The COVID-19 pandemic has had a profound impact on, well, nearly everything, including businesses, individuals, and CPAs grappling with its effects upon state and local taxation. Under the federal guidelines (“The President’s Coronavirus Guidelines for America”) and state stay-at-home executive orders (e.g., New York’s “Pause,” Executive Order 202.6), social distancing has become our “new normal.” And with it, nonessential businesses have been shuttered across the country, travel has been discouraged, and large segments of the economy have transitioned to teleworking, almost overnight.

As millions of workers have settled in to new routines, CPAs and state taxing authorities alike should consider the potential state tax implications of an entire workforce shifting, suddenly and perhaps for a long time, to a telework model. Significant complexities affecting multiple layers of state taxation could arise absent state intervention or proper tax planning. This article will highlight several issues for consideration, rising from the pandemic, that tax professionals need to be cognizant of.

Nexus Considerations

With employees no longer working at their assigned office locations, businesses should evaluate their new footprint. Are employees working across state lines beyond the company’s pre-pandemic boundaries? If so, businesses should consider whether the presence of those employees could trigger physical presence nexus in new jurisdictions.

It is generally accepted that telecommuting employees can create nexus on behalf of a foreign corporation for income tax purposes. For example, in 2012 a New Jersey court decided that one employee working full-time from her home in New Jersey developing software code for her employer in Maryland was sufficient to create nexus [Telebright Corp. v. Director, 38 A.3d 604 (NJ Sup. Ct., App. Div.) (2012)]. What happens if an employer’s entire workforce is redeployed to multiple locations, including new states, other than the employer’s workplace? This could potentially create a host of costly new tax compliance obligations and inequities.

Several states (although significantly less than half) have begun to consider these issues and have released guidance providing some degree of relief. New Jersey, for example, was quick to issue guidance indicating that it will temporarily waive corporate income tax nexus thresholds as a result of telecommuting due to COVID-19 [“Tele-Commuting and Corporate Nexus,” Mar. 30, 2020,]. Similarly, Minnesota has issued an FAQ indicating that it will not seek to establish nexus for any business tax solely because an employee is temporarily working from home due to the pandemic ( The District of Columbia has also issued a notice stating that it will not seek to impose corporation franchise tax or unincorporated business franchise nexus solely on the basis of employees or property temporarily located in the District during the public health emergency (

Other states may follow suit and provide similar nexus relief given the significant uncertainties already presented by the pandemic. In any event, states should issue guidance clearly and comprehensively explaining their positions so that businesses can begin to plan accordingly, avoid future compliance pitfalls, and be in a position to assess state and local tax risk due to these employees working remotely from new jurisdictions. (As of this writing, the following states have issued some form of guidance addressing these issues: Alabama, Georgia, Illinoi s, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Jersey, North Dakota, Pennsylvania, Rhode Island, South Carolina, and Washington, D.C.)

Apportionment Considerations

If pandemic-related workforce changes create nexus in new jurisdictions, then a business needs to consider the impact upon its multistate apportionment of business income. While nexus determines whether a state can impose tax, apportionment determines how much income is subject to tax. For states that utilize payroll and property factors, the presence of employees or company property in a new jurisdiction may impact the apportionment formula. In addition, a company that, as a result of COVID-19 disruptions, establishes nexus in a new state in which it happens to have high in-state sales may have a significant new tax liability if that state utilizes single–sales factor apportionment.

Furthermore, advisors should consider whether a company’s sourcing of receipts may be impacted. In states that utilize cost of performance sourcing for sales revenue, a shift in workforce location could potentially affect the location where services are performed. For states that utilize market-based sourcing, if the customer is no longer located where the employer’s traditional workplace is, it is conceivable the market state may have changed.

