Connecticut has enacted legislation designed to protect employers and residents from facing higher tax liabilities because of remote work during the COVID-19 pandemic.
H.B. 6516 became Public Act 21-3 March 10 after Gov. Ned Lamont (D) signed the bill March 4. It passed the General Assembly March 1 with an emergency certification.
The bill’s remote worker provisions apply only for the 2020 tax year and took effect upon the measure’s enactment.
Under the law, Connecticut residents who paid income tax to another state with a convenience of the employer rule in place can obtain an income tax credit for the amount paid to the other state.
The neighboring state of New York has a convenience of the employer rule, which requires a nonresident taxpayer’s income to be sourced to the employee’s physical location while working remotely by necessity, and to be sourced to the employer’s location if the employee is working remotely for convenience.
Connecticut adopted its own convenience of the employer rule in 2018 in response to New York’s rule; the Connecticut rule applies only if the taxpayer’s state of residence has a similar rule.
The new law also provides a credit to residents who have paid income tax to another state that has a law or rule requiring nonresident employees to pay nonresident income tax on income earned while working remotely during the COVID-19 pandemic if the employee was working in that other state before March 11, 2020.
Massachusetts adopted a regulation in October 2020 allowing it to source and tax the income of nonresident workers who would normally work in Massachusetts but are telecommuting because of the pandemic.
New Hampshire — which has no income tax — has sued Massachusetts over the regulation, and Connecticut was among four states that filed an amicus brief in support of New Hampshire, urging the U.S. Supreme Court to hear the case.
Connecticut's new law also protects employers from nexus exposure during tax year 2020 if an employee worked remotely from the state solely because of COVID-19.
The Department of Revenue Services in a March 5 bulletin said it “will not consider the activities of an employee who worked remotely from Connecticut during calendar year 2020 solely due to the pandemic in determining whether an employer has nexus with Connecticut for purposes of all taxes administered by the Department, including withholding taxes, sales taxes, corporation business, and pass-through entity taxes.”
The legislation also made changes to the state’s payment-in-lieu-of-taxes program and prevents the state from placing liens on real property to recover cash or payment for medical assistance provided by state agencies, unless required by federal law.
Evan Hamme, counsel at Pillsbury Winthrop Shaw Pittman LLP, told Tax Notes that because of Connecticut’s budget surplus, signing the bill was really a no-brainer for the governor.
Hamme said it is interesting that Connecticut is continuing to tax New York residents working for Connecticut employers but not Massachusetts residents working for Connecticut employers.
“Taxing the Massachusetts residents would probably be much less of a revenue-raiser for Connecticut, but it may also be because Connecticut is one of the states arguing against the Massachusetts regulation" in New Hampshire v. Massachusetts, Hamme said.
Observing that the bill’s remote worker provisions are limited to the 2020 tax year, Hamme wondered whether similar legislation could be proposed in the next legislative session to address the continuation of work-from-home into 2021.