A Connecticut bill designed to protect residents working remotely during the pandemic from double taxation has gained support from the state’s largest business association.
Eric Gjede, vice president of government affairs for the Connecticut Business and Industry Association, submitted testimony to the joint Finance, Revenue, and Bonding Committee in support of section 1 of S.B. 873, which would address uncertainty related to “convenience of the employer” rules by allowing any Connecticut resident who has paid income tax to another state with a convenience rule to obtain an income tax credit.
The committee held a hearing on the bill February 16. The bill, which is backed by Gov. Ned Lamont (D), would also address a three-tiered grants-in-lieu-of-taxes program and the removal of tax liens on the property of public assistance beneficiaries.
Regarding the remote work issue, S.B. 873 would provide 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.
The bill also contains a "hold harmless" provision for employers that would prevent the Department of Revenue Services from considering employees who worked remotely during the tax year solely because of the COVID-19 pandemic for purposes of determining if an employer has nexus with the state.
Gjede said S.B. 873 “will help provide some clarity in the near term for employers and employees. Under this bill, employees can pay their taxes in the state they normally would have had there been no pandemic. If the employee formerly commuted across state lines, they remain eligible for a corresponding credit against their Connecticut income tax liability.”
“It is our understanding that it is the intent of the committee to limit this relief measure to the 2020 tax year. We submit this testimony in support of S.B. 873 as a temporary mechanism to prevent Connecticut citizens from double taxation. We applaud the committee for their efforts to provide clarity on this issue until a more permanent resolution is provided by the courts,” Gjede said.
The bill would help address a long-standing feud between Connecticut and New York over the latter's convenience of the employer rule, which has become a larger issue because of the COVID-19 pandemic. In response to New York’s convenience rule, Connecticut adopted its own rule, which took effect in 2019. Connecticut’s rule is different in that it applies only to other states with convenience rules.
New York issued telecommuting guidance that requires nonresident employees who are teleworking to pay income taxes to the state, which affects Connecticut residents who normally commute to offices in New York.
Typically, workers would have to pay tax in Connecticut for the time they worked in Connecticut.
The bill would also protect Connecticut residents from being taxed twice on income from employers located in Massachusetts, which has a regulation allowing it to source and tax the income of nonresident workers who would normally work in Massachusetts but are telecommuting because of the pandemic.
Connecticut is among the states that have urged the U.S. Supreme Court to take up New Hampshire v. Massachusetts, in New Hampshire’s dispute with Massachusetts over the regulation.
New Hampshire, which does not have an income tax, is arguing that the Massachusetts reg violates the commerce and due process clauses by taxing New Hampshire residents for work performed entirely in-state.