Can remote employees trigger nexus?
by January 29, 2023
Please note: This blog was originally published in 2021. It’s since been updated for accuracy and comprehensiveness.
The way we work has changed dramatically over the last five years. The pandemic forced more people to work from home, and companies have become more remote-friendly as a result. Today, many companies allow employees to work from home permanently, or a few days a week, giving their team more flexibility.
However, while we’ve all been working from our home office, CFOs across the board have been left with the question, can remote employees trigger nexus?
Let’s see if we can help there.
Short answer? Yes.
For the 46 states with state or local sales tax, they each have their own definitions of what defines nexus in their state. And while each state’s definition is different, most states agree that having a headquarters or office in a state creates nexus. So for companies with an office in a certain state, they are well aware of their sales tax responsibilities, you have nexus in the state you are headquartered in, simply put. However, with the pandemic forcing everyone to work from home, the lines have gotten a little blurred.
This is because for most states, having just one employee working in a state will trigger nexus. So over the last year, some companies went from only have nexus in one state to having nexus in multiple states. If you think about it, sales tax laws have been around for a while, before the remote work movement took off. It’s likely the states didn’t see a need to create any parameters about how many employees were located in the state or for how long they were working in that state.
Nevermind the reason, what is important to know is that having an employee working in a state can trigger nexus, and leave you on the hook for sales tax responsibilities. And with many companies looking to be remote friendly post-Covid, this is something to get ahead of to ensure your company stays compliant now and in the future.
Next step – do some research
Before you panic, it’s important to understand state laws that might apply to you and your employees. Where are your employees located? Once you start with this list, you can research these specific state laws and see how having an employee there impacts your sales tax obligations.
Staying compliant also means the financial leaders being in tune with overall company recruitment goals. When hiring in a new jurisdiction, it means a new team member but also a new sales tax responsibility. So it’s important to work together with the hiring team to make sure onboarding for new employees also means onboarding new nexus states.
