Multistate: States and Localities Continue to Respond to COVID-19 Tax Issues

This past week, many states and localities continued to issue guidance on extensions of time to file and pay upcoming state and local taxes.  In addition, a few states are starting to speak out on other tax issues resulting from COVID-19.  Two states- Pennsylvania and Indiana- issued guidance generally advising taxpayers that having employees working from home during the COVID-19 crisis will not create nexus for the employers. In Pennsylvania, a FAQ provides that as “a result of COVID-19 causing people to temporarily work from home as a matter of safety and public health, the Department will not seek to impose CNIT nexus solely on the basis of this temporary activity occurring during the duration of this emergency.”  Also in a FAQ, the Indiana Department of Revenue responded that it will not use someone's relocation, which is the direct result of temporary remote work requirements arising from and during the COVID-19 pandemic health crisis, as the basis for establishing Indiana nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporary relocated employee. The temporary protections provided under this guidance will extend for periods of time where:

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 actual diagnosis of COVID-19, plus 14 days to allow for return to normal work locations.

If the person remains in Indiana after the temporary remote work requirement has ended, nexus may be established for that employer. Likewise, an employer may not assert that solely having a temporarily relocated employee in Indiana under the circumstances described above creates nexus for the business or exceeds the protections of P.L. 86-272 for the employer. Finally, Illinois and Washington State issued guidance on the tax consequences of selling alcohol to make hand sanitizer.  

States are also beginning to recalibrate their revenue forecasts to account for the impact of the COVID pandemic on the state fiscal situation. The Maryland Comptroller, for example, released figures on April 10 indicating that the cumulative revenue drop compared to earlier estimates for March – June could reach $2.8 billion or about 15 percent of what was originally expected for all of FY 2020 when the General Assembly convened in January. The bulk of the potential drop was attributable to income and sales taxes where the data show that the state could see a loss of as much as 22 percent of its normal withholding tax revenue and as much as 59 percent of its sales tax revenues, if stay at home orders remain in place through June. In Vermont, the Joint Fiscal Office is expecting state general fund receipts for the March – June period to decline by 10 percent because of reduced economic activity from what would have been expected in that period. In addition, about 25 percent of the revenues expected in that period will be shifted out of FY 2020 to July because the state is allowing the extension of certain income tax and other payments until July 15, 2020. The South Carolina Board of Economic Advisors on April 9 revised its FY 2020 General Fund estimate down by just over $500 million (5.1 percent) from a forecast originally prepared in February of this year. Sales tax receipts were projected to fall short of the February forecast by about 3 percent while individual income taxes would be lower by 7.3 percent. For FY 2021, overall receipts are expected to be off the February forecast by 6.3 percent, with sales and individual income taxes dropping from the earlier projection by 4.8 and 8.7 percent, respectively.

To read about recent state and local tax guidance on extensions in response to COVID-19, please click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.