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September 15, 2020

California Franchise Tax Board issues nexus guidance for employees teleworking in the state under the governor's COVID-19 "stay at home" order

On September 11, 2020, the California Franchise Tax Board (FTB) updated its COVID-19 FAQs for tax relief and assistance with nexus guidance for out-of-state corporations that previously had no connections with California but now have employees indefinitely teleworking in California under Governor Gavin Newsom's "stay at home" Executive Order N-33-20 (hereafter, "stay-at-home order").


For California franchise tax purposes, a corporation is considered to be doing business in the state if it is "actively engaged in a transaction for the purposes of financial or pecuniary gain or profit."1 Under the state's factor presence nexus standard, a corporation is deemed to be doing business in the state if the amount of sales, property or payroll in the state meets a minimum threshold (the 2019 thresholds are $601,967 in sales, $60,197 in property, $60,197 in payroll, or 25% of the taxpayer's total sales, property or payroll).2

COVID-19 nexus relief

In the new nexus guidance, the FTB said that it will not treat out-of-state corporations whose only connection to California is an employee currently teleworking in the state due to the governor's stay at home order as "being actively engaged in a transaction for the purposes of financial or pecuniary gain or profit." The FTB also said it will not include such employee's compensation in computing the minimum payroll threshold under California's factor presence nexus standard.

The FTB also stated that an employee teleworking in the state due to the governor's stay at home order will not cause a corporation to exceed the protections of P.L. 86-272, the federal statute that prohibits a state from imposing a net income tax if its activities are restricted to certain sales solicitation activities. Instead, the nexus guidance treats the employee's presence as de minimis activity for P.L. 86-272 purposes and thus, protected activity under the federal law for California purposes.

The FTB declared that its nexus guidance applies while the stay-at-home order is in effect.


The FTB's nexus relief is temporary. Thus, out-of-state corporations that currently fall within the scope of this relief, but continue to allow their employees to work from California after the stay at home order expires, will need to consider the California tax implications of such a decision, including whether nexus would be created or if current P.L. 86-272 protections would be lost should affected employees continue working from California locations.

The nexus guidance does not address the impact on California personal income tax withholding for individuals and their employers who are affected by the stay-at-home order. This is understandable, as personal income tax withholding is the responsibility of the California Employment Development Department (EDD), not the FTB. The EDD has not issued similar guidance on personal income tax withholding, so a corporate employer would presumably still be obligated to withhold personal income taxes as long as the employee continues to work from a location in California.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Carl Joseph (
   • Jenica Wilkins (
   • Chris Berkness (
   • Josh Booth (


1 Cal. Rev. & Tax. Code (CR&TC) Section 23101(a).

2 CR&TC Sections 23101(b)(2)-(4). Click here for additional information from the FTB on the state's "doing business" provisions, including the annually revised bright-line payroll, property and sales thresholds for the years 2014 through 2018.