State Tax Snapshot: Can Telecommuting Trigger Corporate Income Tax Nexus?


The presence of a single employee telecommuting from New Jersey is enough to subject an out-of-state corporation to the state's Corporation Business Tax, the New Jersey Superior Court, Appellate Division held in Telebright Corp. v. New Jersey Div. of Taxn., N.J. Super. Ct. App. Div., No. A-5096-09T2 (March 2, 2012).

The state’s stance on the issue is consistent with what most other jurisdictions have indicated on the Bloomberg BNA 2011 State Tax Department Survey

An employee who telecommutes from a home located within a state’s borders would create nexus for an out-of-state employer, state tax officials from 37 jurisdictions told Bloomberg BNA last year. Telecommuting would not trigger nexus in Kentucky, Maryland, Mississippi, Oklahoma, and Virginia, according to the 2011 survey.

Bloomberg BNA asked the states last year if they would draw a different conclusion if the out-of-state corporation made no sales into their jurisdiction or if the employees telecommuted for only part of their total work time. Concluding that nexus would still result in this scenario were Arizona, Indiana, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Pennsylvania, Rhode Island, and Tennessee.

“Many states have considered whether one employee in a state creates nexus for an out-of-state company and the majority of the reported cases and administrative rulings conclude that just one employee creates nexus—for both income tax and sales/use tax purposes,” Maryann B. Gall with MBGALLTAX told Bloomberg BNA.

Some believe that enforcing income tax obligations against a company based on the presence of a single telecommuter in the state is a poor policy choice. The Telebright decision illustrates how tax policy can thwart the growth of telework at a time when expanding the use of this work and transportation option is critical, Nicole Belson Goluboff, Legislative Advisor to the Telework Coalition, told Bloomberg BNA March 7.

 “Despite telework's capacity to boost employment rates and reduce traffic congestion—despite its capacity to cut oil consumption, carbon emissions and transportation infrastructure costs—the Telebright decision will discourage companies from distributing its workers,” she said.

 

By Steven Roll
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