During COVID-19, many employees have been fortunate enough to be able to work from home. However, business might face sales tax compliance surprises when allowing employees to work remotely.
Last week, Rhode Island became the latest state to announce that businesses with employees temporarily working remotely from Rhode Island during the state’s COVID-19 state of emergency do not create sales tax nexus for their employers. You can read Rhode Island’s guidance on remote employees and sales tax here.
Why did Rhode Island make this announcement?
In most cases, having an employee in a state creates sales tax nexus for a business.
Employee nexus example:
Taylor’s Toys and Games is based in California, but they hire an administrative assistant who works remotely for them out of a home office in North Carolina. Taylor’s Toys and games has sales tax nexus in California, because they are based there, and in North Carolina, because they have an employee or contractor there.
However, during COVID-19, some of the “business as usual” of determining nexus is out the window.
Rhode Island has followed in the footsteps of several other states who, presumably understanding that many businesses are already under a great deal of strain, have declared that remote workers do not currently create sales tax nexus for the businesses that employ them.
States Where Remote Workers (Temporarily) Do Not Create Nexus
A handful of other states have also announced that they won’t use COVID-19 as a time to impose more sales tax burden on businesses. These states include:
- Maryland (with limitations)
- New Jersey
- North Dakota (ND’s guidance is for income tax nexus, but if you find yourself with a remote employee in ND we recommend inquiring about sales tax nexus relief, too.)
- Rhode Island
- Washington, D.C.
Many other states simply haven’t come forward to make a determination one way or another.
My employees are working remotely during COVID-19. What should I do?
Here’s a quick checklist to help you navigate the world of remote work and sales tax during COVID-19:
- Get educated – From where are your employees working? Are any of them working from a state in which you aren’t currently registered to collect sales tax?
- Double check your nexus – If you discover you have an employee working from a state where you aren’t currently registered to collect sales tax, check with that state’s taxing authority or a state and local tax expert (SaLT) to determine if that state requires you register and collect sales tax due to your employee working remotely.
- Pay attention to time and scope limits – Rhode Island stated that employees working from the state do not create sales tax nexus for their employers as long as the state’s state of emergency declaration is in place. But if you plan to continue allowing employees to work from home after the state of emergency has lifted, you may find that you now have sales tax nexus in a new state or states. Now is a good time to plan ahead, determine what information you will need to register for sales tax permits in these new states, and determine what time and resources your business might need to begin collecting sales tax via your sales channels.
- Register for a sales tax permit (if required) – If a state requires that you register to collect sales tax due to employees working from home, then follow the steps found here to register for a sales tax permit on your own, or hire a sales tax pro to register on your behalf.
- Set up sales tax collection via your sales channels – If you do have nexus in a new state, be sure you are collecting sales tax from all buyers in that state. Don’t forget to set up sales tax collection in that state via all sales channels, from online stores, to ERPs to any marketplaces that are not currently collecting sales tax on your behalf.
And last but not least…
Embrace Remote Work
Okay, we’ll admit we added this particular item to the checklist. However, as a fully remote team from day one here at TaxJar, we truly believe that remote work is the future of work.
As an unexpected side effect of COVID-19, we have also found ourselves able to assist our customers with making what was often, and understandably, a very jarring and sudden transition into remote work.
For more on how we work remotely here at TaxJar, please check out our Telly Award-winning series on #RemoteLife here. And we are always happy to answer questions from customers and partners who are struggling, or just have questions, about remote work.
COVID-19 has added to the already long list of business owner worries. Sales tax shouldn’t be one of those concerns. For more on taking sales tax off your plate, visit TaxJar.com/how-it-works.