Multistate: More States and Localities Respond to COVID-19 Issues

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This week, two more states issued guidance on having employees working from home due to COVID-19.  The Massachusetts Department of Revenue issued a comprehensive Technical Information Release (TIR 20-05) addressing the tax implications of employees working remotely due to the COVID-19 pandemic. In the TIR, the Department confirms that for the duration of the Massachusetts COVID-19 state of emergency, it will not consider the presence of one or more employees working remotely from Massachusetts solely due to the COVID-19 pandemic to be sufficient in and of itself to establish corporate nexus. In addition, such presence will not, of itself, cause a corporation to lose the protections of Public Law 86-272. The Department provided similar guidance for sales and use tax nexus purposes. The Massachusetts Department of Revenue also issued an emergency regulation addressing non-residents telecommuting due to COVID-19.  The regulation provides that all compensation received for personal services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency, was an employee engaged in performing such services in Massachusetts, and who during such emergency is performing such services from a location outside Massachusetts due solely to the Massachusetts COVID-19 state of emergency, will continue to be treated as Massachusetts source income subject to personal income tax and personal income tax withholding.

The North Dakota Tax Commissioner issued two FAQs addressing the corporate income tax consequences of employees telecommuting from locations within North Dakota. The Department’s position is that if the telecommuting is attributable to a COVID- related response and is intended to be temporary, North Dakota will not assert income tax nexus on that basis alone. Likewise, if an employee whose payroll would normally be assigned to another state is telecommuting from a North Dakota location, the state will not require that payroll to be included in the numerator of the payroll factor.

In other tax news, Wisconsin and Montana each addressed certain aspects of the recently-enacted federal CARES Act. Montana issued guidance on NOL and other changes in the CARES Act.  In the guidance, the Department confirmed that for corporations, Montana adopts the changes to Section 163(j) and qualified improvement property, but that the NOL changes apply for individual taxpayers only. In Wisconsin, a proposed guidance document addresses Wisconsin Act 185, which conforms Wisconsin law to certain aspects of the CARES Act. For business taxpayers, the state adopts the change in classification for qualified improvement property retroactively to taxable years beginning on or after January 1, 2018. As a result, if persons amend their federal income tax returns, they must amend their Wisconsin tax returns to recompute depreciation on the qualified improvement property. However, Wisconsin does not adopt bonus depreciation.

The Nebraska Department of Revenue issued a General Information Letter (GIL 29-20-1) addressing the effect of COVID-19 on taxpayers that have earned tax incentives under the Nebraska Advantage Act (NAA).  A taxpayer that has a NAA incentive project is required to maintain a minimum level of employment and investment; otherwise, the project is subject to recapture provisions, and all or a portion of the benefits will need to be paid back to the Department. To avoid recapture, a project holder must show that a triggering event occurred and that the triggering event caused the failure to maintain employment and investment.  Because President Trump declared COVID-19 as a national emergency, the Department considers this pandemic to be a triggering event.  A project holder must show that the national emergency was the cause of the failure to maintain employment and investment and that the failure was the direct result of forces beyond its control.

In addition, this week certain states continue to refine guidance on tax payment and return due dates. To read about the 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.