The New Jersey Division of Taxation (the Division) recently announced that it will be lifting the temporary nexus rules that were put into place in response to the COVID-19 pandemic.
Nexus, which is a sufficient connection between a business and a jurisdiction’s taxing authority to trigger a tax filing obligation, can be established through physical presence, among other factors. As a result, employees of out-of-state businesses who are residing and telecommuting from New Jersey will trigger nexus for various taxes within the state. However, due to the quarantine and work-from-home orders that were put into place during the pandemic, the Division saw an influx of telecommuters within the state. In response to this, the Division put a temporary waiver on multiple tax nexus standards including Corporation Business Tax (CBT), Sales Tax, and Employer Withholding Tax. As a result, if these out-of-state businesses did not otherwise meet factors that would trigger nexus, they were not considered to have nexus within New Jersey during the temporary suspension period based solely on their telecommuting employees.
Now that the pandemic is hopefully coming to an end, so are the temporary COVID-19 rules. Starting October 1, 2021, the following pre-pandemic standards will apply:
CBT
- An employee working remotely from his or her home in New Jersey will create CBT nexus for an out-of-state employer.
Sales Tax
- An employee working remotely from his or her home in New Jersey will create CBT nexus for an out-of-state employer.
Employer Withholding Tax
- Employers should resume sourcing income to where their employees are performing their services or employment and withhold New Jersey Gross Income Tax from those wages.
State nexus implications could be significant as many businesses shift their workplaces to remote settings that are more permanent in nature. If you have any questions regarding this or any other state and local tax topic, please contact your WilkinGuttenplan advisor.
