May 29, 2020 Iowa provides guidance on nexus and income tax withholding for employees temporary working within and outside of the state due to COVID-19 The Iowa Department of Revenue updated its COVID-19 frequently asked questions (FAQs) for income tax to provide guidance concerning the assertion of nexus and income tax withholding for employees temporarily working within and outside of the state due to the COVID-19 emergency. Nexus for corporate income tax Iowa corporate income tax is normally imposed on all corporations "doing business" within the state or deriving income from sources within Iowa. Accordingly, having employees working within the state meets the definition of "doing business" in Iowa and subjects the business to Iowa corporate income tax, unless an exception applies under Public Law 86-272. However, in consideration of the fact that due to the COVID-19 emergency, workers are required or strongly encouraged by state and federal governments to remain at home and limit social contact, the Department does not take the position that the presence of employees who normally work outside of Iowa, but who are now working remotely from within the state solely as a result of the COVID-19 pandemic state of emergency represents the same type of business activity that would normally subject a business to Iowa corporate income tax. Accordingly, while Iowa's state of emergency in response to COVID-19, or similar declared state of emergency remains in effect, the Department will not consider the presence of one or more employees working remotely from within Iowa solely due to COVID-19, by itself, sufficient business activity within the state to establish Iowa corporate income tax nexus, provided the employees were not working in Iowa before the COVID-19 emergency. The Department also does not hold that such presence by non-sales employees due to COVID-19, by itself, would cause a business to lose the protections of Public Law 86-272. The position only applies to states of emergency declared in response to COVID-19 and does not extend to other facts and circumstances. Income tax and withholding Iowa personal income tax and withholding requirements are not modified by the COVID-19 emergency. Compensation for personal services rendered within Iowa is subject to Iowa income tax, unless that income is exempted by a specific provision of Iowa law. Generally, an employer maintaining an office or transacting business within this state is required to withhold Iowa income tax from the wages paid to those employees. Iowa residents are subject to personal income tax on their entire income, wherever earned, therefore, an Iowa resident's income tax return filing requirements should not be affected by temporary telecommuting in Iowa or another state. Nonresidents of Iowa who normally work in Iowa but are temporarily telecommuting in another state, or who normally work outside of Iowa but are temporarily telecommuting in Iowa, may need to adjust their income apportionment or their Iowa income tax return filing requirement. Note, however, that Illinois residents working in Iowa are not subject to Iowa incomed tax or income tax withholding because Iowa has a reciprocal agreement with Illinois. Similarly, Iowa residents working temporarily in Illinois are not subject to Illinois income tax or withholding. For more information, see the Iowa-Illinois Reciprocal Agreement. ———————————————
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