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The Effect of Telecommuting on Massachusetts Taxation

Written by: Catherine H. Hines

4/27/2020

Massachusetts Personal Income Taxation

Massachusetts has adopted a regulation that addresses the income tax liability of nonresident workers who are telecommuting due to the COVID-19 state of emergency in Massachusetts. In general, income of a nonresident from employment carried on in Massachusetts is sourced to Massachusetts for personal income tax purposes. Pursuant to the new regulation, all compensation for work performed by a nonresident who immediately before the Massachusetts COVID-19 state of emergency was an employee working in Massachusetts, but now is working in a location outside of Massachusetts due solely to the state of emergency will continue to be treated as Massachusetts source income subject to Massachusetts personal income tax and Massachusetts withholding.

A Massachusetts resident employee suddenly working in Massachusetts due to the pandemic who continues to incur income tax liability in another state due to that state’s sourcing rules will be eligible for a credit for taxes paid to that other state. The employer of such an employee is not obligated to withhold MA income tax to the extent the employer remains required to withhold income tax with respect to the employee in another state.

The regulation is effective for the period beginning March 10, 2020 and ends when the state of emergency declared by Governor Baker in Executive Order 591 is no longer in effect.  

Sale and Use Tax Nexus, Corporate Excise Tax, and Paid Family and Medical Leave

For the duration of the COVID-19 state of emergency in Massachusetts, for sales and use tax purposes, the presence of employees in Massachusetts who previously worked in another state, but solely due to the pandemic are working remotely from Massachusetts, will not in and of itself trigger nexus.

 In addition, for corporate excise tax purposes (again, for the duration of the emergency), Massachusetts will not consider the presence of employees working remotely from Massachusetts solely due to the pandemic to be sufficient by itself to establish nexus.

For purposes of paid family and medical leave (PFML) contributions required to be made by businesses, individuals who previously performed services outside of Massachusetts and were not subject to PFML will not become subject to PFML solely because those individuals are temporarily working from home in Massachusetts due to the emergency as declared by another state. Likewise, individuals who previously worked in Massachusetts but are temporarily working from home outside of Massachusetts solely due to the Massachusetts state of emergency continue to be subject to the PFLM rules. 

Link to Regulation: https://www.mass.gov/regulations/830-CMR-625a3-massachusetts-source-income-of-non-residents-telecommuting-due-to-covid

Link to Technical Information Release: https://www.mass.gov/technical-information-release/tir-20-5-massachusetts-tax-implications-of-an-employee-working

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