The South Carolina Department of Revenue has announced temporary relief from teleworking nexus and income tax withholding requirements.
In a May 15 information letter, the department said it will provide relief from March 13 to September 30 for teleworking changes caused by the COVID-19 pandemic and won’t “use the temporary change of an employee’s work location during the [relief period] to impose a South Carolina withholding requirement under Code Section 12-8-520.” However, the relief won’t apply to workers whose status changes from temporary to permanent during that time frame.
Under South Carolina law, businesses in the state are required to withhold income tax on the wages of residents and nonresidents who work there.
Under the guidance, a South Carolina’s business’s withholding requirements won’t be affected by employees who are teleworking from a location outside the state during the relief period. Therefore, "the wages of nonresident employees temporarily working remotely in another state instead of their South Carolina business location are still subject to South Carolina withholding," the department said.
The information letter explains that under South Carolina law, wages of state residents who are working in another state aren't subject to South Carolina withholding if the wages are subject to withholding in the state where they are earned and the employer is withholding income taxes on behalf of the other state.
The department said that during the relief period, "an out-of-state business is not subject to South Carolina’s withholding requirement solely due to the shift of employees working on the employer’s premises outside of South Carolina to teleworking from South Carolina."
Thus, "the wages of a South Carolina resident employee temporarily working remotely from South Carolina instead of their normal out-of-state business location are not subject to South Carolina withholding if the employer is withholding income taxes on behalf of the other state."
Charlie Kearns, partner at Eversheds Sutherland (US) LLP, told Tax Notes May 21 that overall the withholding guidance provides employers more certainty than some other states' guidance, "both as to the application of the policy and the specific dates to which it applies."
However, Kearns said that although the guidance generally provides that an employer's South Carolina withholding obligations don't change solely because of teleworking caused by the pandemic, "there is an exception for certain South Carolina residents who currently are not subject to another state’s withholding during the pandemic."
"And, as expected, business activities unrelated to teleworking caused by the pandemic are not covered by the guidance. The South Carolina approach follows the plurality of states that have issued COVID-19 withholding guidance, including Georgia, Massachusetts, and others," Kearns said.
The department said it will not use changes “solely in an employee’s temporary work location due to the remote work requirements arising from, or during, [the relief period] as a basis for establishing nexus or altering apportionment of income.”
The relief as it relates to establishing nexus would also be for purposes of P.L. 86-272, the Interstate Income Tax Act of 1959, according to a footnote.