Virtual board of director meetings: State tax consequences

Apr 29, 2020

The COVID-19 pandemic is wreaking havoc on the world economy. It is affecting virtually every business operation in every industry. The layoffs, furloughs, supply chain disruptions, cash flow problems are by now well known. But the consequences of the pandemic and the global shutdown are affecting business operations that are less publicly visible. The mandatory closure of business, stay at home orders, and socials distancing are changing the way boards of directors meet. For the first time in history, directors’ meetings are being held remotely on a widespread basis across the country.

The rules governing when and how a board meets are set by an organization’s formation documents, articles, bylaws and government regulations. The governing rules often require regular meetings. While in some cases, board meetings can be delayed, they cannot be delayed indefinitely. Indeed, good governance would dictate that a board should meet during times of upheaval and crisis such as presented by the COVID-19 pandemic. Boards are heavily involved in setting policy and approving extraordinary measures at this time. It is not surprising that boards of directors across the globe are meeting remotely.

Virtual board meetings will continue through 2020 as stay at home orders and restrictions on nonessential activities remain in place. As companies are contemplating new ways of doing business, the use of virtual board meetings may become more permanent. If a board regularly meets four times a year, it may decide to hold one or more of those meetings remotely even after the economic restrictions are lifted.

Holding virtual directors’ meetings presents several state and local tax issues. The most obvious issue is whether holding a virtual board meeting will create nexus for tax jurisdiction purposes. States have considered the effects of in-person board meetings on nexus for decades. In some states, the presence of a director attending an in person directors meeting may create nexus. But many states expressly say it does not. If nexus is established, there could be significant income and sales tax liability consequences. Additionally, Public Law 86-272 – the federal safe harbor prohibiting a state from imposing a net income tax on a seller's business activity if it is limited to the solicitation of orders for sales of tangible personal property – would not apply to such meetings. Companies should be aware that state laws governing nexus issues are in flux as a result of the economic crisis. Some states have issued guidance on remote employment and related issues. More states are expected to do so.

Less obvious are the possible tax consequences of director discussions at a virtual meeting. In-person meetings are usually governed by an agenda and official discussions, those reflected in the minutes, are limited to agreed upon agenda items. As the business world is discovering, virtual meetings are often less structured leading to unintended, off-topic and overly-broad discussions potentially affecting how a state approaches unitary business determinations, the characterization of business or non-business income, and sourcing.  

Virtual and remote directors’ meetings may have a significant impact on existing structural planning and positions, currently and for future tax years. These potential impacts can be particularly significant in the event of a material disposition.


The RSM State and Local Tax group can assist organizations develop a remote director meeting strategy.  Companies planning or contemplating holding virtual board meetings should understand the nexus consequences in each of the states in which directors are located. Such companies should also know that there are ways to mitigate the nexus related risks. As importantly, companies should be aware that board discussions on the record can have tax consequences. Companies may find creating a communication plan for directors as part of an overall strategy advantageous. Of course, all organizations holding remote director’s meetings should be aware of the latest state tax developments concerning remote meetings.

Other state considerations for the COVID-19 pandemic can be found in RSM’s State tax planning in response to economic distress. For more information on the coronavirus, please see RSM’s Coronavirus Resource Center which includes related and frequently updated developments. 

RSM contributors