August 21, 2020
House bill proposed to provide state income tax relief to teleworkers during COVID-19
US House member Mary Gay Scanlon (D-PA) announced that she has introduced H.R. 8056, Remote Worker Relief Act of 2020, providing that any employee working remotely in connection with COVID-19 would be deemed to be performing services at their primary work location, and, alternatively, if the employer maintains a system that tracks employee work locations, the employer may, at its option, source the wages to the location where the remote work is performed.
For out-of-state businesses that have employees working remotely in a jurisdiction, the bill further provides that the duties performed by employees in those jurisdictions would not be sufficient to create nexus or establish any minimum contacts or level of presence that would subject the business to registration, taxation or other related requirements for taxes that are based on net or gross receipts or income or for purposes of apportioning or sourcing such receipts or income.
Ernst & Young LLP insights
Lawmakers are keenly interested in addressing the state income tax issues that have resulted from the significant spike in telework during the COVID-19 emergency; however, they do not all agree on the approach.
H.R. 8056 closely resembles the COVID-19 relief provisions contained in S. 3995 introduced earlier this year by Senators John Thune (R-SD) and Sherrod Brown (D-OH); specifically, the presumption would be that teleworkers' wages in connection with the COVID-19 emergency would be sourced to the teleworkers' primary work locations. The provisions of S. 3995 were included in the Senate Republican's Health, Economic Assistance, Liability Protection and Schools (HEALS) Act proposal for the next COVID-19 relief bill.
In contrast, two bills have been introduced that would specifically prohibit the imposition of state income tax without physical presence in the state.
In August 2020, Ohio Senator Kristina Roegner (R) introduced to the state legislature S.B. 352, which would repeal a section of Ohio's H.B. 197 requiring that Ohio employers withhold Ohio local income taxes based on employees' primary work locations for the period of the COVID-19 emergency. The bill followed a lawsuit filed on July 2, 2020, by the Buckeye Institute arguing that H.B. 197 violates the Fifth and Fourteenth Amendments to the US Constitution and that the Ohio Constitution does not authorize the Ohio General Assembly to expand the taxing power of the state's municipalities beyond established limits.
US House members Chris Pappas (D-NH) and Jim Himes (D-CT) introduced legislation under H.R. 7968 that would prevent states like Massachusetts from imposing state personal income tax on employees who are teleworking outside the state. Specifically, the bill would clarify that workers are required to pay income tax only in the state where they are physically present when the income is earned. The proposal came within days of New Hampshire Governor Chris Sununu announcing that he had directed the New Hampshire Department of Justice to investigate whether the COVID-19 emergency regulations concerning income tax on teleworkers published by the Massachusetts Department of Revenue result in the improper collection of personal income tax from affected New Hampshire residents. New Hampshire does not currently impose a personal income tax on wages.
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