The pandemic has brought a variety of tax issues to the forefront that include nexus, apportionment, residency and spanning from individual to business taxes and more, panelists said at New York University's 39th Institute of State and Local Taxation, which was held online because of the novel coronavirus pandemic.
Brian Kirkell of RSM US LLP said what's key in navigating such issues is gathering data and figuring out where employees are. That can be critical if businesses find out employees have been doing business in a place that can cause significant tax issues down the line, he said.
"You might have a W-4 from them from 10 years ago when you hired them. But that doesn't mean you know where they really are, where they're staying through COVID," Kirkell said.
Kirkell gave the example of employees in a service business that may be doing work in states that use cost-of-performance as a business tax allocation methodology. That could result in apportionment factors increasing for certain contracts in those states, he said.
"More than ever, it is important for tax to coordinate with operations and HR and the C-suite in order to make sure that we don't hit any snags," Kirkell said.
Dan De Jong of KPMG said so many of the tax issues surrounding remote working and where employees are located depend on the state and specific facts. Generally service providers don't have to worry as much about the protections of the Interstate Income Act of 1959, also known as P.L. 86-272
, the federal law that insulates businesses from tax on net income when soliciting tangible personal property orders is their only connection to a state, he said. But businesses selling personal property that may depend on 86-272 in certain situations where they have a lot of sales in a state should be wary of the changes caused by the pandemic, he said."If there's one back-office computer programmer who decides to work from home in that state, and you don't have a state that has a temporary rule in place to say that a temporary computer programmer or worker in the state doesn't violate 86-272 or beyond, you have a big problem coming up," he said.
Further, Kirkell said some businesses should be particularly aware of the locations of their business officers, because where they are could establish a business's nerve center in a particular state. Where the officers of a private equity business are making certain decisions, for instance, could factor into state decisions about commercial domicile and have a big tax effect, he said.
"Well, you don't have a headquarters anymore because you got rid of it. And it just so happens the CEO who signed the agreement is sitting in their state. Guess what? You just walked your way into 100% taxation into wherever your CEO is sitting," Kirkell said.
Robert Ozmun, a partner with PwC, said people should be aware of how temporary or permanent changes can affect their taxes. While states can provide offsetting tax credits, it might not save individuals from double taxation, especially when they have intangible investment income that both states tax and it doesn't have a source that goes to the state of residency.
"I think 2020 is the year of the dual resident, because you didn't have a plan to live in that secondary [home] where you didn't normally live. And so you could find yourself surprised at the fact that you could be a dual resident," Ozmun said.
Despite the many pitfalls, De Jong said there are areas where businesses could lower their tax burdens. He used as an example a service provider that had employees working in San Francisco who are subject to its gross receipts tax. If those employees are now working from the suburbs or somewhere else, there could be a way to lower exposure to the city's tax because services are no longer being performed there because of COVID-19, he said.
"There might be some opportunities in here, even though there's a lot of a lot of other things to watch out for," De Jong said.
--Editing by Joyce Laskowski.
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