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More States Clarify Policy on Tax Presence for Teleworkers (4)

April 21, 2020, 5:38 PMUpdated: April 21, 2020, 10:29 PM

Indiana and North Dakota say temporary telework won’t trigger nexus for tax purposes, while Maryland says nothing has changed. Some states, meanwhile, say companies are asking to make payments on installment. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Monday’s coverage click here. Here’s a state-by-state roadmap.

Temporary telework in Indiana and North Dakota is not enough to establish an economic presence, or nexus, for business tax purposes, the states said.

Indiana won’t “use someone’s relocation, that is the direct result of temporary remote work requirements arising from and during the Covid-19 pandemic health crisis, as the basis for establishing Indiana nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporary relocated employee,” the state Department of Revenue said in an FAQ.”

North Dakota published its own FAQ, saying that if workers are telecommuting because of the pandemic disruption and the situation is intended to be temporary, the state “will not require inclusion of that payroll in the numerator of the payroll factor.”

Maryland, meanwhile, said its withholding requirements “are not affected by the current shift from working on the employer’s premises to teleworking because taxability is determined by the employee’s physical presence.” Residents of Virginia, Washington D.C., West Virginia, and Pennsylvania are exempt from Maryland state income tax and withholding, because Maryland has a reciprocal agreement with these states. Otherwise, “compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding.”

Massachusetts on Tuesday posted an emergency regulation laying out its policy. The compensation of state residents who work remotely during the emergency will continue to be treated as Massachusetts source income subject to personal income tax, it said. In the case of resident employees who suddenly find themselves working in Massachusetts, while still incurring income tax liabilities in another state, they “will be eligible for a credit for taxes paid to that other state.” The employer of those workers “is not obligated to withhold Massachusetts income tax to the extent the employer remains required to withhold income tax with respect to the employee in such other state.”

Many other states have still not explicitly stated their policies, creating uncertainty for businesses that are trying to keep track of dispersed employees even as they grapple with the crippling economic effects of the crisis.

“As governments continue to issue and extend stay-at-home orders, more states are likely to address the withholding implications of remote work,” tax analysts at Eversheds Sutherland (US) LLP wrote in a report, adding: “it is certain that the variety of state approaches mean that taxpayers cannot assume that their pre-Covid-19 withholding obligations will remain the same.”

The report urged employers to “keep abreast of the different withholding requirements that their new teleworkers could trigger and the following guidance issued by state tax agencies, then evaluate the potential risks of non-compliance and costs of changing withholding practices for a temporary period.”

Battered Companies Seek Leniency

A growing number of corporate taxpayers, strapped for cash during the pandemic, have been asking states to let them pay back taxes and interest in installments, according to a discussion Tuesday during a meeting of the Multistate Tax Commission’s Nexus Committee.

Taxpayers have penalties waived when they participate in the MTC’s Multistate Voluntary Disclosure Program, agreeing to get licensed and pay back income, franchise, and sales and use taxes that are owed, plus interest. Many states give taxpayers 30 days to make back tax payments, with the potential for extensions. But given the financial stresses of the moment, many taxpayers are asking for more leniency.

The committee agreed that some states would say yes to such requests, and asked MTC staff to put information about the procedures to follow in those states on the commission’s web site. Richard Cram, director of the MTC’s National Nexus Program, said applicants could indicate their desire for a longer-term payment plan at the time they applied. Such changes would reflect the immediate crisis, although the committee could decide later whether to make them permanent, Cram said.

The need for more forgiving payment plans isn’t new, some participants in the meeting noted. Diane Yetter of Yetter Tax Consulting said some taxpayers choose to face the risk of getting caught because the costs of voluntary disclosure are so great. “We’ve had some businesses tell us, ‘We can’t come up with that money if they make us pay it,’” she said. “They’re willing to stay under the radar because sometimes the risk is higher if you’re registered than if you don’t do anything at all.”

Another participant in the discussion said he knew of taxpayers who were ready to come forward to disclose tax liability, but when Covid-19 hit, realized they weren’t going to be able to come up with the money right away and changed their minds.

Oklahoma City Preparing Budget Cuts

Oklahoma’s largest city is preparing a series of budget cuts for the upcoming fiscal year as it starts to adjust finances in the wake of the public health crisis.

The budgets of Oklahoma City’s police and fire departments will be cut by 3.3%, while all other General Fund departments will take a hit of 11.25%, the city said Monday in a release.

“The Covid-19 pandemic’s economic effects have already been substantial,” Budget Director Doug Dowler said. The capital city will have $35 million less revenue than originally expected for the fiscal year starting July 1, according to city finance officials.

The cuts will be formally proposed May 26, followed by the City Council’s scheduled June adoption of the budget.

Sales tax is the city’s primary source of general revenue, paying for daily operations. Oklahoma is the only state in the U.S. where state law prohibits cities from using property tax for operations. Department directors are looking at programs and staffing levels to determine budget revisions, officials said.

California Tax Notices Delayed

California is delaying until August its notices to income tax filers that they owe more tax for 2019, to allow for the extended July 15 deadline to file and pay.

The Franchise Tax Board typically sends notices of changes that come up during tax return processing after it has processed all timely payments. If the tax board determines that a taxpayer owes more than what was paid it will send a Notice of Tax Return Change with a balance due for 2019 in August, not sooner, the board said Tuesday on its website.

The notifications are part of the tax board’s pandemic response.

Silicon Valley County Offers Property Tax Break

Santa Clara County said Tuesday that it is waiving the 10% penalty on property taxes that were to have been paid by April 10 on the assumption that the pandemic disruption caused some taxpayers to miss the deadline.

Some California counties are offering waivers on penalties for property owners failing to make their second tax payment that was due April 10. The Silicon Valley county is the first in the state to offer the waiver without taxpayers seeking the break.

The Board of Supervisors on Tuesday directed the assessor to waive the 10% penalty and $20 fee across the board “without requiring individual application, justification, or consideration.”

The item was placed on the agenda after April 10 as supervisors “did not want to provide a disincentive for anyone to pay their taxes if they possibly could on a timely basis,” said Supervisor Joe Simitian, who co-sponsored the proposal with board President Cindy Chavez.

Falling Oil Prices Threaten Texas Revenue

The Office of the Texas Comptroller is “carefully monitoring” oil market activity following Monday’s historic drop in prices, warning that a prolonged price depression of the commodity could further impact tax revenue already anticipated to feel the effects of the pandemic.

“Should prices remain depressed over a long period of time, we anticipate the impact will be reflected in a reduction in the revenue forecast we’ll be releasing in July,” Texas Comptroller Glenn Hegar said in a Monday release responding to the drop.

Hegar’s comments follow a warning issued during an April 7 interview about the coronavirus with the Texas Tribune of a probable “revised downward adjustment of several billion dollars,” to state tax revenue in the wake of the public health crisis and the sharp downturn in oil prices.

Calling the unprecedented market volatility “concerning,” Hegar said the greater impact to the state will arrive if demand remains historically low for an extended time period and supply gluts continue to strain storage capacity.

Severance tax reductions would primarily affect the state’s Rainy Day Fund and State Highway Fund, “and to a lesser extent general revenue available to meet budget needs,” he said, adding that energy industry contraction would also affect sales and franchise tax revenue.cq

—With assistance from Adrianne Appel in Boston, Laura Mahoney in Sacramento and Joyce Cutler in San Francisco.

(Adds Massachusetts and Oklahoma City.)

To contact the reporters on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com; Paul Stinson in Austin, Texas at pstinson@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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