Everything Tax and Accounting Execs Need to Know in the Time of COVID

FEI Daily spoke with Emilie Burnette, Practice Lead, State Tax Analysis and Content, Bloomberg Tax & Accounting, about the findings from the company’s annual state tax department survey.

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FEI Daily: Have any states temporarily suspended or modified rules governing the treatment of remote workers’ earnings due to the COVID-19 pandemic?

Emilie Burnette: Yes, while our survey doesn’t cover individual income taxes, several states, such as Georgia, have issued guidance indicating that they will not tax income earned by employees temporarily teleworking in a state. I would expect more guidance from the states to be forthcoming as they grapple with all the tax ramifications of the coronavirus

FEI Daily: A bill has been introduced in the Senate, the Remote and Mobile Workers Protection Act, that would require states to treat the wages earned by workers who have temporarily relocated to a remote work location as if they were earned at their normal work location. Can Congress mandate how states tax workers and if so, is this legislation a viable solution?

Burnette: The federal government can restrict the ways in which states tax interstate commerce including telework. While some of our experts noted that the coronavirus highlights the need for more federal legislation and uniformity amongst the states, I think that ultimately they predict that cooperation amongst the states is more likely to happen.  

FEI Daily: How has the COVID-19 pandemic impacted state tax authorities’ audit and enforcement activities? How has it affected taxpayers’ ability to provide data and access business files? Are states relaxing rules, requirements and deadlines because of difficulties created by the pandemic?

Burnette: The survey includes some expert analysis discussing the ramifications of the pandemic on audits and other enforcement issues. One expert,Jamie Yesnowitz, said “that from the perspective of audits, my sense is that assessments and agreements on assessments might be somewhat easier, as long as the taxpayer is still paying some amount. In contrast, refunds are going to be harder to get because states are really hard up for money, and so my sense is their perspective will be ‘grab as much money as you can, but by the same token, don't release any money in the form of refunds”.

Another expert, Fred Marcus stated, “that the challenge for audits is “whether or not they can actually get their auditors out conducting audits. Some states have successfully conducted their audits remotely, but I'm sure there are states which are either incapable of doing it or are doing that with difficulty. So I think that's creating problems for them.” Additionally, almost all the states have pushed back tax filing and payment deadlines. Conversely, collection activities can still continue as notices can still be served and courts are generally still open.

FEI Daily: Do you expect that the challenges presented by the COVID-19 pandemic will cause states to look to take new approaches to how they treat remote workers’ wages?

Burnette: While the survey doesn’t generally discuss payroll withholding or individual income tax sourcing, I think that as states begin to see more telecommuting issues arise as a result of the pandemic they’ll issue more guidance and consider more cooperation.

FEI Daily: Many FEI members are affiliated with pass-through businesses, what is the most significant development for state treatment of pass-through business income in the survey?

Burnette: With respect to pass-through entities, one key finding is that 17 states classify guaranteed payments for services, other than personal or professional services, as business income. Only one state, Mississippi, stated that it classifies these payments as nonbusiness income. Twenty-eight states said nonresident owners/members/partners subject to withholding or composite returns must file a return to receive a refund of amounts over withheld.

FEI Daily: What has been the most significant impact of the pandemic on state tax authorities?

Burnette: State tax authorities may have difficulties with the technical aspects of conducting audits as many corporate offices are still closed. State tax authorities may also be facing pressure from severely reduced tax collections. Accordingly, some experts predict that payment plans may be easier to enter into, but that refund requests will be more stringently scrutinized. Additionally, state tax authorities will have to make decisions regarding nexus issues arising as employees continue to work.