State Tax Snapshot: Telecommuters Performing Non-Market Activities Can Trigger Nexus


Income tax nexus could result for an out-of-state corporation with a single telecommuter in a jurisdiction performing activities such as payroll or computer coding, according to the preliminary results of the Bloomberg BNA 2013 Survey of State Tax Departments.

In the 2012 Survey of State Tax Departments, 35 states said nexus would result for an out-of-state employer that permits an employee to telecommute from a home within their borders. Several of these jurisdictions indicated that their answer would remain the same even if the corporation made no sales in the state or the employee telecommuted for only part of his or her total work time. The states that said telecommuting would not trigger nexus for an out-of-state employer were Indiana, Kentucky, Maryland, Mississippi, Oklahoma, and Virginia.

The 2013 survey, with will be published on April 26, asked the states to spell out their nexus policies with regard to telecommuting even further by specifying whether income tax nexus would result if:

  • one employee telecommutes from a home located in your state and performs back-office administrative business functions, such as payroll, as opposed to direct customer service or other activities directly related to the employer's commercial business activities; or
  • one employee telecommutes from a home located in your state and performs product development functions, such as computer coding.

The preliminary results show that several states would find income tax nexus under these circumstances. Among these states was Minnesota, which explained that "nexus is established when any activity beyond solicitation occurs."

The early survey results appear to show that other states have adopted New Jersey's rationale in the Telebright. In that case, a New Jersey court found that income tax nexus resulted for a Maryland-based company with a computer programmer in state.

By Steven Roll

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