May 14, 2020
Hiring remote workers has been known to carry state tax implications (e.g employment, sales/use, and income tax) particularly if your remote employees are hired in another state from where your business is operating.
This presents an interesting concern for businesses that have virtual workers during the pandemic as many workers are fully remote during varying shelter-in-place orders. While many states are silent as to the impact this may have on the taxpayer, some states have started to issue guidance on how to consider the tax consequences, especially as it relates to income tax nexus and state tax withholding.
Georgia released a statement on May 11, 2020 that temporary remote workers will not establish nexus as a result of COVID-19. This was added to the Georgia Department of Revenue’s FAQ section on Coronavirus Tax Relief.
Georgia’s full statement on nexus and withholding tax information during COVID-19:
The Georgia Department of Revenue has added nexus determination and withholding tax information to the frequently asked questions (FAQs) on Coronavirus Tax Relief. The Department will not use someone’s relocation, which is the direct result of temporary remote work requirements arising from and during the coronavirus (COVID-19) pandemic, as the basis for establishing Georgia nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporarily relocated employee. Also, if the employee is temporarily working in Georgia, wages earned during such time period would not be considered Georgia income, so the company is not required to withhold Georgia income tax. The temporary protections will extend for periods of time when the employee is working at home because: (1) there is an official work from home order issued by an applicable federal, state or local government unit; or (2) pursuant to the order of a physician in relation to the COVID-19 outbreak, or due to an employee’s actual diagnosis of COVID-19. Additionally, the subsequent 14 days are included in the time period to allow for a return to normal work locations. If the person remains in Georgia after the temporary remote work requirement has ended, the normal rules for determining nexus, the employee’s wages, and the employer’s income tax withholding obligation will apply. A company may not assert that solely having a temporarily relocated employee in Georgia, under the circumstances described above, creates nexus for the company or exceeds the protections of P.L. 86-272 for the company. Wages paid to a nonresident employee that normally works in Georgia but who is temporarily working in another state, under the circumstances described above, would be considered Georgia wages and the employer should continue to withhold Georgia income taxes. (Coronavirus Tax Relief FAQs, Ga. Dept. Rev., updated 05/01/2020.)
This is similar to a few additional states and taxing jurisdictions that have released guidance stating they will provide nexus relief if their teleworking employees are virtual due to COVID-19 including District of Columbia, Indiana, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, North Dakota, Pennsylvania, and South Carolina.
While Georgia, along with these other states, has announced the remote workforce during the work-from-home order will not create nexus for state tax purposes, it is important to note that once the crisis passes and stay-at-home orders are lifted, the state will likely impose nexus upon taxpayers who continue to have employees telecommuting unless they qualify under another exemption provided by the state.
For assistance with state nexus and other state and local tax services, email Tim Clancy.