Tax Warrior Perspectives
Tax Warrior Perspectives

Episode 3 · 8 months ago

Tax Implications of a Remote Workforce


With in-person restrictions due to Covid, millions of people began working from home. As a result, businesses are trying to navigate the complex world of state and local taxes (SALT). Jennifer Karpchuk, an attorney at Chamberlain Hrdlicka, is an expert on how these nuanced tax laws impact employers and employees. In this episode, she sheds light on some of the impacts of SALT for a remote workforce.

Get the full show notes and more resources at .

Welcome to tax warrior perspectives, where our goal is to bring you insights for building, sustaining and growing your wealth. Join our expert discussion of the most crucial ideas and strategies for including tax in your financial plants. And now here's your host, Jane Skecchetti. Welcome to tax warrior perspectives. I'm Jane Skecchetti, and today we'll be talking to Jennifer Karpchuk on a timely topic that this pandemic has brought front and Center for many businesses and individuals. What are the tax implications and risks to having so many people work from home? Our goal is to enlighten you on the issues and prepare you to meet with your advisers about your specific facts, and for the advisors listening to identify issues for their clients. We hope at the end of our podcast you can say that was a great podcast and I know what I need to do. So let me tell you a little bit about our guest. Jennifer represents companies and individuals in various matters related to state and local taxation, with an emphasis on the minimization of state and local tax obligations. She is a partner at the prestigious law firm of Chamberlain her Liqua, White, Williams and Autrey. She has extensive experience handling state and local tax matters, including those related to corporate income tax, Franchise Tax, gross receipts tax, excise tax, personal income tax, sales and use tax, business privileged tax and real estate and property tax, pretty much anything that has the word tax after it. She also has experience with tax controversy and litigation and qualified opportunity zones. Jennifer was named to the US News and World Report Best Lawyers List in twenty twenty one, as a super lawyer rising star in Twenty Sixteen and Twenty nineteen, and as a top tax lawyer in mainline today in twenty nineteen. She holds her law degree from... Alma Mater, Temple University, and is admitted to both bars of New Jersey and Pennsylvania. My firm Drucker and Scacchetti work extensively with Jennifer and with her other talented partners and I am really excited to have Jennifer here to day. And Jennifer, can we say state and local tax obligations and means salt the little acronym standing for state and local tax, because if I had to read that again, there's no way I get through. Welcome, Jennifer. Thank you so much for having me. Well, Jennifer, let's get started. My opening comment was linking this to the pandemic, to a host of state and local issues facing individuals and businesses. Can we start with what you are seeing at a macro level today? Of course. So at a macro level, the trend we see right now is that human resources is really guiding what companies are doing right and a lot of times they're not consulting with their tax departments or outside tax council or advisors. And that makes sense in a way, because companies are really trying to be flexible. They're trying to accommodate their employees who are working remotely or have been working remotely for, you know, sixteen, seventeen months at this point in a lot of cases, and so the trend is to continue to allow for some amount of flexibility. The problem with a remote or a semi remote workforce is that they are creating that all powerful nexus or connection with a state and once they do that, there are tax implications that company is deemed to be aware of whether that's for income tax purposes and with that the potential loss of public to seventy two protection or sales tax purposes, groce receipts tax purposes, local business tax purposes, which a lot of companies forget about, and then you have your employment taxes. So there's just a whole host of issues that come up when you have employees, even remote employees, in a state or locality and again, a lot of times what we're seeing right now is that companies are sort of forgetting about that. Well, I've also experienced where companies don't even know about it. We're employees are moving and they're not necessarily telling their employer that they're moving,...

...whether they have a temporary move to a Jersey shore home where they have a more permanent move for a year to follow a spouse to another city for a fellowship or a short term job opportunity. But we were surprised at how many of even our own employees weren't where we thought they were. Oh, absolutely, absolutely. It's a huge problem for employers, you know, unless you're on a zoom called daily and you start to notice that that office is not the same office that they used to be in and suddenly there's a beach behind them. You know, then you might not know where they are right so it's definitely a problem for employers to be able to sort of track their employees. So I know there was a case for the salt experts were following. We were following a dealing with remote work, and would you discuss New Hampshire versus Massachusetts and the issues raised in that case and what the Supreme Court's denial of certain means? Especially on the east coast, it's so easy to cross state lines from where you live and where you work that this case in particular, I think, really resonated with those of us on the East Coast. Sure. So, New Hampshire versus Massachusetts dealt with Massachusetts policy that it enacted during the pandemic. Ordinarily, Massachusetts would only subject non residence to tax if their work was performed in Massachusetts, right, but in light of the pandemic, Massachusetts adopted a sort of status quo approach. So they essentially acted as if all employees who had been working in Massachusetts before the pandemic we're still working in Massachusetts, despite the fact that they were, you know, working remotely from wherever their home might be. So if you had a new Hampshire resident that was working in Massachusetts before the pandemic but was now working from home in New Hampshire, that individual would continue to be subject to Massachusetts income tax despite the fact that they were working from home outside of Massachusetts, according to this Massachusetts Policy. Not surprisingly, New Hampshire was not all too pleased with this...

