By Sungjune
Almost overnight, COVID-19 moved 62% of U.S. work to remote. The temporary nexus relief states offered has since expired — leaving employers to navigate a fragmented post-pandemic regulatory landscape.
In 2020, remote work was not a common practice and there was little digital and operational infrastructure within corporations to support it. According to the U.S. Bureau of Labor Statistics, fewer than 7% of employees performed their work remotely before the COVID-19 pandemic. Almost overnight, that percentage changed. By May 2020, nearly 62% of work performed in the United States was done remotely, driven primarily by state and local government quarantine mandates and stay-at-home orders (BLS).
Companies did their best to maintain regular output despite the abrupt change in communication and collaboration structure. The speed and scale of this change forced businesses and tax authorities alike to address a question with no established answer: how should corporate nexus be treated in a remote work environment?
States offered temporary relief in response to the uncertainty of state-level taxation. According to Klein, Endres, and Piazza, writing in The CPA Journal, approximately one-third of states issued guidance temporarily suspending corporation nexus tax thresholds for companies transitioning all their work to a remote model. For employees working remotely in one of these states, working from a home office in another state — by itself — would not trigger corporate nexus tax for the employer.
This represented a sharp departure from the pre-established rule that "the presence of a single, telecommuting employee creates nexus" (Klein et al.). Some examples of states issuing this type of guidance include Pennsylvania, Indiana, and California, with exemptions expiring between June and July 2021.
Businesses today operate under the regulatory environment of post-expiration rules. Writing in The Tax Adviser, Rebecca Gillette notes that most protections and relief related to nexus determinations lapsed by August 2022, leaving employers with fragmented state laws and little to no federal guidance.
The resulting interstate conflicts illustrate the stakes. Massachusetts was sued by New Hampshire on grounds that Massachusetts temporarily taxed remote workers who previously commuted to Boston but now worked from home in New Hampshire — what New Hampshire called an "unconstitutional tax grab." As remote work has remained elevated, with rates tripling from the beginning of 2021 to the end of 2022, standard nexus enforcement has become the central compliance challenge for employers with distributed workforces.