On April 21, 2020, the Massachusetts Department of Revenue issued emergency regulations and Technical Information Release 20-5 (TIR 20-5) providing that Massachusetts-sourced income of nonresidents telecommuting because of the COVID-19 crisis will continue to be subject to the Commonwealth’s personal income tax.
Emergency regulation 830 Mass. Code Regs. 62.5A.3
The emergency regulation provides that income sourced to Massachusetts is subject to personal income tax and personal income tax withholding. The emergency regulations also provide that a tax credit will be available for Massachusetts residents who worked in another state but are required to work from home in Massachusetts because of the pandemic if they incur income tax liability in the other state. The department stated that the out of state employers are not required to withhold Massachusetts income tax to the extent the employers continues to withhold income tax for the other state.
The emergency regulation is effective, retroactively, from March 10, 2020 until the state of emergency is no longer in effect.
TIR 20-5 mirrors the emergency regulations and provides additional nexus and remote worker guidance. For purposes of the sales and use tax, the TIR explains that the presence of one or more employees that previously worked in another state but are now working remotely in Massachusetts due to the COVID-19 pandemic will not establish nexus for sales and use tax purposes. Additionally, for purposes of the corporate excise tax, the department will not consider the presence of one or more employees working remotely from Massachusetts due to the COVID-19 pandemic sufficient to establish corporate nexus or to lose the Public Law 86-272 protection. Accordingly, the TIR explains that services performed by an employee in Massachusetts under the remote working condition will not be considered to increase the numerator of the employer’s payroll factor for corporate apportionment purposes. Finally, the TIR explains both the application of the Massachusetts Paid Family and Medical Leave program where an employee is working remotely in a different state and the requirement to continue to collect and remit.
Taxpayers should note that these ‘safe harbors’ from Massachusetts sales and use tax nexus and corporate excise tax nexus are narrow and contingent on the employees working remotely in the state due solely to the pandemic. Businesses may still establish nexus through a number of other activities, including by exceeding sales thresholds implemented by economic nexus standards.
Massachusetts businesses should be aware that they remain responsible for withholding taxes for employees who are working remotely even if those employees are living in and telecommuting from another state. Businesses that employ telecommuting Massachusetts residents may face different withholding requirements. Additionally, out of state businesses with employees working in Massachusetts due to the COVID-19 pandemic appear to receive a limited, and temporary, reprieve from establishing nexus for the sales and use tax and corporate excise tax.
The emergency regulation and TIR are similar to other states that have recently provided guidance for remote working employees. For example, the District of Columbia will not seek to enforce corporate franchise tax or unincorporated business franchise tax nexus on the basis of employees working from home during the period of time the district has declared a public health emergency. New Jersey has issued guidance indicating that during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction. A handful of other states have provided nexus, withholding and sourcing guidance including Indiana, Mississippi, Minnesota, North Dakota and Pennsylvania.
Massachusetts companies with nonresident employees and out of state businesses with Massachusetts resident employees should consult with their tax advisors for more information.
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 and a link to sign up for RSM’s weekly Coronavirus webcast series.