Attention employers/employees currently telecommuting due to COVID-19

Massachusetts Department of Revenue has promulgated an emergency regulation and issued a Technical Information Release addressing personal income tax/withholding requirements, sales/use tax nexus, corporate excise tax nexus and apportionment, and Massachusetts Family and Medical Leave issues related to employees currently telecommuting due to the COVID-19 pandemic.

Overview:

On March 10, 2020, Massachusetts Governor Charlie Baker issued Executive Order No. 591, declaring a state of emergency as a result of COVID-19. In response to the state of emergency, many employers/employees have adopted work-from-home telecommuting policies.

On April 21, 2020, the Massachusetts Department of Revenue (DOR) promulgated emergency regulation 830 CMR 62.5A.3 and issued Technical Information Release (TIR) 20-5 to address uncertainties surrounding personal income tax, sales/use tax, corporate excise tax, and Massachusetts Paid Family and Medical Leave resulting from employees telecommuting in response to COVID-19 (links to the emergency regulation and TIR below).

Emergency Regulation 830 CMR 62.5A.3: Massachusetts Source Income of Non-Residents Telecommuting due to COVID-19

Technical Information Release 20-5: Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic

Key Takeaways:

  • The rules contained in the emergency regulation and TIR 20-5 are effective for the period beginning March 10, 2020, and end on the date on which the Governor gives notice that the state of emergency declared in Executive Order No. 591 is no longer in effect.
  • Personal Income Tax and Withholding:
    • Non-Resident Employees Normally Performing Services in Massachusetts:
      • All compensation received for personal services performed by a non-resident, who immediately prior to the Massachusetts COVID-19 state of emergency, was an employee engaged in performing such services in Massachusetts, and who, during such emergency, is performing such services from a location outside Massachusetts due solely to the Massachusetts COVID-19 state of emergency, will continue to be treated as Massachusetts source income subject to personal income tax and withholding in Massachusetts.
    • Resident Employees Normally Performing Services Outside of Massachusetts:
      • A resident employee suddenly working in Massachusetts due to a state’s COVID-19 state of emergency, who continues to incur an income tax liability in that other state because of that state’s sourcing rule, will be eligible for a credit for taxes paid to that other state under G.L. c.62 s.6(a).
      • The employer of such employee is not obligated to withhold Massachusetts income tax for the employee to the extent that the employer remains required to withhold income tax with respect to the employee in such other state.
  • Sales/Use Tax:
    • Nexus:
      • The presence of one or more employees that previously worked in another state but, solely due to the COVID-19 pandemic, are working remotely from Massachusetts, will not in and of itself trigger nexus for sales and use tax collection purposes.
    • Corporate Excise Tax:
      • Nexus:
        • DOR will not consider the presence of one or more employees working remotely from Massachusetts solely due to the COVID-19 pandemic to be sufficient, in and of itself, to establish corporate nexus.
      • Apportionment:
        • Services performed by an employee working remotely from Massachusetts, solely due to the COVID-19 pandemic, will not be considered to increase the numerator of the employer’s payroll factor for corporate apportionment purposes.
    • Massachusetts Paid Family and Medical Leave Act (PFML):
      • An individual who previously performed services outside of Massachusetts and was not subject to PFML will not become subject to PFML solely because the individual is temporarily working from home in Massachusetts due to the emergency as declared by such other state.
      • Likewise, an individual who previously performed services in Massachusetts but is temporarily working from home outside of Massachusetts solely due to the Massachusetts COVID-19 state of emergency continues to be subject to the PFML rules.

    The information provided in the above does not, and is not intended to, constitute legal advice; instead, all information and content provided in the above is for general informational purposes only. Readers of this material should contact an experienced tax attorney to obtain advice with respect to any particular legal matter.

    McMahon & Tivnan, PC is responsible for this content. McMahon & Tivnan, PC represents individuals, estates and businesses with federal and state tax controversies, including audits, appeals, litigation and foreign transaction reporting. Collectively, McMahon & Tivnan, PC’s Boston-based tax attorneys have more than 100 years of experience investigating and defending IRS and state tax matters.