Remote Workers & Multi-State Tax: 9 Key Considerations

By Leanne Scott July 31, 2023

Traveling employees and those working outside of a company’s office walls have always presented challenges from a state and local tax (SALT) perspective. These issues came to the forefront during the COVID-19 pandemic as more people needed to work from home. While initially the flood of employees working from home was for health and safety reasons, remote and hybrid work has now become a “must have” benefit for professionals across industries.

It is a well-recognized fact that the way people work has changed, likely for the foreseeable future, if not forever. This is a key area of focus for most of our clients right now. Business owners and leaders have realized that having employees in multiple (and sometimes distant) locations means multiple (and sometimes conflicting) tax reporting rules and requirements. Additionally, a greater variety of industries are being impacted by remote workers than in the past as employers look to fill roles in a limited and competitive labor market, including those in the financial services, medical, and nonprofit sectors who may not have had to consider remote work requests or expectations from their workforce in order to meet business needs in the past.

This new world of work can present challenges for businesses as they seek to comply with their tax and other filing obligations and responsibilities. So, what should you be thinking about? Here are nine considerations to discuss with your leadership team to ensure you are on the right track:

1. How do we track where and when our people are working? Are there best practices we can adopt?
2. How do we understand and manage the various state and local tax rules our company and workforce may be subject to?
3. Does our payroll provider (or department, if internal) have a good handle on our state tax-related requirements?
4. Do we have a policy in place that details our remote and hybrid work protocols? Is the policy shared with our employees so they understand what is expected when it comes to remote work?
5. Be mindful of and diligent in complying with your withholding and reporting obligations for the organization. Always direct employees to bring their personal tax reporting questions to their own tax advisor.
6. It is important to consider all tax types rather than just payroll-related matters such as income tax withholding and state unemployment regimes. For example, a remote worker or traveling employee could lead to additional income/franchise, gross receipts, sales/use, and or personal property tax filing obligations. Are we communicating regularly with our tax advisors (or department, if an internal function) on where our people are working and traveling?
7. How will any required additional income/franchise tax filings impact our apportionment and, ultimately, our effective tax rate?
8. Are we going to incur increased tax compliance costs? Will any such costs be offset by other benefits, such as lower tax rates?
9. How do we handle state notices, inquiries, or audits when they arise?

In addition to SALT implications, legal and human resources (HR) considerations are very important when it comes to remote workers. Your employees are one of your company’s most valuable assets, and it is worth the investment to make sure their work situations are properly set up. It is essential that tax/finance personnel coordinate with legal, HR, and other relevant teams to best position a company for managing its risk and complying with all its obligations, whether financial or otherwise.