The City of Philadelphia, for example, has issued a notice stating that it will temporarily waive nexus and grant apportionment relief for purposes of the Business Income and Receipts Tax (BIRT) as well as the Net Profits Tax (NPT) for taxpayers affected by COVID-19 [“Business Income & Receipts Tax (BIRT), Net Profits Tax (NPT) nexus and apportionment policies due to the COVID-19 pandemic,” Apr. 22, 2020,]. Under the notice, Philadelphia nonresident employees who typically work within the city and are now teleworking from outside of Philadelphia will continue to be treated as performing services in Philadelphia for purposes of sourcing receipts. Similarly, Philadelphia resident employees who typically perform services outside of the city and are now teleworking from within Philadelphia will continue to be treated as performing services outside of the city. In other words, in order to reduce complexity, Philadelphia is preserving the status quo, which most taxpayers will find a welcome move. The authors anticipate that more jurisdictions will provide similar guidance so that businesses and advisors can properly assess state and local apportionment considerations. As such, it is crucial for CPAs and taxpayers to frequently monitor these issues.

Sales Tax Considerations

Under the landmark 2018 Wayfair decision, the U.S. Supreme Court abrogated the physical presence requirement and ushered in economic nexus for sales tax purposes [South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)]. Consequently, many remote sellers of taxable goods and services are now subject to each state’s recently enacted Wayfair provisions, which include small seller threshold exceptions. In most states, a remote seller does not have economic nexus with a market state unless it exceeds greater than $100,000 or 200 transactions in that state.

As a consequence of COVID-19, though, if a remote seller could be treated as having nexus in a new state due to the presence of a telecommuting employee, then it would meet the physical presence standard and no longer qualify as a remote seller. Consequently, the seller might find itself subject to sales tax collection obligations in the new state on the first dollar of sales (after the start of the COVID-19 pandemic), without the protections of the Wayfair small-seller thresholds.

Such a result, under the circumstances of a public health emergency, would seem highly inequitable. The authors believe that states should seek to provide assurances to taxpayers, both large and small, that they will not suddenly become mired in new sales tax obligations, in particular because sales taxes are trust fund taxes and can carry personal liability for certain owners and operators.

Payroll Withholding and Income Sourcing Considerations

Generally, employers are charged with withholding income taxes based upon the location where an employee works, which may be different from the location where the employee resides. For example, a New York employer would typically withhold New York wages for employees working from its New York office; this is true whether the employee resides in New York, New Jersey, Connecticut, or Pennsylvania. Under COVID‑19 disruptions, many employees may now be working from their home state—or perhaps from an altogether new state, if they chose, for example, to shelter-in-place with family or at a vacation property.

This reassignment of work locations due to COVID-19 precautions raises employer and employee compliance concerns. Several states have released guidance addressing this issue. New Jersey was quick to issue FAQs indicating that during the pandemic, “wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction” ( Similarly, Mississippi issued a press release stating that during the coronavirus national emergency, it “will not change withholding requirements for businesses based on the employee’s temporary telework location” ( Maryland issued a tax alert stating that its withholding “requirements are not affected by the current shift” to telework, but it also conceded that it will “consider the temporary nature” of a telework arrangement (

Advisors must further consider the impact of state reciprocal agreements, such as the New Jersey/Pennsylvania agreement or the Maryland/Virginia/D.C./West Virginia/Pennsylvania agreement. Under such conditions, states often agree not to tax residents of the other state on sourced income. As such, telework arrangements may not matter for income allocation and withholding purposes.

Furthermore, tax advisors should consider the impact of state “convenience of the employer” rules. Under these rules, days worked from an employee’s home state (if different than the state of employment) for the employee’s “convenience” as opposed to the employer’s “necessity” are re-cast and treated as days worked from the state of employment. New York is notable in its use of this doctrine to recapture New York days. Under the current travel restrictions and mandated stay-at-home orders, it is questionable whether an employee telecommuting from New Jersey for her New York employer is, in fact, working from home for her own “convenience.” As of the preparation of this article, New York has not issued any guidance on this issue. Significant complexities may arise as bus and subway commuters become telecommuters working from home outside of New York City, for example.

Personal Income Tax Residency Questions

In a multistate environment, individuals should also consider the potential impact of residency rules. As a brief summary: most states that impose a personal income tax there have two ways to qualify as a resident. The first is domicile, which reflects an individual’s true home. The second is statutory residency. Under New York’s and New Jersey’s rules, for example, if a taxpayer maintains a permanent place of abode and spends greater than 183 days in that jurisdiction, then that individual is treated as a resident (i.e., a “statutory” resident) regardless of whether they are a domiciliary of their home state.

