The New Jersey Division of Taxation has issued guidance about nexus issues arising from teleworking during the COVID-19 pandemic.
The division posted an FAQ on its website May 6, addressing concerns for employers and employees regarding sales taxes, employer withholding taxes, and personal income taxes.
The FAQ follows guidance issued March 30, in which the division said it would temporarily suspend nexus thresholds for employees working from home because of the coronavirus outbreak.
The first question asks whether an out-of-state seller must register and collect New Jersey sales tax if the seller’s employees are working from home in New Jersey because of the pandemic. The division said it will “temporarily waive the sales tax nexus standard which is generally met if an out-of-state seller has an employee working” in New Jersey.
Under the guidance, remote sellers won’t have nexus for sales tax purposes during the temporary suspension period if they haven’t maintained a physical presence in New Jersey — other than having employees work from home in the state — and they fall below the state’s economic nexus thresholds.
Remote sellers are required to register, collect, and remit sales tax in New Jersey if their gross revenue from sales of tangible personal property, specified digital products, or services delivered into the state exceeds $100,000 or if they engage in 200 or more separate transactions during the current or previous calendar year.
The second question asks whether the division plans to issue written guidance to employers about how to source wages of employees who usually work in New Jersey but are or will be telecommuting from an out-of-state home office or might temporarily be relocated to an out-of-state location for work.
The division said the state’s sourcing rules “dictate that income is sourced based on where the service or employment is performed based on a day’s method of allocation.
“However, during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction,” the division continued.
The division said the state has a reciprocity agreement with Pennsylvania that “eliminates wage sourcing issues for these employees as there is agreement to not tax the wages of a resident of the other state.”
Kathleen Quinn, partner at McDermott Will & Emery, told Tax Notes May 7 that from a withholding perspective, the issue is that if an employer located in a state other than New Jersey has employees that are now working remotely in New Jersey because of COVID-19, that employer may have to withhold New Jersey tax from the wages paid to those employees.
“The new guidance does not explicitly address that issue,” Quinn said. “The guidance seems to imply that employees that are working remotely due to COVID-19 will be treated as working in their usual office, but it still remains a bit unclear.”
Norman Lobins of Deloitte Tax LLP said his take on the withholding guidance is that the division is telling employers to continue withholding tax as they typically would and if the amount varies from the actual amount due, “that’s up to the individual paying the tax, not the withholding agent.”
Although he would like the division to address nexus issues related to apportionment, Lobins said the overall guidance from New Jersey is "pretty good."
"It would be great to see other states do something very similar," Lobins added.