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Many employees are now telecommuting due to the COVID-19 outbreak. In our previous blog post,we discussed employers’ potential withholding issues as a result of employees working remotely. In this blog post, we will discuss potential nexus and apportionment issues due to employees working remotely.

In the corporate income tax context, out-of-state employers should consider whether an employee working from home will create nexus, exceed Public Law 86-272 protection, or impact the employer’s apportionment factor. Prior to the COVID-19 outbreak, states had become increasingly aggressive about accounting for remote employees. Even a single employee working from home within a state could potentially trigger nexus in certain states. Additionally, employers who availed themselves of Public Law 86-272 protections could encounter challenges if remote employees conducted unprotected activities from their homes. Employees working from home could also impact the employer’s state income tax apportionment factor (particularly in states with a payroll factor). In addition, employers could face additional filing obligations for business activity tax, sales and use tax, payroll tax, unemployment tax, or local tax as a result of employees’ telecommuting arrangements.

Presently, many telecommuting requirements are a temporary measure in response to COVID-19. However, employers should consider the nexus implications of extended telecommuting situations or permanents shifts to employees working remotely. It is unclear how long it will take for the bulk of the American workforce to transition back from a remote telecommuting to a traditional office environment. The transition could conceivably take several months as governments (and employers) seek to prevent a second wave of COVID-19 infections. For example, it is possible that employers will stagger employees’ return to the traditional office setting as a means of social distancing (such as limiting the number of employees on site based on square footage). Therefore, some employees may continue to telecommute for an extended period or the majority of the fiscal year, while others may return to the office after only a few months. Furthermore, some employers may adapt to employees working remotely and either allow or require some employees to continue working remotely to reduce office overhead. No matter the cause, telecommuting arrangements may persist well past the peak of the COVID-19 crisis, which could result in state tax issues for years to come absent specific state guidance.

Fortunately, a few states are starting to announce temporary relief in response to the COVID-19 health crisis. On March 26, 2020, Mississippi’s Department of Revenue issued guidance stating that it will not use any changes in employees’ temporary work locations due to COVID-19 to impose nexus or alter apportionment of income for any businesses. On March 30, 2020, New Jersey’s Division of Taxation issued guidance temporarily suspending its rule that work-from-home employees trigger corporate income tax nexus. Pennsylvania and Washington, D.C. tax officials also announced at a recent webinar that employees telecommuting as a result of COVID-19 will not create nexus for their employers. Most recently, the Indiana Department of Revenue announced that it will not use an employee’s temporary relocation due to certain COVID-19 circumstances as the basis for establishing nexus or for exceeding the protections provided by Public Law 86-272.

Even if a state does not announce specific nexus or apportionment relief in response to the COVID-19 outbreak, employers may be able to avail themselves of various equitable arguments.

Employers should carefully consider their state and local tax nexus and apportionment computations and should continue to monitor state guidance regarding COVID-19 relief.


Lindsay M. LaCava is a partner of the Firm’s Tax Practice Group in New York and advises individual and business clients on a full range of state and local tax issues. She was named a “Rising Star” in Tax Law in 2015 by Law360, and was selected by Super Lawyers as a New York-Metro "Rising Star" for Tax in 2013-2015. Prior to joining Baker McKenzie, Ms. LaCava was a partner in the state and local tax group of an international law firm. In addition, she previously worked at a Big Four accounting firm, where her practice focused exclusively on state and local tax. Ms. LaCava speaks on a variety of state tax topics at events around the country and also frequently writes about state and local tax issues.


Ted Bots is a partner in the Firm's Chicago office where he serves as an advisor to multinational companies providing a full range of state and local tax services covering planning, restructurings, as well as tax litigation an controversy matters. Ted is well recognized for his speeches throughout the country on a variety of state and local tax issues at national, regional and local tax conferences including those hosted by Council On State Taxation, Tax Executives Institute, Inc., Taxpayers' Federation of Illinois, Chicago Tax Club, Chicago-Kent College of Law, California Tax Bar & California Tax Policy Conference, among others.


Maria P. Eberle is a member of the Firm’s Tax Group in New York and she also serves as chair of the SALT subpractice group. She advises multinational companies on a full range of state and local tax matters, including tax controversy and litigation. Before joining Baker McKenzie, Ms. Eberle was a partner at an international law firm, where she concentrated on state and local tax matters. In addition, she was previously a manager of multistate tax services at a Big Four accounting firm where she advised individual and corporate clients on a variety of state and local tax issues. Ms. Eberle has also served as an adjunct professor of law at Quinnipiac University School of Law, where she taught a course on state and local tax. In 2019 Maria was recognized by Law360 as a Rising Star in the field of Tax. Chambers USA has also named Maria as a Leading Lawyer (State and Local Tax: New York, 2019) and International Tax Review recognizes Maria in their annual Women in Tax Leaders Guide (2016-2019).