Businesses Face Unexpected State Income Tax Nexus Assertions

Nexus trigger: Remote worker location vs. physical business location

What’s changed in the sales compliance world lately? 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 should companies with remote workers be concerned? 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 working with state taxing authorities

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.

Some states providing guidance

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.

Wolters Kluwer Tax & Accounting offers expertise

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

To read the full press release, click here.

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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
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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