June 11, 2020

Telecommuting Nexus: Additional Guidance

By John Bonk, National State & Local Tax Leader & Alex Toback, Staff Accountant, Tax & Business Services

State & Local Tax

This article is an update to a previously issued article on the subject of whether telecommuting is subject to state nexus rules.

Nexus is a connection within a state requiring sales tax or income tax filings. Due to the COVID-19 pandemic, many states have suspended their nexus rules pertaining to employees if telecommuting was forced by an employer in response to the crisis.

Individuals are generally taxed based on where they work. Some states have provided guidance during the COVID outbreak allowing for income to be sourced to employees’ normal working location, rather than their temporary home accommodations.

Since originally reported in our prior Flash, more states have released guidance on nexus and individual income tax withholding due to the COVID-19 pandemic. Generally, states are treating the pandemic as a temporary disaster and will ignore individual withholding for nexus purposes. However, not all states are taking this position, and some states haven’t yet released guidance.

To date, the jurisdictions that have released guidance exempting telecommuting due to COVID-19 from nexus rules include Alabama, the District of Columbia, Georgia, Iowa, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Montana, Nebraska, North Dakota, New Jersey, Pennsylvania, Rhode Island and South Carolina.

“Convenience of the Employer”

It is worth noting that some states have a rule commonly known as the “Convenience of the Employer.” Generally, this rule applies to any employee who resides in a different state than the office location of the employer.

States with “Convenience of the Employer” rule include: Connecticut, Delaware, Nebraska, New York, and Pennsylvania.

In these states, an employee working from home in a state other than that of their employer , but spending some time at the company office, may be considered to have all of his or her income sourced to the company office location. Therefore, no rule change would seem to be required in these states for income withholding since the state withholding has not changed.

For further assistance or questions regarding the telecommuting effect on nexus, please contact your Marcum State and Local Tax professional or contact John Bonk at 954.320.8112 or email John.