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The Missouri Department of Revenue issued proposed regulations under 12 CSR 10-2.109, which allows employers that did not have an adequate time and attendance system in 2020 the option to declare that they withheld income tax from employees' wages as if they were earned for work performed at the employee's primary work location within the state, without regard to the employee's temporary work location during the COVID-19 relief period.

Employers that exercise the option would not be liable for Missouri income tax they failed to withhold from the wages of employees who worked temporarily within Missouri in 2020, provided they also withheld Missouri income tax from the wages of employees who temporarily worked outside of Missouri.

Effective date

The relief under the proposed regulations applies to qualified wages paid for services provided from March 13, 2020 (the date on which the federal emergency for COVID-19 took effect) through December 31, 2020.

Definitions

The proposed regulations provide the following definitions:

• Primary work location. The address of the employer where the employee was regularly assigned to work immediately preceding the COVID-19 emergency declaration date.
• Temporary work location. The location where the employee worked during the COVID-19 relief period that was outside of the state of the employee's primary work location.
• Time and attendance system. The employer is deemed not to have had an adequate time and attendance system for purposes of the withholding election if the following requirements are met:
• The employee was not required on a contemporaneous basis to record his or her work location for every day worked outside of the employee's primary work location.
• The system was not designed to allow the employer to allocate the employee's wages for income tax purposes among all taxing jurisdictions in which the employee performs services for wages for such employer.

Qualification requirements

• Affidavit. Each employer that elects to withhold and remit tax based on the primary work location of its employees under the proposed regulations must submit an affidavit notifying the Department on or before January 31, 2021, of the following:
• The employer did not have a time and attendance system in place for all employees as of the declaration date.
• The employer did not have a time and attendance system in place to identify the locations at which employees performed services during the COVID-19 relief period prior to the implementation of a time and attendance system, if an employer implemented a time and attendance system during the COVID-19 relief period.
• The employer will issue forms W-2 to employees consistent with the primary work location of each employee for all or part of the COVID-19 relief period during which an employee was not covered by a time and attendance system.
• The employer will issue communication notifying impacted employees of the employer's election made pursuant to section (2) of the proposed regulations no later than five business days after submission of the affidavit contemplated by the proposed regulations.
• Forms W-2. The electing employer must issue the 2020 Forms W-2 to employees consistent with the primary work location of each employee for all or part of the COVID-19 relief period during which an employee was not covered by a time and attendance system.
• Employee communications. The electing employer must issue a notice to impacted employees of the employer's election under the regulations no later than five business days after submission of the required affidavit.

Comment period

The Department is accepting comments concerning these proposed regulations from February 16, 2021 through Thursday, March 18, 2021.

Examples

The proposed regulations provide several examples.

1. The employer maintains a primary work location for its employees in Missouri. The employer did not have a time and attendance system in place at the beginning of the COVID-19 relief period but implemented one on November 1, 2020. The employer had employees working from temporary work locations in other states. Under the proposed regulations, the employer elects to withhold wages as if the employees were working at the primary work location. As a result, the employer will withhold Missouri income tax from wages paid to employees working from temporary work locations from March 13, 2020, through November 1, 2020.
2. The employer maintains a primary work location for its employees in Missouri. The employer did not have a time and attendance system in place at the beginning of the COVID-19 relief period and has not implemented one during the COVID-19 relief period. The employer had employees working from temporary work locations in other states. Under the proposed regulations the employer elects to withhold wages as if the employees were working at the primary work location. As a result, the employer will withhold Missouri income tax from wages paid to employees working from temporary work locations from March 13, 2020, through December 31, 2020.
3. The employer maintains a primary work location for its employees in Kansas. The employer did not have a time and attendance system in place at the beginning of the COVID-19 relief period but implemented one on November 1, 2020. The employer had employees working from temporary work locations in Missouri. Under the proposed regulations the employer elects to withhold wages as if the employees were working at the primary work location. As a result, the employer will withhold Kansas income tax from wages paid to employees working from temporary work locations in Missouri from March 13, 2020, through November 1, 2020. The employer is not required to withhold or remit Missouri income tax from the employees working from temporary work locations in Missouri.
4. The employer maintains a primary work location for its employees in Kansas. The employer did not have a time and attendance system in place at the beginning of the COVID-19 relief period and has not implemented one during the COVID-19 relief period. The employer had employees working from temporary work locations in Missouri. Under the proposed regulations the employer elects to withhold wages as if the employees were working at the primary work location. As a result, the employer will withhold Kansas income tax from wages paid to employees working from temporary work locations from March 13, 2020, through December 31, 2020. The employer is not required to withhold or remit Missouri income tax from the employees working from temporary work locations in Missouri.
5. The employer had a time and attendance system in place at the beginning of the COVID-19 relief period. The employer is ineligible to elect to withhold on the basis of the employer's primary work location, and instead withholds on the basis of the location where its employees actually performed services for wages for the employer as recorded by the time and attendance system.

The normal rules that apply when employee work remotely within Missouri

The Department explained in its withholding tax frequently asked questions (FAQs) that any time an employee is performing services for an employer in exchange for wages in Missouri, those wages are subject to Missouri income tax withholding. This applies in the case of "remote work" where an employee is located within Missouri and performs services for the employer on a remote basis. This rule also applies if the service for which the employee is receiving wages is "standing down" (i.e., when the employer instructs the employee not to work but the employee is still being paid). (See EY Tax Alert 2020-2561.)

Ernst & Young LLP insights

The proposed regulations provide employers with a method by which they can be relieved of the underlying liability, penalties and interest for the failure to withhold Missouri income tax because of their inadequate time and attendance systems during the COVID-19 relief period from March 13, 2020 through December 31, 2020.

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