New Jersey ends COVID-19 telework nexus and withholding policies

In 2020, New Jersey issued temporary guidance on the tax implications related to teleworking due to the COVID-19 pandemic. As of October 1, 2021, the temporary guidance will no longer be effective and pre-existing standards will apply.

Corporation Business Tax (CBT) nexus:

The New Jersey Division of Taxation (NJDT) temporarily waived the CBT nexus standard, which is generally met if an out-of-state corporation has an employee working in New Jersey. The temporary guidance stated employees working from home in New Jersey, solely due to the COVID-19 pandemic, would not create nexus for an out-of-state corporation.

The CBT nexus waiver for employees working from home in New Jersey as a result of the pandemic will no longer apply as of October 1, 2021. Beginning on October 1, 2021, the pre-pandemic nexus standards apply; meaning an employee working from home in New Jersey will create nexus for an employer (unless the activity is protected under P.L. 86-272).

A corporation is considered to have nexus for New Jersey CBT purposes when it has one or more employees conducting business activities (not protected under P.L. 86-272) on its behalf in New Jersey.

Sales/use tax nexus:

The NJDT temporarily waived the sales tax nexus standard, which is generally met if an out-of-state seller has an employee working in New Jersey. The temporary guidance stated that if the out-of-state seller did not maintain any physical presence other than employees working from home in New Jersey, solely due to the pandemic, and did not exceed the economic activity thresholds enacted by P.L. 2018, c. 132, the NJDT would not consider the out-of-state seller to have nexus for sales tax purposes.

The sales tax nexus waiver for employees working from home in New Jersey as a result of the pandemic will end on October 1, 2021. Beginning on October 1, 2021, the pre-pandemic New Jersey sales tax nexus standards apply, meaning an employee working from home in the state will create nexus for an employer.

Therefore, the business would be required to register for New Jersey Sales/Use Tax and file returns.

Employer withholding:

Due to the COVID-19 pandemic, the NJDT temporarily allowed employers to source teleworking employee wages to the employer’s jurisdiction. As of October 1, 2021, employers must resume sourcing income based on where the service or employment is performed and withhold New Jersey Gross Income Tax from a teleworking employee’s wages.

Please contact your Mazars professional for additional information.

Published on August 10, 2021

Authored by Harold Hecht and Kevin Melson