The Taxability of Remote Workers

September 21 2021 | by Karen J. Poist, CPA

State and local tax has been on the radar for quite some time, but never has it been as applicable or as complex as it is today. One reason for this surge of attention on state and local tax is that more and more companies are conducting business in multiple states. There are many variables when it comes to state taxation, including the physical locations of your actual business and the physical location of your employees.

The Remote Situation

The Covid-19 pandemic has left a lasting impact on the workforce, with employers continuing to encourage or require their employees to work from home. And while there will, of course, be businesses that return to 100% in person, the remote workforce is here to stay.

Working remotely has created both opportunities and consequences for companies and employees alike. Having a remote workforce adds unprecedented flexibility for both the employer and the employee. It has also altered the recruiting landscape, with the employer now able to access a worldwide talent pool due to employees working from anywhere.

Sounds great, and it is, but it’s a situation that also comes with potential risk. Unknowingly, both employees and their employers may be facing state and local tax issues.

A remote workforce creates several state and local tax obligations for businesses. For example, a remote employee working in a state where the company does not do business can create a connection to that state. A state connection may impose new state and local tax filing requirements and payment obligations for income tax, sales tax, gross receipts tax, and personal property tax. Now take, for example, an employee who works in more than one state. In this case, an employer may be required to withhold and remit income taxes to each relevant state. Examples like these can quickly multiply with even a small remote workforce.

Keeping Up with It All

As you can see, today’s state and local tax environment is a complicated one. Things become even more complex as the number of states you are connected to increases. Unfortunately, no two states are exactly the same when it comes to taxation. If it sounds like a lot to keep track of, that’s because it is for many organizations. It is critically important for the employee and employer to track all of the employee’s working locations to make sure they comply with all state and local tax obligations.

Keeping up with employees, tracking revenue, property, and equipment are just a few areas that an employer must be aware of and actively keeping up with.

Local Needs Love Too

We’ve covered the importance of state taxation, but we can’t forget our friends in the local tax authority. Local tax can have a significant impact as well. Like state taxes, local taxes vary, with many jurisdictions imposing their own rules, including city and county business licensing, occupational tax, and gross receipts tax. Many authorities are passing new legislation and enforcing existing rules in an effort to make up for lost revenue. This trend adds to the importance of staying on top of state and local taxation. Now more than ever, noncompliance is a risk that many companies unknowingly embrace because they aren’t aware or aren’t correctly tracking information.

Next Steps

Please join us for our On the Move with State and Local Taxes webinar, where we will discuss the state and local impact of a remote workforce, planning opportunities, and state updates on what you should keep an eye on.

 


Karen Poist | Stambaugh NessKaren J. Poist, CPA | Director, SALT Services Group

Karen applies her significant taxation expertise to guide clients through the increasingly complex SALT environment including tax consulting, compliance, and resolution. Over her 30+ years working in the accounting industry, Karen has developed a deep working knowledge of corporate taxation including a specialized focus in state and local sales and use tax, state and local income tax, audit representation, tax planning, consulting, due diligence and mergers and acquisitions.

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