Regarding indirect taxes, we are watching to see if states will reduce sales and use tax rates to stimulate spending and economic activity in the short-term or if they will raise rates to replenish budgets hard hit by COVID-19-related impacts. Those decisions could vary state by state, as we’ll see once state legislative sessions kick in gear. Law firm Baker McKenzie’s state and local tax experts have been tracking states’ reactions to COVID-19’s bruising economic effects, and they point to several levers state legislators have pulled after past economic downturns. These actions include sales tax rate increases, postponing or limiting tax deductions, eliminating tax exemptions and credits, and broadening their tax bases. Those moves were all designed to recover lost revenue.
Remote Employee Nexus & Payroll Taxes
As noted in a recent Tax Law360 article, another top concern state tax professionals are watching is whether states can and will assert nexus on businesses whose employees are working remotely at home due to the COVID-19 pandemic, resulting in businesses needing to make payroll tax withholding changes. Businesses want relief from the administrative burden of having to comply with pre-COVID-19 nexus rules to determine in which state payroll taxes should be withheld from an employee paycheck.
States, on the other hand, could see new payroll taxes from in-state teleworkers as a source of found revenue in these unstable times. So far, adjustments have only been made in response to telework nexus requirements and/or withholding requirements in Mississippi and New Jersey.
I’ll keep you posted as state legislators and departments of revenue process the dilemma in front of them including how to ease the impact and burden on individual and corporate citizens while dealing with budget shortfalls and potentially even building a fund for a rainy day.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc..