Document Type



Taxation-State and Local


This article explores the consequences of the extreme increase in remote work, due to the pandemic, on state taxation. Discussed in the article is state sourcing and apportioning of nonresident wage income, employer withholding tax obligations, and corporate tax nexus.

The authors predict an increase in litigation as a result of states seeking to retain the ability to tax nonresident wages. For example, New York considers employees to be working in-state (and thus subject to taxation) even when they are not physically present in New York so long as they are working remotely for reasons of personal convenience. But, the authors argue, the pandemic should be an exception: if an employee’s New York office is closed they have no choice but to work remotely. Furthermore, Massachusetts has issued an emergency rule that continues to treat nonresident employees as though they continue to commute into Massachusetts, even though they currently work from home. This, the article urges, is constitutionally problematic.

Some states have altered employer wage withholding obligations to ensure that remote employees are taxed based on where they commuted to prior to the pandemic: Massachusetts, Mississippi, and South Carolina are states that have enacted temporary trailing nexus policies. Illinois, Minnesota, and Maryland have indicated that employers are subject to wage withholding obligations if their employees are working remotely in those states. This article stresses that employers must know where their employees are working remotely from in order to comply with these obligations.

Finally, it is uncertain how the increase in remote work will affect corporate tax nexus. While case law supports subjecting out-of-state corporations to taxation as a result of in-state remote employees, it is not clear how the pandemic, and the temporary nature of today’s remote work, will be treated by the law. While the District of Columbia, Indiana, North Dakota, and South Carolina have clarified that corporate tax nexus will not be imposed due to the current circumstances, many states have remained silent on the matter. As a result, taxpayers are left to speculate about their compliance obligations.