in states in which they don’t have a physical presence need to be very concerned about taxing authorities now asserting corporate income tax nexus. This nexus requires businesses to file income tax returns and pay income taxes due. Most states have not passed legislation or issued guidance that would give businesses not physically located in their states a pass on these restrictive requirements.

Tax experts have been working closely with state governments and their taxing authorities to convince them to provide relief to businesses and their employees from the nexus rules that are now in play due to Covid-19-related stay-at-home orders issued by states. These orders have resulted in many employees working from home in locations where their businesses do not have physical locations. If these rules weren’t in place, and employees weren’t forced to work from home in these states, these businesses would not have income tax nexus there. However, much of the states’ reluctance to grant such relief is driven by the enormous revenue shortfalls most of them are now experiencing and that will only get more extreme.

To date, Indiana, Minnesota, Mississippi, New Jersey, and North Dakota have formally indicated that they will not assert the nexus based on employees who are working from home due to the COVID-19 pandemic. Please note that this list could change frequently as additional states adopt and officially communicate such provisions.

Unofficially, Pennsylvania’s Department of Revenue and the District of Columbia’s Office of Tax Revenue have said they don't plan to assert nexus because an employee is working remotely as a result of COVID-19 state orders. However, until official guidance in writing is issued, businesses can’t rely on these unofficial verbal statements.

Who

Tax expert and influencer Mark Friedlich, CPA, Esq., Senior Principal, Wolters Kluwer Tax & Accounting North America, is available to discuss issues.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact

To arrange interviews with Mark Friedlich and other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topic, please contact Bart Lipinski.

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