...policy and they sought to invoke the US Supreme Courts original jurisdiction by suing one state in another state. So here they sued Massachusetts and they were attempting to invalidate its policy, and a lot of salt experts were interested in this case, you know, for the fact that it was a state versus state and the policy that related to Massachusetts, but also because it impacted more than just this Massachusetts and New Hampshire, these two states. It had implications for any convenience of the employer jurisdiction. And and there are a handful Ohio, Pennsylvania, New Jersey, New York, right right in Philadelphia, Yep. So there's there's a bunch around the the northeast that that follow this sort of convenience of the employer rule. So you know they they were all watching this pretty closely. Unfortunately, the Supreme Court did Deny Sert in New Hampshire v Massachusetts. You know, it's hard to say why they did that. Obviously the Supreme Court doesn't need to say why it declines a case. There are a lot of thoughts. You know, it could be that perhaps they weren't interested in the issue. That's one option, of course. Another is that new Hamps I'm sure, does not have an income tax. So there was a lot of questions about whether New Hampshire actually had standing to bring this case, sort of like did they have damages exactly? There was no direct financial harm that they could really point to. Is More abstract. So it could be that the the court just didn't think that they were the right entity or what have you to be bringing this case. So, you know, it's really not the end of the road, though. There are still these again, these convenience of the employer jurisdictions that it Massachusetts policy was temporary, but these convenience of the employer jurisdictions are not temporary. These are policies that have been on the books in these jurisdictions for years. They're not going anywhere. So there there of course, up for challenge and again, as mentioned, that's Philadelphia, Pennsylvania, but also New York, and there is actually a case that was recently filed in July in New York to challenge that state's convenience of the employer rule, and the anticipation following that case in New York is to see if they'll have a different set of of litigants that the Supreme Court will...

