Unlike the federal government, state and local governments generally must balance their operating budgets each year. COVID-19 continues to strain subnational revenue, and businesses are experiencing financial and compliance changes. Here are a few lesser-known impacts to businesses due to the pandemic.
Remote workers –
COVID-19 caused a huge transition into remote work, the remnants of
which will remain in some form long after the health crisis has ended. So what happens
when somebody in one state works from home for a company located in another state?
Does the state where the worker resides get to collect tax revenue from the employer? Will
the employer have to withhold payroll taxes for the employee based in a different state?
While states often treat the presence of employees as a definitive factor, the answer can
vary state by state and may depend on additional considerations in light of COVID-19.
Sales and Use tax –
E-commerce has reached new heights during the pandemic, and
states are scrambling to collect revenue wherever they can by requiring online sellers
located out of state to collect and pay sales tax. While the South Dakota v. Wayfair
decision opened that door, will other factors (such as remote employees) extend a state’s
reach?
Property tax –
Real estate values have certainly fluctuated because of the pandemic, and
how real and business personal property taxes are calculated (will they be determined by
pre, mid, or post-pandemic valuations?) varies from state to state. Employers are likely
seeing their local governments change rates, valuation methods, and methods of
collection (increased audits) as they look for more tax revenue to cover budget shortfalls.
Unclaimed property compliance –
Because of the pandemic, some companies might not
have the capacity to meet their state’s unclaimed property requirements, opening them up
to expensive penalties. Companies should take care to remain in compliance to avoid an
even bigger financial headache.
If you have questions about your company’s state and local tax obligations, contact Fred Parker today.