09.30.2021 “Sure, You Can Work Remote”……..These Words May Have a Huge Cost………………
COVID has not only seen a migration of employees to remote work but has created a new business model that is here to stay. In the midst of COVID, employers were eager to allow their employees to work from home and maintain a continuity of production. But this migration to remote workplaces has hidden issues that could impact a company’s tax filings for years to come.
In addition to all the HR issues that remote work brings up (including, but not limited to, compliance with state and local laws related to wages, overtime exemptions, paid and unpaid leave, termination pay, etc.), there are hidden tax issues that have surfaced and will continue to surface in the area of remote work.
States were very lenient in the beginning of the COVID work migration (CWM), and jurisdictions allowed employees to move freely between jurisdictions and generally turned a blind eye to the “instant nexus” issues that followed the CWM.
Historically, companies have considered placement of employees in new locations in connection with their tax planning and an exposure analysis. CWM has blown past these considerations, or at least has barely allowed the internal tax department to analyze the CWM. This, along with the majority of jurisdictions being caught up in CWM themselves, has led to employees working from locations never envisioned or planned for by the companies.
As we adjust to the CWM, some jurisdictions are starting to wake up to the new normal and to develop positions on CWM and the tax nexus issues that come with CWM. Massachusetts and New Hampshire are two states that already have come to blows over CWM and tax issues.
While the United States Supreme Court denied cert on the Massachusetts/New Hampshire controversy, the issues raised by the matter are serious topics that every company should review. In the aftermath of the denial of cert, other states have already begun the analysis and have begun issuing guidance. These steps by those jurisdictions should be a big warning sign to companies to review their current employee CWM policies, with both the tax department and HR joining to create a clear, established policy that applies to CWM within the company. This includes tax planning, employment and hiring policies and actual employment agreements.
Tax Issues to Consider:
- Income or franchise taxes
- Sales taxes
- Individual income tax withholding
- Company employment tax
- Specialized employment taxes such as California’s Employment Training Tax and Philadelphia’s Wage Tax
- Local jurisdiction business tax
- Foreign taxes (for those who have chosen to work in more exotic locations)
- Worker’s Compensation
- Unemployment taxes