...then listen to it. Do you think it'll make its way all the way up? So the individual that had sued here is Professor Zelinski. Back in two thousand and three he brought the exact same case in New York and he appealed it all the way up to the Supreme Court and ultimately the Supreme Court denied start. There he has renewed his fight based on essentially differ, a change in facts. Right that the the world is a bit different in the past two decades than it was back in two thousand and three. So I would anticipate that he would again try to bring it all the way to the US Supreme Court and see whether or not they'll change their mind as to whether they want to review the case. Or not. Yeah, I think a lot of us are hoping that they will review. We need clarity in order to advise our clients. But you very quickly mentioned public law eighty six to seven two earlier. I know that some new guidance was just issued on this federal law and it is a federal law that you educated me on that when we were talking earlier. So what's the implications for maybe start with what is public law eightred, sixty two, seven two, why it's important that it's a federal law and what the implications are for it? Sure, so public law eighty six to seventy two. Again, it is a federal law, but it prohibits states from imposing an income tax on a company whose only connection with that particular state is the solicitation of sales of tangible personal property that are sent outside of the state for approval and then are filled by shipment or delivery from outside the state. All right, that's a mouthful. Give me an exam it is. So I sell a widget and I am located in Maryland and I have no connection with Pennsylvania other than I send my sales reps into Pennsylvania to solicit sales for my widget. They then will send orders back to me in Maryland and I will approve them in Maryland and then I will ship them from Maryland to Pennsylvania. So I have this sort of you know, one thing we have to remember of public at e six to seventy two is you have nexus right. I have these this physical presence of my employees in Pennsylvania. They're soliciting sales, but that's all they are doing and as long... that is all they are doing, then you can claim the protection of public to seventy two. And you don't know income tax in that state. For companies that can fall within the parameters of Public D six, two hundred and seventy two, it offers this huge relief right. It means no income tax in that state. So it can be it can be a huge deal for states that are still able to to fall within its parameters. But it's limited now, right because it only applies the tangible personal property. So it's not going to apply to services and you have to be careful what you're doing because you can lose the protections if you're going beyond that solicitation with your employees in the state. And it doesn't take much it can take one employee to be doing more than solicitation and now all of a sudden you have lost the protection and you said something that's very important. It's not applying to services. So you know, you can't use this where you have an employee working in Massachusetts, you're located in Pennsylvania and their home is in Massachusetts. They're working from home. You can't use the fact that that's the only thing going on in Massachusetts to say that you don't have nexus to Massachusetts. That's what I'm hearing you say. If they're doing services correct right, right. So, if they're performing the services in their Home Office in Massachusetts, that next is to Massachusetts is likely to exist. Right, they will. They'll have that nexus and they won't have sort of this exception of publical ID seventy two graph to right. Well, there's a lot going on and I'm imagining and we haven't even we're touching on the taxes. We even haven't touched on workmen's COMP and issues like that that really fall into you know, when you have employees working another state. So it's it really is a moment for everyone to take a second and think about where they are, take that sense is find out where your employees are working and see what your exposure is right. Absolutely, and particularly, and going back to the other part of your question, the MTC. MTC stands for multistate tax commission. Okay. They were essentially formed... a group of state tax administrators during the late s and in part they were formed as a response to the passage of Public Law to seventy two in the late S, okay, and the MTC has periodically throughout the years issued guidance interpreting various aspects of the federal law. Again, there there is no other guidance. It was written in nineteen fifty nine. There has been no changes to it since nineteen fifty nine. There's one Supreme Court case on it, but the MTC has continued to issue guidance on and sort of what their interpretation of public to seventy two is, and so their latest iteration is is sort of how it applies to address Internet activities today. The changes have sort of a host of implications because they are attempting, in many practitioners eyes, to eviscerate the protections of the federal law. Essentially, if your website is doing anything that they would consider to go beyond solicitation, then you are subjects to then come tax in that state. You've lost the protections of public. A hundred and seventy two. So you know, for instance, if you have a chat feature on your website, right, if you can chat with somebody about an issue, that would go beyond solicitation. Amazing. Yeah. and and cookies, right, so if you use cookies on on your site for non solicitation purposes, is sometimes they're used to adjust inventory or production, that would go beyond the protections of public. I six two hundred and seventy two. So so it's really you know, the MCC's guidance is guidance, right, it's not law, you know, it's not binding on taxpayers, it's not binding on states, but there is a fair assumption that MTC member states and others will be influenced by their guidance and that audits will become even more aggressive for taxpayers that do claim the protections of public. Hundred Seventy two. Wow again. You know, when you think of working from home, you start thinking of employees, you think of withholding. But then this has implications for business tax and it has implications for Nett income tax and, as... said, you know, all of this just rolls up to a lot of confusion for people because they're not really sure what the law is and unfortunately, especially now where certain businesses are delaying openings, a lot of uncertainty continues as to where businesses are operating, where employees are living, where employees are functioning. Jennifer, I really appreciate the information. I hope it's helped our listeners. But let's start, let's end rather where we started. What are some specific facts a client should be identifying to prepare for that conversation with their advisors, or what issues should advisors be proactively considering for their clients? So, for those employers that have remote or hybrid employees, they should really be evaluating what those employees are doing, what potential effect those employees may have in states where the company isn't otherwise physically located and doesn't otherwise have nexus. They want to consider whether the remote employee may be subject in the company to any filing obligations or tax obligations right, and that can be again, there's been a host of taxes. We've mentioned sales tax, gross receipts tax, local taxes, again business taxes, local business taxes that people often forget about, and then for income tax purposes, if you have a client that is claiming the protections public a hundred and seventy two in a particular state, now is really a crucial time to spot the potential issues that both a remote employee in that state could create as well as the potential issues that could come from the MTC's wonderful guidance that they've issued. Good Advice. Jennifer, I really appreciate you being here today. I like to ask all my guests a question so that our listeners can get to know you a little bit better. So don't intend for it to be any kind of trick question, but just so we can get to know you better. And I heard this question asked of a candidate for a President position and I thought it made so much sense and it really did disclose a lot about that person. So I'm going to ask you when did you realize you could make a difference? That's a great question.

I think what first made me realize that I could make a difference within, you know, this profession, was individuals and smaller business owners that I was representing in cases where there were really large assessments against them personally or their business, and sort of in those cases where a win to them meant so much more. You know, I nobody likes to be audited, nobody likes an assessment right, but at least with some of my larger clients they have an entire tax team to deal with it, they have in house counsel, there's a ceasuite. It doesn't mean that they need to contemplate, you know, selling their house or digging into their retirement savings to address the issue. So there's a reason that we are called a counselor at law. You know, with these smaller clients and individuals, it really is acting as a counselor at times, like calming them down, helping them through a very difficult time in their lives. And was sort of that through those interactions with those smaller clients and smaller business owners where I really realize that what I do is making a difference in their lives. I'm sure it is. I'm sure it is, and I've been in that seat watching how important it is for them to have that kind of representation, because the same laws apply to the small business as to the large. So before we leave. Where can our listeners find you if they wish to learn more about the ideas we discussed here? Sure you can reach out to me at my email, which is Jennifer Jennifer Dot krp Chuck Ka ARPC CH UK at Chamberlain Lawcom, and I'm sure you're also on Linkedin, so they can reach out to you there. We will also have the information on our website at tax warriorscom. Just search state and local tax and you should be able to find all this information. Thank you, Jennifer. I really appreciate you coming on to our podcast. Take Care and thank you. Thank you so much for having me. Thank you for joining us today. We hope we've shared our expertise in a way that positions you to discover the best strategies and ideas to build, sustain and grow your wealth. If you like to listen to more episodes, you can subscribe on your preferred...

...podcasting APP or visit our website, where you will also find show notes and important disclosures. Tax Warriorscom podcast. This has been a production of twin flame studios,.

In-Stream Audio Search


Search across all episodes within this podcast

Episodes (7)