May 13 New Jersey Department of Taxation Releases FAQs for Telecommuters
During the COVID-19 pandemic, many states have issued updates on their normal tax department practices. For example, states have extended tax return deadlines, payment due dates, and adjusted their office hours. In recent weeks, New Jersey has provided detailed guidance to taxpayers related to unusual working conditions which have become common with stay-at-home work orders and the increase in telecommuting. In each of these releases, New Jersey’s approach has been consistent: employees working at home as a result of pandemic-related measures should be treated as though they were working from their pre-crisis work locations.
On May 6, New Jersey released FAQs to address common work-from-home fact patterns and how to treat them. Here is some of the most important information to consider:
Sales Tax Nexus:
Typically, a taxpayer with an employee working from home in New Jersey will have nexus for sales and use tax purposes. However, an employee working from a New Jersey home due to COVID-19 travel restrictions will not create nexus. (Note, other nexus creating criteria are still in effect; 200 or more remote sales into New Jersey or $100,000 or more of sales into New Jersey will continue to create nexus).
Employment Withholding Taxes:
New Jersey employers are required to withhold on New Jersey sourced income, based on the location where the employee performs his/her service. However, during the present stay-at-home work conditions, employees working from home will be treated as though they had been working at their usual work location.
Individual Income Tax Sourcing Rules:
Typically, a nonresident sources income to New Jersey based on the percentage of days spent working in the state. During the present stay-at-home orders, New Jersey will consider days worked from home as if they had been worked from the typical office location.
Corporate Tax Nexus:
On March 30, New Jersey provided similar guidance with respect to telecommuting employees and corporate tax nexus. A corporation which otherwise does not have nexus in New Jersey will not have nexus based solely on the presence of an employee telecommuting from New Jersey as a result of the pandemic.
Taxpayers should be aware that the COVID-19 guidelines are intended to be temporary. If changes in fact patterns prove to be more lasting than the present travel restrictions, we would expect the tax consequences to return to normal. For example, a telecommuting employee may not create nexus today, but if that employee continues to telecommute following the end of the emergency measures, we would expect that activity to create nexus at that point in the future.
Sax will continue to update you as further details are made available. Reach out to your Sax advisor or email [email protected] with questions. For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.