Recently, Connecticut enacted legislation providing that having an employee telecommuting from Connecticut will not create a taxable presence (i.e., nexus) in the state for the employer. H.B. 6516, Gen. Assemb., Jan. Sess., 2021 (Conn. 2021). This is a much-needed boon for companies struggling with the unexpected tax consequences of the COVID-19 pandemic, including consequences as the result of employees working from home.
However, as with most things in life, the new law is not without its caveats. First, the Connecticut nexus prohibition only applies to 2020. Without additional legislation, employees telecommuting from Connecticut in 2021 will likely create a tax obligation in the state.
Second, the telecommuting employee must have worked remotely in Connecticut “solely due to COVID-19.” Id. Although undefined by the law, the Department of Revenue Services (“Department”) stated that determining when an employee is remotely working solely due to the pandemic is “largely dependent upon specific facts and circumstances.” Conn. Dep’t Revenue Servs., TSSB 2021-1, 1 (Mar. 26, 2021). The Department provided that telecommuting due to emergency orders, medical issues, or childcare needs all qualified as “due to COVID-19.” Id. Interestingly, the Department did not state if those situations met the “solely due to COVID-19” as required by the new law. Nevertheless, employers should be cautious and maintain records regarding why an employee was telecommuting.
A few other states have issued similar guidance. For example, the Georgia Department of Revenue stated that it will not use an employee’s relocation as the basis for establishing Georgia nexus or for exceeding the protections provided by P.L. 86-272. Ga. Dep’t of Revenue Coronavirus Tax Relief FAQs (last visited Apr. 1, 2021). However, it warned that after the official work from home order ends, if the employee is still working from Georgia, the employer would have nexus in the state. Id.
Similarly, the Minnesota Department of Revenue affirmed that it will not seek to establish nexus for business income tax or sales and use tax solely because an employee is temporarily working from home due to the COVID-19 pandemic. Minn. Dep’t of Revenue COVID-19 FAQs for Bus. (last visited Apr. 1, 2021). Like Connecticut, Minnesota limits the nexus reprieve to telecommuting solely due to the pandemic, but Minnesota does not define that limitation.
While it is reassuring to have guidance from certain Departments of Revenue, Connecticut’s legislation ensures that the stay of execution for nexus is more than a Department of Revenue’s current position—it is law that is not subject to change based on an agency’s policy decisions. Moreover, Connecticut is leaps and bounds above numerous other states that have not issued any guidance. See e.g., Idaho State Tax. Comm’n Coronavirus and Idaho Taxes: Frequently Asked Questions and Answers (last visited Apr. 1, 2021), Mont. Dep’t of Revenue COVID-19 Updates (last visited Apr. 1, 2021). Hopefully, more states will join Connecticut on the COVID high road in the coming months.