Working remotely due to the COVID-19 pandemic created new tax challenges for businesses. Employees working from home in different states created a nexus for employers in those states, resulting in new tax liabilities. Some states offered temporary waivers during the pandemic but businesses will be responsible for taxes in jurisdictions where employees performed work post-pandemic. Employers also had to track employee locations and register payrolls in multiple states. This led to additional expenses for businesses to comply with various state tax withholding and filing requirements. Clarifying laws around remote work taxation will help address challenges for both states and companies going forward.

1. Impact on State Apportionment for
Businesses With Employees Working
from Home
Name
Institutional Affiliation
Date

2. Introduction
• State apportionment assigns a portion of a corporation’s income that the
state can tax;
• C Corporations are the only types of businesses taxed as they are taxable
entities;
• The corporations file state tax returns separate from personal returns;
• Corporations can use one of three types of apportionment formulas which
include; three-factor formula, three-factor formula with an extra weighted for
sales, and single-factor formula;

3. Covid-19 and Working Remotely
• The onset of Corona Virus (Covid-19) prompted state governments to
impose mandatory closures of non-essential businesses;
• The approach fell in-line with covid-19 prevention measures to protect the
public from the air-borne virus;
• Non-essential employees were required to work remotely or from home for
continuity of business;

5. Nexus
• Telecommuting employees create a nexus for employers in taxation;
• Such a nexus creates tax liabilities for businesses in new jurisdictions;
• Some states offered waivers to cover covid-19;
• They waivers stated that businesses with a presence of a work-from-home
employee eliminate the nexus in taxation;
• However, employers operating post-pandemic will not be able to use the
waivers;

6. State Tax Withholding
• Employers are required to withhold income tax for employees who
previously commuted across state borders for work;
• Employers were prompted to register payroll in additional states where their
employees resided and worked remotely;
• Some states maintained their withholding laws such Georgia and Maine;
• However, the Massachusetts Department of Revenue stated that employees
that had worked physically and affected by the pandemic will be treated as
Massachusetts employees;

8. Pass-through corporations
• Despite apportionment being instituted on C corporations, pass-through
entities were also affected;
• Distributive share of income is required where income in the resident state
and state-sourced income in non-resident state is required;
• Credit is offered in situations where nonresident states taxes the same
income, in a bid to prevent double-taxation;
• Working from home required the filing of additional state returns due to the
nexus;

9. Employment Tax
• Employers are obligated to withhold tax for their employees;
• To achieve this, employers must track their employees residence, which was
challenging for businesses;
• Employees are also required to report to their corporations when moving to
new states;
• Employees are required to pay taxes for jurisdictions where they performed
their services.

11. Legal Guidelines
• The Interstate Income Act of 1959 is applicable in corporations that sell
tangible personal property with the only connection with state being the
solicitation of orders.
• The law protected organizations from state-income tax respite of a nexus;
• The law is negated where an employee provides more services than
solicitation within a jurisdiction;

12. Challenges Faced by Businesses- Summary
• Additional taxes in new jurisdictions;
• Tracking down employees to determine which jurisdictions they provided
their services;
• Additional expenses in maintaining their payrolls;

14. Conclusion
• Working remotely presented major challenges for states and businesses due
to the increased nexus footprint;
• Some states maintained their laws while others offered temporary waivers to
address the difficult legal climate associated with remote work taxation;
• States that look to maintain their new remote work approach should focus
on specific laws that relate to remote work;

15. References
• Li, J. (2020). State Corporation Tax Income Apportionment Formulas. Available at SSRN
3710306.
• Brynjolfsson, E., Horton, J. J., Ozimek, A., Rock, D., Sharma, G., & TuYe, H. Y. (2020). COVID-
19 and remote work: An early look at US data (No. w27344). National Bureau of Economic
Research.
• Kern, B. B. (2021). Wayfaring Employees and Corporate Income Tax Nexus. JOURNAL OF
STATE TAXATION.
• Rosenthal, C. L., & Rothenberg, L. E. (2020). COVID-19 and the'Great Lockdown'. The CPA
Journal, 90(7/8), 66-69.
• Sawyers, R. B., & Sonnier, B. M. (2021). The Applicability of PL 86-272 to Activities Conducted
via the Internet. JOURNAL OF STATE TAXATION.

16. Thank You!