Detailed Multistate Development
In the wake of the coronavirus (COVID-19), working arrangements in many businesses necessarily shifted from “in the office” to “work from home (or wherever)". This adjustment created the potential for upsetting a business’s traditional nexus and P.L. 86-272 posture as well as creating possible additional employer withholding obligations by increasing the number of states in which an entity might have employees working on a regular basis. To mitigate some of these issues, about 20 states provided temporary COVID-related relief. Recently, many of these states have rescinded their declarations of COVID emergency, and much of this relief is expiring.
In the corporate income tax area, most states taking action provided a COVID-19 specific “safe-harbor” providing that a state would not assert corporate income tax nexus on a business based on the presence of employees working in the state due solely to COVID-19. Some of these states also extended the safe harbor to cover sales and use tax nexus. Finally, several states indicated that employees in the state temporarily due to COVID would not be considered in assessing compliance with the threshold of P.L. 86-272. Most states linked the expiration of relief to the expiration of the state’s declared state of emergency, or a specific COVID-19 related executive order. In recent months, many of these orders have expired with more expected to drop off in the coming months. The reprieve had expired before July 1 in California, Maine, Massachusetts, and Pennsylvania. Other states with upcoming expiration dates include Iowa (July 25), Maryland (August 15), Oregon (December 31), Rhode Island (August 6) and South Carolina (September 30). Mississippi and Wisconsin tied their relief to the duration of the “national emergency” which is currently set to expire March 1, 2022 unless further extended or rescinded by the President.
Additionally, some states provided COVID-19 specific income tax withholding rules to govern employees temporarily in the state during the pandemic. The guidance was a bit more varied and complex than that in the nexus and P.L. 86-272 area. In some cases, states simply said that if an employee was working in the state temporarily due to COVID-19, the employer need not begin to withhold from such workers. In most cases (e.g., Maine, Maryland, Nebraska, and South Carolina), this guidance expired or will expire along with the nexus guidance as outlined above. Massachusetts, Pennsylvania and Rhode Island each issued guidance or regulations indicating that if a nonresident was employed primarily at a work location in the state, the wages paid to that nonresident should continue to be treated as subject to withholding in the state during the period of the pandemic. This guidance expired in Pennsylvania on June 30, and it is set to expire in Massachusetts on September 13 and Rhode Island on September 15, 2021. Kansas and Missouri which share a metropolitan area border, and both impose withholding obligations based on where the service is performed, each acted to simplify matters for the employer. If an employee previously worked at a primary business location of the employer in the state, but is temporarily working from another state during the pandemic, the employer may choose to withhold to either the state of prior employment or the state of temporary work. The election expired in Missouri in July 19, 2021, and it expires in Kansas on December 31, 2022. With such varied relief and even more varied expiration time frames, taxpayers would be well-advised to periodically review their reliance on the relief rules. For more information on the nexus relief, contact Harley Duncan. For information on the withholding relief, contact Samantha-Jo Marciliano at 212-954-3841.
This Week's Developments