State Tax Implications of Remote Work

COVID has impacted the business world in many ways. One of the most noticeable ways has been the increase in remote work. While companies were busy determining the technological capabilities required for remote work, the related tax implications may have been overlooked.

Generally, for a state to have jurisdiction to tax a taxpayer, various nexus requirements must be met. A common state nexus trigger is a taxpayer having employees that work in said state. An increase in remote workers tends to increase a company’s nexus footprint. Many taxpayers may not realize that by simply allowing remote work, they have now opened themselves up to tax filing requirements with taxing authorities that previously did not have any jurisdiction to tax the taxpayer.

While income taxes are typically the first tax thought of when discussing taxes, many other taxes can be impacted by remote work. Franchise, sales and use, and payroll taxes are other types of taxes that can be impacted by remote workers and the related nexus triggers. A few states initially offered temporary relief from taxation due to remote workers, but this relief quickly expired, and, in almost all cases, was not renewed.

Another common occurrence is workers, with their newfound freedom of remote work, relocating their abode to a new state. Often times, this is to live somewhere with a lower cost of living or, for younger workers, moving back in with their parents. With this, a company can find itself needing to change the state to which tax withholdings and unemployment contributions are contributed.

For any company that has seen an increase in remote work over the last few years, it would be best to revisit their state tax approach. Often times, a complete reevaluation is necessary to be sure all filing obligations are being met. Determining if nexus requirements have been met is typically no easy feat. It is best to involve a professional that sees this type of work on a daily basis.