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

As we move forward with re-opening certain parts of the country, state and local governments continue to issue guidance on tax matters stemming from COVID-19. In Georgia, the Department of Revenue, in an FAQ, announced that the temporary relocation of employees will not establish Georgia nexus or cause an employer to exceed the protections provided by P.L. 86-272. Moreover, wages earned by employees while temporarily working in Georgia will not be considered Georgia income for withholding tax purposes. If any person remains in Georgia after the remote work requirements has ended, the normal rules for nexus and withholding obligations will apply. Note, however, that wages paid to persons who normally work in Georgia, but are now working in another state, will still be considered Georgia wages. Similarly, the Alabama Department of Revenue announced it will not change withholding requirements for businesses based on an employee’s temporary telework location within Alabama that is necessitated by the pandemic. Alabama will also not consider temporary changes in an employee’s physical work location to impose nexus or alter apportionment of income for any business.

At least two states issued guidance on the tax treatment of certain federal payments designed to help ailing businesses. The Montana Department of Revenue announced that forgiven Paycheck Protection Program (PPP) loans will not be included in gross income and are not taxable. Moreover, the business expenses offset by the loan amounts are not deductible business expenses for Montana tax purposes. In other words, Montana will follow the current IRS notice (Notice 2020-32) providing that such expenses cannot be deducted. Similarly, the Washington Department of Revenue announced that businesses receiving federal assistance (including PPP loans) should not report amounts received as gross receipts and should not pay B&O tax on such assistance. The Department notes that it will delay any final decisions on the taxability or enforcement actions relating to the assistance until after the Legislature has the opportunity to act.

With many employees working remotely, the Pennsylvania Department of Revenue will temporarily waive the wet signature requirement for certain tax returns. This waiver applies to tax returns that cannot be submitted electronically, such as the Gross Premiums Tax and the Mutual Thrift Institutions Tax. In place of a wet signature, a corporate officer should write COVID-19 on the signature line to authenticate the filing of the return when the corporate officer is unable to sign and date the return.

Also, as states and localities require heightened use of face coverings, issues might arise as to the taxability of face masks.  In Massachusetts, the Department of Revenue reminds companies that they will need to collect tax on sales of masks, unless sold to non-profit organizations. If a person purchases a scarf or bandana to use as a face covering, those items are considered clothing and will not be taxed, unless the purchase price of an individual item is more than $175.00.  Purchases of apparel fabric are also not subject to Massachusetts sales tax. In Vermont, the taxability of a face covering will depend on the type of covering sold. Those masks that are therapeutic in nature, normally used by ill or injured people and that are not capable of reuse, are exempt from tax. However, breathing masks and face shields that are used in nonmedical settings are taxable as protective equipment. Clothing, including scarves, is exempt from Vermont sales tax.

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.