Updated State Implications of Telecommuting during the COVID-19 Pandemic

During the COVID-19 pandemic, many states released guidance addressing employees who are temporarily telecommuting and the creation of nexus or a state filing obligation for the employee or the employer. From an individual income tax perspective, states have taken different approaches for taxpayers temporarily living and working in a different jurisdiction than the location prior to the COVID-19 pandemic.

Since our prior Tax Flashes, additional states that have ruled that telecommuting due to COVID-19 will not create nexus include: California, Maine, Oklahoma, and Oregon. Additionally, Kentucky has ruled that it will evaluate telecommuting issues due to COVID-19 on a case-by-case basis.

States have issued mixed guidance on whether individuals would have a filing requirement, thus potentially causing businesses to have a potential withholding requirement. Some newly issued guidance with mixed results include the following:

• Georgia has taken the position that if an employee is temporarily telecommuting in Georgia, the employee would not be subject to Georgia income tax, and the employer would not have a withholding requirement.
• Vermont has released guidance stating that a nonresident temporarily living and working in Vermont would have an individual income tax filing requirement for income earned in Vermont; however, the employer would not have a withholding requirement.
• Iowa released guidance indicating that an employee temporarily telecommuting in the state would be subject to an income tax filing requirement, and the employer would have a withholding requirement.

Due to the inconsistency in states’ telecommuting guidance pertaining to the pandemic, tax practitioners continue to wait for more jurisdictions to release definitive positions as to the telecommuting implications for businesses and individuals. Each taxpayer’s situation should be evaluated based upon the pertinent facts and circumstances.

States have started to put an end date on their leniency of tax rules due to the pandemic, and this has generally been the end of 2020 or after any particular state’s state of emergency is lifted. As states start to plan alternatives to make up revenue shortfalls in 2020, we would expect many states to put an end to their leniency.

For further assistance, please contact your Marcum State and Local Tax professional to address any questions regarding telecommuting’s effect on nexus or filing requirements, or any other tax matter.

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