Aug 05 New Jersey Teleworking End of COVID-19 Temporary Suspension Period for Nexus and Withholding Purposes

 As a result of the COVID-19 pandemic, some employees were required to work from their New Jersey home. The New Jersey Division of Taxation temporarily waived both the Corporation Business and the Sales Tax nexus standard relating to out-of-state employers having employees working from a home within the State.

Thus, as long as the out-of-state corporation did not meet any of the other factors giving rise to nexus, the Division did not consider the out-of-State corporation to have nexus for Corporation Business Tax or Sales Tax purposes solely by having employees working from home in New Jersey due to the pandemic during the waiver period.

The remote employee waiver period for employees working in New Jersey as a result of the pandemic no longer applies effective October 1, 2021. As of October 1, 2021, the pre-pandemic Corporation Business Tax and Sales Tax nexus standard applies whereby an employee working from home in New Jersey will create nexus for an employer because working at a location in New Jersey is considered physical presence in this State.

In addition, the temporary relief period regarding employer withholding tax on teleworking employees will also end on September 30. As such, beginning on and after October 1, 2021, employers should resume sourcing income based on where the service or employment is performed and withhold New Jersey Gross Income Tax from such wages.

Other Developments:

States adopting Pass-through Entity (PTE) level tax:

In response to the $10,000 federal limitation placed on deducting state and local taxes, a number of states created an optional pass-through entity tax as a workaround to the state and local tax limitation. This option allows eligible pass-through entities to pay and deduct state taxes at the entity level, while providing a credit or income exclusion to the entity owners.

The states which have enacted a PTE tax beginning in 2021 or earlier include:

• Alabama
• California
• Connecticut – mandatory PTE tax
• Idaho
• Maryland
• Minnesota
• New Jersey
• New York
• Oklahoma
• Rhode Island
• South Carolina
• Wisconsin

In addition, a number of states will be enacting a PTE tax beginning with tax year 2022 as follows:

• Arizona
• Arkansas
• Colorado
• Georgia

With this changing regulation, Sax is well equipped to support you and your business through these new filing options.

For any questions, please email [email protected]