As companies start operating in multiple states or employing remotely based individuals, State and Local Tax becomes something we need to pay more and more attention.

In 2020, the COVID-19 pandemic forced employers into a new, unique business environment. This lasting impact on the workforce saw employers encouraging or requiring employees to work from home. While there will certainly be companies that return to the office full time, the remote workforce isn’t going anywhere.

Companies and their employees alike have experienced both opportunities and consequences to a remote workforce. One of the biggest positives is the flexibility for those working from home. This has changed how recruiting teams operate, as they now have a much wider pool of candidates to employ into a remote workforce.

Of course, as with any major change, benefits can have a tradeoff and impose potential risk. In regard to having a new remote work force, one potential risk is state and local tax issues. Businesses can unknowingly encounter a variety state and local tax obligations with a new remote workforce.

When a new employee is working from home in a different state from where the company does business, this employee creates a new connection to that state for the company. This connection could impose new state tax filing requirements and payment obligations for income tax, sales tax, gross receipts tax and personal property tax. If an employee works in more than one state, the company could be required to withhold and remit income taxes to each state. Even with a small remote workforce, situations like these can build up.

Things become more complex as the number of states a company is connected to increases. This complexity is caused because no two states have the same taxation rules. It is crucial that all employees’ working locations are actively tracked to ensure they comply with each state and local tax obligation.

Local taxes vary and jurisdictions also impose their own rules, including city and county business licensing, occupational tax, and gross receipts tax. In an effort to make up for lost revenue, local tax authorities may pass new legislation and start enforcing existing rules.

Don’t let your company fall risk to noncompliance. As state and local tax jurisdictions see an evolution in their rules and regulations, our SALT experts are here to help. Our team is dedicated to minimizing your tax liabilities by advising on all tax-related issues, including practices, processes, operations, and multi-jurisdictional tax complexities. Reach out to your Somerset advisor for more information, or get in touch with us at 317.472.2200 or .