COVID-19 Related Tax Issues: Letter

SUMMARY

The State and Local Taxation Committee sent a letter to the New York State and New York City tax commissioners recommending that their departments address several tax issues raised by the COVID-19 crisis. The committee urges that the increase in telecommuters in New York due to the various stay-in-place mandates not affect an out-of-state company’s nexus status with respect to corporate income taxes; in addition, businesses providing goods or services to New York State customers solely in connection with the pandemic should not be deemed to have established nexus and should not be required to register as foreign entities doing business in the state. And, in light of the fact that the pandemic has caused some people to have to live temporarily in states other than their domiciliary state, the committee urges the departments to announce that domicile and statutory residency issues that arise due to the pandemic will be liberally construed in favor of taxpayers. Furthermore, with respect to the convenience of employer rule, employees working outside the State (or City) during the pandemic should be deemed to be doing so as a matter of necessity rather than for the employees’ convenience and, thus, those workdays should not be attributed to New York State (or City).

REPORT

April 10, 2020

Sent via E-Mail

Commissioner Michael R. Schmidt
New York State Department of Taxation and Finance
W.A. Harriman Campus, Bldg. 9
Albany, NY 12227

Commissioner Jacques Jiha
New York City Department of Finance
One Centre Street
New York, NY 10007

Re: COVID-19-Related Tax Issues – Executive Order No. 202.8 (abating interest, sales tax late filing and payment penalties for a 60-day period) and Executive Order No. 202.12 (extending certain filing and payment deadlines for personal income tax and corporate tax returns)

Dear Commissioners Schmidt and Jiha:

On behalf of the New York City Bar Association’s State and Local Tax Committee, we write to bring to your attention certain issues that have surfaced as we face the COVID-19 pandemic.  We know that both you and your staffs have been working hard to continue providing the services and support New Yorkers have come to rely on from their tax departments and we commend everyone for their efforts during these challenging times.

Governor Cuomo has issued Executive Order No. 202.8 authorizing Commissioner Schmidt to abate interest as well as sales tax late filing and payment penalties for a 60-day period, and Executive Order No. 202.12 extending certain filing and payment deadlines for personal income tax and corporate tax returns.  The City’s Department of Finance has announced that taxpayers can request penalty abatement for late filed extensions and returns for the business and excise taxes that it administers.  Your departments have issued (and continue to issue) guidance to taxpayers and we applaud all of the efforts taken by you and your departments in keeping New York taxpayers informed of all COVID-19 related tax relief.

The Committee has identified several issues created by the response to COVID-19 that it recommends be addressed by your Departments: (1) nexus; (2) domicile and statutory residency; and (3) application of the convenience of employer rule.  These issues are not intended to be all-inclusive; numerous other issues exist or may be discovered and the Committee urges that the Departments adopt approaches to these additional issues that minimize or eliminate any deleterious impacts from COVID-19 responses.

I. NEXUS ISSUES

Due to Governor Cuomo’s mandated PAUSE, which requires all non-essential workers to work from home, and many other states’ similar “stay-in-place” mandates, the incidence of teleworking has increased exponentially.  This could have nexus implications to the businesses employing those teleworking individuals.  Other tax jurisdictions have begun to address this issue and we urge that you also do so.  For example, on March 30, 2020, the New Jersey Division of Taxation issued the following:

As a result of COVID-19 causing people to work from home as a matter of public health, safety, and welfare, the Division will temporarily waive the impact of the legal threshold within N.J.S.A. 54:10A-2 and N.J.A.C. 18:7-1.9(a) [the statute and regulation addressing nexus] which treats the presence of employees working from their homes in New Jersey as sufficient nexus for out-of-state corporations. In the event that employees are working from home solely as a result of closures due to the coronavirus outbreak and/or the employer’s social distancing policy, no threshold will be considered to have been met.[1]

New Jersey is not alone in announcing its flexibility regarding nexus determinations during this pandemic.  Mississippi has also issued a release that provides that it “will not impose any changes in the employees [sic] temporary work locations due to the pandemic to impose nexus . . . for any business while temporary telework requirements are in place.”[2]  Pennsylvania[3] has also recently stated that due to the current situation telecommuters will not change a company’s nexus status with respect to corporate income taxes, and other jurisdictions have signaled that they would likely follow suit.[4]  The Committee urges the Departments to announce positions similar to those taken by these states.

Other potential nexus ramifications include those for businesses that have opted to provide goods or services to New York State customers solely in connection with the pandemic.  Those businesses should not be deemed to have established nexus by virtue of those pandemic-related transactions and should not be required to register as foreign entities doing business in the State with the Secretary of State.  States have enacted or adopted disaster-based relief provisions[5] and the Committee urges that the State and City adopt similar provisions or support relief legislation.

II. DOMICILE AND STATUTORY RESIDENCY ISSUES

Further, COVID-19 has resulted in some individuals being forced to or opting to shelter in states other than their domiciliary state, becoming ill and becoming hospitalized or being required to self-quarantine in non-domicile states, or helping family members who have become ill in states other than their own, with a potential impact on domicile or statutory resident status.  Although these issues may not be addressed for several years, we urge the Department of Taxation and Finance to announce its recognition of these issues and its position that domicile and statutory residency issues that arise due to the pandemic will be liberally construed in favor of taxpayers in appropriate instances.

III. CONVENIENCE OF EMPLOYER RULE

This rule deems days a New York State (or City)-based employee works outside the State (or City) to be counted as New York State (or City) days unless the employee is working outside the State (or City) because the employer has required that the employee do so.  Given the Governor’s declaration of a state of emergency and PAUSE, employees working outside the State (or City) during the pandemic should be deemed to be doing so as a matter of necessity rather than for the employees’ convenience, and, thus, not attributed to New York State (or City), and the Committee recommends that the Department of Taxation and Finance announce this position as part of its continuing guidance on COVID-19 tax issues.

* * *

As this crisis unfolds additional issues may arise and the Committee stands ready to assist you or your staffs in connection with addressing the tax impacts of COVID-19.

We wish you and your Department personnel continued health during this crisis.

Respectfully submitted,

Amy F. Nogid
Chair, State & Local Taxation Committee[6]