No Good Deed Goes Unpunished - State Nexus and Apportionment Issues Arising from Telecommuting Workers

By Jennifer Prendamano  |  June 25, 2021

As a result of the COVID-19 pandemic, many employees who would otherwise be traveling across state lines to come to work in their employers’ offices are now working from home. During the last year or so since the pandemic began, many employers realized that employees could work from home efficiently and effectively without traveling to the office daily. As the pandemic winds down and social distancing restrictions are easing in most areas, many employers may choose to allow employees to continue to work from home either on a full-time or hybrid basis.

Employers who allow certain employees, or all employees, to continue to work from home should be aware that it may result in some undesirable consequences, such as exposing the company and its owners to possible income and sales tax nexus where the business may not have had nexus in the past.

Nexus Issues

Traditional Nexus Rules

Traditionally, most states have treated the presence of an employee working from home in the state as sufficient to establish “nexus” (a sufficient physical or economic link between a taxpayer and a state which may subject the taxpayer to one or more of the state’s taxes) for an out-of-state business for tax purposes. For example, New Jersey courts have held that having just one employee working from home in New Jersey creates sufficient income tax nexus for an out-of-state employer. In addition, New York has traditionally held that an employee working from home in New York will subject an out-of-state corporation to income tax and sales tax nexus in New York. Similarly, Pennsylvania and many, if not most, other states follow this same principle.

COVID-19 Nexus Rules

During the COVID-19 pandemic, some states such as Connecticut, New Jersey and Pennsylvania issued temporary guidance stating that employees temporarily working from home as a matter of public health, safety, and welfare would not create income tax nexus or sales tax nexus for the employer. However, as COVID cases begin to decline and more Americans are vaccinated, it is likely that states that temporarily waived their nexus rules will begin to assert nexus on employers who continue to allow employees to work from home within their borders.

Other states, such as New York, did not issue any formal guidance as to whether employees working from home during the COVID pandemic would create income tax and sales tax nexus. Therefore, for those states, we must analyze the traditional nexus rules discussed above in determining whether income tax nexus and sales tax nexus is created for out-of-state companies.


As discussed above, now that the social distancing restrictions due to the COVID pandemic are easing in most states, many states that temporarily gave out-of-state businesses a pass will revert to traditional nexus rules.  Accordingly, businesses should begin to monitor the locations of their employees who are working from home and consider whether this creates income tax nexus and sales tax nexus in those states. If you are an employer who will continue to allow your employees to work from home, it may be worthwhile to contact your tax advisors and conduct a nexus study.

A nexus study is designed to analyze a company’s business activities and determine where the business may have a sufficient presence that may create nexus. In addition, a nexus study will determine applicable state filing requirements that result if income tax and/or sales tax nexus is created by the company’s activities.

In recent years, states have become much more aggressive in pursuing both income and sales tax audits, which will likely continue based on the current environment of employees telecommuting. Therefore, it is important for companies to be proactive in identifying where they have nexus and begin filing in those states, which could help reduce the imposition of tax, penalties and interest if they are selected for audit.

If your company could benefit from a nexus study or you would like more information, please contact Jennifer Prendamano, Director, Tax Advisory Services at or Jay Brower Leader, State and Local Tax at

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About Jennifer Prendamano

Jennifer Prendamano, JD, is a Director in the Tax Services Group at Marks Paneth LLP. To this role, she brings nearly 20 years’ experience in tax controversy matters at the federal, state and local levels as well as strategic state tax planning and consulting. Ms. Prendamano routinely handles complex state and local tax issues for large, multi-state corporations as well as high-net-worth individuals, and focuses on IRS examinations, state and local income tax examinations at... READ MORE +

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