August 14, 2020

How COVID Affects Nexus and Sourcing: Metropolitan New York City

By Caroline McGann, Supervisor, Tax & Business Services

How COVID Affects Nexus and Sourcing: Metropolitan New York City Coronavirus Resource Center

Nexus can be created for income tax purposes by physical presence, including both tangible and intangible assets, as well as employees. In most states, having a minimal number of telecommuting employees conducting non-solicitation activities is enough to create nexus. In many of these states, a single telecommuting employee would create nexus if he/she is performing back-office or product development roles. As a result of the pandemic, many employees have been required to work from home, which may not be in the same city or state as the company.

New Jersey

As a result of the COVID-19 pandemic, the New Jersey Division of Taxation has temporarily waived the sales tax and corporation tax nexus standards. Generally, both standards are met if an out-of-state seller has an employee working in New Jersey. If the out-of-state seller did not maintain any physical presence in New Jersey, with the exception of employees working from home, and is below the economic thresholds, the New Jersey Division will not consider the out-of-state seller to have sales tax nexus in New Jersey.

New Jersey sourcing rules dictate that income is sourced based on where the service or employment is performed, utilizing a daily method of allocation. Due to the COVID-19 pandemic, wages will continue to be sourced as determined by the employer’s jurisdiction. For example, if an employee generally works at an office in New Jersey, he or she will continue to have New Jersey-sourced income, even if telecommuting from a different state.

New York

The New York Senate introduced a bill on May 21, 2020, which authorizes a business to designate work performed remotely, due to the COVID-19 pandemic, to have been performed at its normal work location for state and local tax purposes, for the period March 7, 2020, through September 7, 2020. The Senate has indicated that the purpose of this bill is to make it less complex for employers to report wages, rather than the possibility of reporting wages to various jurisdictions during the emergency six-month period. Without this law, wages would need to be sourced to the location of performance in various jurisdictions. The bill implies that since working from home due to COVID-19 is required and not for the employee’s convenience, the bill would override the “convenience rule.” The bill is currently in committee.


Connecticut still has not issued guidance at this point.

Other States

The following other states have issued guidance waiving business tax nexus associated with remote work due to the COVID-19 pandemic: Minnesota, Maryland, Massachusetts, Mississippi, Indiana, Georgia, Rhode Island, Alabama, Ohio, South Carolina, Iowa, Washington D.C., Pennsylvania, North Dakota and Illinois.

It is expected that more states will issue guidance later in the year.

For questions related to how to source business income related to employees’ work locations, contact your Marcum tax advisor.