How the Tax Code Is Becoming More Telework-Friendly

The Tax Foundation live streamed for an hour today spotlighting some of the ways different states are working to make the tax code more telework-friendly. Speakers included Chris Pappas, a Representative from NH, Jared Walczak, V.P. of State Projects at the Tax Foundation, Nikki Dobay, Senior Tax Counsel at the Council on State Taxation, and Aziza Farooki, Director of Policy at the Council on State Taxation.

The presentation was lively. Those listening in surely walked away feeling energized and hopeful. The highlight, of course, was the quick mention of Gregory Blatt and how his dog saved him more than $400,000 in New York income taxes. The full petition, for anyone interested in the details, can be found on the website for the Division of Tax Appeals.

From the other states, Alabama, Georgia, Illinois, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Jersey, North Dakota, Pennsylvania, Rhode Island, South Carolina, the District of Columbia have issued nexus relief guidance. Almost all clarify that one or more employees telecommuting because of WFH restrictions will not automatically create nexus. Similarly, relief is available for nonresident aliens at the federal income tax level.

In New Hampshire, Pappas is working on the Multi-State Worker Tax Fairness Act as an alternative to nexus relief. It is one way to reach a compromise with one of the state's neighbors, Massachusetts. NH residents will only be responsible for taxes in the state where they are present. In this case, as NH does not tax wages and salaries, there will be no payment due from them at all for the telework earnings.

Jared Walczak, on the other hand, asks what would it take to make the code friendly for all remote work in general, not just during COVID. In his opinion, the percentage of workers telecommuting will only increase once the pandemic is over. Compliance and administrative costs of complicated tax rules and regulations are high. At the same time, the capacity of any state to enforce the code is limited. Additionally, Congress has only some authority that allows it to regulate taxation of interstate commerce.

As the conflict has the potential of heating up, evidenced by Arizona's challenge to California in court over LLC franchise taxes, the bottom line is that the states more often than not still require returns even if there is no tax due but they do not want to process a lot of them. Will compliance become less difficult and more practical? It should. For example, the HEALS Act included a 90-day threshold for multi-state workers before they become liable anywhere else outside the state of their residence.

Along with the already established limitations on double taxation, there is also something called the Mobile Workforce State Income Tax Simplification Act. The website for the program neatly outlines and summarizes the problem, the solution, and the steps to get involved. Outside of signing up for the email updates with one or more of the organizations listed above and adding a person knowledgeable in tax and compliance to the team, an individual or a business can also peruse their state's Division of Taxation websites for any relevant changes in the code or how it is applied.

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