From a business perspective, there have been some guidelines issued for businesses to follow. Some states have provided relief and have said that the presence of an employee working in a state due to shelter-in-place restrictions will not create nexus for tax purposes in that state. Some states provided a temporary safe harbor or waiver from state withholdings and tax liability for remote work in a different state during the pandemic. And still others have provided that they will not use someone's relocation during the pandemic as the basis for exceeding the de minimis activity that the business can have in the state without it becoming a taxable issue for them.
Massachusetts in particularly has provided corporations tax relief in situations in which employees work remotely from Massachusetts due solely to the COVID-19 pandemic to minimize disruption for corporations doing business in Massachusetts. Massachusetts has indicated that they will not change the intent of whether or not an employee who has started to "work" in Massachusetts because that is their home (i.e., causing a company situated in another state that now has an "employee" working in the State of Massachusetts) to be subject to Massachusetts corporate tax. These rules are intended to be in place for Massachusetts until 90 days after the state of emergency is lifted.
For individuals, employees that had normally worked in Massachusetts, but are now working at home that is in a different state, Massachusetts has stated that since this is for pandemic-related circumstances, they will continue to be treated as performing the service in Massachusetts and subject to Massachusetts individual taxes. Most states (but not all) have adopted similar sourcing rules. Most of these rules are/were for the year 2020. However, some states are still under the same rules and guidelines and this will continue during 2021.
The intent for most states is to minimize any tax impact for both employees and employers if an employee's work location has changed solely due to the COVID-19 pandemic.
However, there is one state who has decided that the Massachusetts provisions are unfair to its residents. Prior to the pandemic, New Hampshire's southern border saw a steady stream of workers heading into Massachusetts on a normal working day. With the pandemic and the stay-at-home orders, a lot of these employees converted to working at home at their residence in New Hampshire, which does not have an individual income tax. Therefore, with Massachusetts indicating that these wages were still going to be considered Massachusetts wages and therefore taxable, the Governor of New Hampshire felt this was unfair to their residents and has filed a lawsuit in the United States Supreme Court over Massachusetts' "unconstitutional tax grab." Governor Chris Sununu of NH has stated "Massachusetts cannot balance its budget on the backs of our citizens and punish our workers for working from home to keep themselves, their families and those around them safe." This was filed in October 2020. Stay tuned.
Remote working becomes even more complicated when employees tele-commute in a different state from which they typically work, and this will begin to impact the employee's eligibility for local leave (i.e., sick leave).
As the pandemic continues, and some states having ending dates for some of these relief provisions, employers may continue to have employees who work remote, either by choice or convenience. The taxability of which state the wages should be taxed in will need to be re-visited by employers and employees.
