The COVID-19 pandemic was difficult for individuals and businesses alike. Even state government authorities took a financial hit during the pandemic. As a result, tax experts predict states will take action to recoup lost revenue, most likely through the use of audits. One likely target: remote workers.
The pandemic changed how we work by allowing employees the option to work from home and flexible working schedules. The ability to work remotely gave workers more options on where to live. For some, this meant leaving the state.
Why would employers need to pay taxes to other state taxing agencies?
When the workers are in another state, there is a “physical nexus” or clear connection between that business and the state the employee is located. As a result of this connection, the employer could find themselves responsible for income, gross receipt, sales and use taxes in that state.
Some states have waived the business nexus due to the pandemic, but not all. Failing to meet state tax obligations can come with steep financial penalties, penalties that often increase with every passing month that the business fails to address their bill.
Isn’t this the employee’s responsibility?
These rules will impact employees as well, but employers will also face scrutiny and potential tax obligations. Employers would be wise to understand how these rules impact their workers. In New York, the Convenience of the Employer rule basically means that any employee of a New York company, regardless of where they are working, can face New York tax obligations. This means a New York business that operates purely remotely and has workers throughout the country could put their workers at risk of double taxation — of having to pay income tax in their home state as well as New York.
These are just a few of the reasons business leaders are wise to review the location of their employees and prepare for any potential tax obligations. The attorneys at Goldburd McCone can review your situation and discuss your options.