Detailed Multistate Development
Since the start of the pandemic, many states have issued guidance for employees (and their employers) who have been forced to work from home due to the pandemic. Questions have arisen over whether an employee who regularly worked in a state other than the state of his or her residence pre-COVID-19 would continue to be taxed (and have state tax withheld) in the state where they previously conducted their work. Just recently, the New York Department of Taxation and Finance issued a FAQ addressing whether telecommuting employees whose primary place of work pre-COVID was New York will continue to be subject to New York tax on income earned if they are working outside New York during the pandemic. New York has historically applied a “convenience of the employer” test to determine the sourcing of income earned by an employee with a regular place of employment in New York who is telecommuting from home in another state or otherwise not working in New York. Under that test, days spent by an employee working from home or elsewhere for their own convenience are treated for tax purposes as New York work days. If the employee’s work outside New York is required by the employer, that day is not counted as a New York work day. The Department noted in the FAQ that if a New York nonresident’s primary office is in New York State, the days telecommuting during the pandemic are considered days worked in New York unless the employer has established a bona fide employer office at the telecommuting location. This means that days worked in New Jersey, Connecticut or elsewhere as a result will be considered New York work days and the income therefrom will be sourced to the New York office to which the employee is primarily assigned. Based on the FAQ, it does not appear the state has changed its policy to account for the period that began in mid-March when, by governors’ orders, non-essential workers were by law not allowed to commute into a New York office.
Along the same vein, Massachusetts finalized a regulation (830 CMR 62.5A.3) generally providing that compensation received for 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 is performing services from a location outside Massachusetts due to a pandemic-related circumstance will continue to be treated as Massachusetts source income subject to personal income tax and personal income tax withholding. The regulation is effective through the earlier of December 31, 2020 or 90 days after the Massachusetts governor ends the Massachusetts COVID-19 state of emergency. The state of New Hampshire has filed suit with the U.S. Supreme Court challenging the Massachusetts regulation, arguing in part that taxing New Hampshire residents who are no longer traveling to Massachusetts for work challenges the state’s sovereignty.
Maine Revenue Services issued a Tax Alert addressing various tax issues associated with COVID-19. For tax years beginning in 2020, Revenue Services will not consider the presence of one or more employees in Maine who commenced working remotely from Maine during the state of emergency and due to the COVID-19 pandemic, to establish, by itself, corporate income tax nexus or to constitute substantial nexus for sales and use tax registration and collection purposes. The Alert also addresses withholding and states that Maine income tax withholding for wages paid in 2020 to a Maine resident suddenly working in Maine due to a state's COVID-19 state of emergency, will continue to be calculated as if the Maine resident were working outside the State. Please stay tuned to TWIST for future COVID-19 related state tax updates.
This Week's Developments