COVID 19 has turned the whole world around on its head. Requirements of social distancing, sanitization, and crowd minimization have led to a lot of companies continuing to practice work from home policies, even though businesses are opening up. Google in fact has announced that its work from home policy is likely to continue till July 2021. Employees are mostly working from their homes in various states in the USA, irrespective of the location of their corporate office. In other words, telecommuting. This naturally raises the question – do these corporates now have state withholding and unemployment obligations in all the states where their employees work from? Do these corporates also have income and sales tax obligations in said states?
One needs to examine “Nexus” rules. A “nexus” is created by an out-of-state corporate when the company has the requisite minimum contacts with the state that allows the state to charge income tax or collect sales tax. It is already a decided question in jurisprudence that physical presence is not the only way to meet the required minimum contacts threshold/standard. So given the current scenario, how will these rules be interpreted or applied?
Some states have released guidance on this question but the guidance issued differs in scope and applicability from state to state. New Jersey, for example, has made it very clear that no state withholding will be required for employees working from NJ homes due to the Pandemic. It will also hold its sales tax (based on nexus) rules in abeyance temporarily. Maryland on the other hand has always required state withholding for any employee working from Maryland based on physical presence criterion. Sales tax will be decided on a case to case basis. Most other states have stated that telecommuting due to the Pandemic will not attract “Nexus” rules.
Most states though have been quiet on the question of Income Tax. However, 27 states have provided various tax relief measures to out-of-state corporations carrying our disaster recovery in these states. They are exempt from registering with the state and withholding state income taxes during the currency of the Pandemic/disaster. As the Pandemic scenario continues to unfold, we will possibly see more guidelines and rules being released by states on the various questions being asked.