Nexus Tax Trials and Tribulations of a Remote Workforce
By Barbara Ashorn CPA , MST Shareholder , Doeren Mayhew
The COVID-19 pandemic has changed nearly every aspect of traditional business operations – managing the workforce included . Prior to the pandemic , working from home was a limited perk employees relished in for many businesses . Enter 2020 . The abrupt and widespread adoption of government-mandated closures , stay-at-home orders and social distancing requirements shifted remote working to the norm for millions of Americans . The rise in teleworking has led to many employees working across state lines , leaving businesses vulnerable to an entirely new set of nexus elements .
Exposed to The Elements A remote workforce has a significant impact on a company ’ s nexus footprint , often without them even realizing it . In general , businesses with employees working remotely would create nexus and subject the business to taxes imposed by that state , such as income , gross receipts , franchise , and sales and use , based on the presence of the employee and not a physical location .
Nexus rules are established by individual states and every state defines them uniquely – only increasing the ambiguity for employers . Many states have released temporary guidance on the treatment of personal income tax , business tax nexus and corporate apportionment as a result of the increased remote workforce due to COVID-19 . However , there are still many that have remained silent to this point – furthering employer confusion and apprehensiveness about their potential tax liabilities . In these instances , one must assume regular nexus tax requirements apply .
Today , just about 40 % of the states have provided temporary relief to businesses with the suspension of corporate income tax and / or sales and use tax nexus thresholds . This allows employers who would otherwise not have nexus in the state to avoid additional tax liabilities while dealing with remote employees during the pandemic . In some instances , states are extending these graces through the middle of 2022 , while others will uphold them for the duration of their state of emergency .
When it comes to income tax withholdings , employer obligations remain unchanged . Wages paid to nonresident employees is still considered income and is subject to payroll withholdings .
12 VIEWpoint Issue 1 | 2021