While telework requirements are in place during the COVID-19 pandemic, the Tax Executives Institute is asking states to allow businesses the option of using the employer’s work location for payroll withholding, nexus, and apportionment purposes.
TEI included the recommendation in a March 25 letter to the Federation of Tax Administrators, the National Conference of State Legislatures, and the Multistate Tax Commission. The organization is proposing six steps that state and local governments can take to provide tax administration and filing relief during the pandemic. “Additional letters will be sent to each state tax agency so they can consider the proposals we are suggesting to alleviate the COVID-19 disruption,” said TEI Tax Counsel Pilar Mata.
Whether as a result of governors’ executive orders or through voluntary business decisions, many portions of the workforce are now working remotely, including employees who live in jurisdictions other than their employer’s work location.
Practitioners started sending out client alerts about the possible resulting state tax issues the week of March 16 after employers on the West Coast — the early focal point of the U.S. outbreak — required telework by their employees. For example, employees of a Washington business who are now telecommuting from Oregon could create nexus for their employer, making the company liable for Oregon’s corporate income tax and corporate activity tax. And Oregon businesses with employees working from home in Washington could now have nexus with the state and be required to pay Washington's business and occupation tax.
TEI also recommended that states delay all sales and use tax, property tax, and income and franchise tax filing and payment deadlines. It is asking state and local governments to extend by at least 60 days the filing and payment deadlines for sales and use taxes, gross receipts taxes, and property taxes. The organization recommends that income and franchise filing and payment deadlines be delayed until at least 30 days after the federal income tax filing date, which is now July 15 for tax years ending December 31. Federal taxable income is the starting point for determining state taxable income, and many items making up federal taxable income must be modified for state purposes, TEI said.
TEI is also calling for those state and local governments that require written checks for tax payments to allow electronic fund transfers, and it asks for electronic signatures by those state and local governments that require original signatures to execute waivers and other tax documents.
Finally, TEI asked that states provide extensions for audit and protest matters. The request came the same day that the IRS announced that it would suspend some enforcement and compliance activities from April 1 through an initial July 15 end date.