If an individual shelters-in-place in a new state or is unable to return home and consequently takes up temporary residence in a new location, that individual should concern herself with any applicable residency rules. For example, consider an individual who is domiciled in New Jersey, works in New York City with significant overseas travel, and has a vacation house in the Hudson Valley. If the individual shelters-in-place in the Hudson Valley home, those days will very likely count towards the day count threshold. Should it matter if there was a COVID-19-related medical reason leading to the decision to stay in the New York property versus the New Jersey home?

For most individuals, there is likely little risk of a domicile issue, but there may well be legitimate concerns about statutory residency should the days exceed the threshold. There may also be nonresident allocation concerns. For example, what if the individual was a resident of Pennsylvania, typically worked in New York, and sheltered in place in North Carolina, telecommuting for their New York employer? If they telework for several months, performing services in North Carolina, do they have a filing obligation with North Carolina? Could New York successfully re-cast those days as New York work days under the convenience rule? What if the telework arrangement lasts for the majority of the year or even into next year?

There are multiple permutations reflecting the reality that COVID-19 has dispersed the workforce across the country, as millions continue to telework in hope of remaining employed and productive. The authors believe that states should issue guidance and provide relief that reduce complexity and maintain pre-pandemic rules throughout the duration of the outbreak.

Other Questions

The above are just a few of the more common questions taxpayers will have, but there are many others. With respect to nexus, in states that utilize a “factor presence” standard, could the shift in telework locations be sufficient to trigger payroll factor presence? Advisors should consider the potential impact of P.L. 86-272 (i.e., the Interstate Income Act of 1959) protections. If an employee teleworking from a new state limits his activities merely to the solicitation of sales for tangible personal property, which are otherwise fulfilled from the state of the employer’s place of work, the business may be exempt from the imposition of net income taxes. What if a redeployed workforce changes the nature of those activities? Companies may likely find they have brand new income tax filing obligations that did not exist prior to March 2020.

If a business could be determined to have nexus as a result of COVID-19 telework arrangements, should it take steps to affirmatively register with the new state? Does it have workers’ compensation, disability, and unemployment insurance obligations in the states where its employees are now working and performing services on its behalf? Ultimately, the authors wonder whether Congress might step in and address these types of issues and solve these problems at the federal level?

Furthermore, the longer the pandemic continues, the more likely it is that many employers and employees will become accustomed to, and even prefer, telework arrangements. Indeed, many employers have already adopted policies contemplating telework arrangements that will continue for many months, even beyond existing shelter-in-place government mandates. Businesses and CPAs should be careful to understand the distinction between having telework thrust upon them due to a public health crisis as opposed to making a business decision that it will empower employees to telecommute from new states—and accept that such a decision will create nexus and related-compliance obligations.

Lastly, most states that have provided nexus relief guidance have been vague as to the timing, often granting relief for a temporary period. When the relief concludes, but the telework continues, businesses will need to reconcile with the fact that they may likely have physical presence nexus in new jurisdictions scattered across the map based upon the locations where their employees chose to quarantine. As such, they would be wise to take stock now.

A Changing Landscape

Prior to the outbreak of COVID-19, businesses may have been careful about implementing telework policies across state lines for the reasons outlined above. Under pandemic stay-at-home orders and health and safety concerns, those reservations are now irrelevant, but the tax considerations are as prudent as ever.

Taxpayers, CPAs, and state policymakers should examine these issues. Businesses must evaluate their telework footprint and track the locations of their workforce. Are employees conducting activities in new states and localities? If so, employees will need to be vigilant and monitor the states for guidance. In the absence of official promulgations, taxpayers should consider whether to affirmatively seek guidance to achieve a degree of certainty. The pandemic landscape is changing quickly and unpredictably. We expect more states and localities will continue to address these issues as the crisis goes on. Still, many questions and challenges will surely remain.

Corey L. Rosenthal, JD, is a principal and the state and local tax practice leader at CohnReznick LLP in New York, N.Y. Lance E. Rothenberg, JD, LLM, is a state and local tax senior manager at CohnReznick LLP in Roseland, N.J. and New York, N.Y.