States Compete to Attract Remote Workers with Friendlier Tax Policy

Since the COVID-19 pandemic, there has been a marked increase in the number of people engaged in remote work. There has been a corresponding increase in the number of bills states are debating dealing with remote work and specifically, how to fiscally respond to this new trend. State lawmakers seem interested 

This legislative session, 13 states considered 26 pieces of legislation that would amend the tax code in light of the explosion in remote working and digital nomads. Republican legislators introduced 12 of these bills and Democrats introduced seven (the other two were filed in the nominally nonpartisan Nebraska). These generally fall into three categories: bills establishing a Mobile Workforce-esque 30-day safe harbor, bills providing new remote work tax credits, and bills dealing with apportionment or nexus issues.

States Are Pursuing Different Methods to Attract Remote Workers

The 30-day safe harbor bills have seen the most introductions of any category. These bills generally provide that an employee would not have tax liability in the state if the employee worked in that state for 30 days or less (four states — Arizona, Hawaii, Illinois, and West Virginia — have already enacted a policy like this). Indiana enacted a bill (SB 419) that included safe harbor language by a wide margin earlier this month. Apart from a Montana bill (HB 447) that makes administrative changes to an existing safe harbor, none of the other bills in this category have made it out of committee yet. 

Five of these remote worker bills would provide tax credits either to attract teleworkers or defray some of the business costs associated with maintaining a remote workforce. While these proposals seek to make their states more attractive to remote workers and their employers, they take different policy approaches. A Georgia bill (HB 263), for example, would allow businesses a credit equal to up to $5,000 per employee who works remotely at least 12 days per month. A Massachusetts bill (HB 2794) would provide a $10 credit per remote employee and a 15 percent credit for the purchase of "business and communication equipment which are essential for employees to work remotely from their Massachusetts residence." None of these bills have made it out of committee and most did not even get a hearing. 

Four of these bills would change state income tax nexus or apportionment laws in response to the trend of greater teleworking. A pair of Hawaii bills (HB 1471/SB 1116) would provide that there is a presumption of an income tax nexus for certain nonresident employees who telework. By contrast, a Pennsylvania bill (SB 416) clarifies that having employees teleworking in the state would not establish corporate income tax nexus for an employer. Finally, an Ohio bill (HB 121) would allow businesses to make an election to modify their apportionment formula to take remote employees into account. 

There are also a handful of bills that do not fall neatly into any of the above categories. Three Missouri bills (HB 589, SB 344, and SB 644) provide that a St. Louis earning tax would not apply to remote workers. A Pennsylvania bill (PA SB 671), which has cleared the upper chamber, would forbid Philadelphia from imposing a local income tax for work performed outside of the city. A pair of New Jersey bills (AB 1577/SB 730) would establish a "Remote Work Study Commission" to evaluate whether the advantages of remote work exceed its disadvantages and to consider the ways remote work impacts taxation.

What’s Next? 

While most of these bills have not gained any legislative traction, these introductions suggest that state policymakers are generally more interested in making their states more attractive to remote workers. The public sector isn’t the only interested stakeholder — businesses in all industries have also expressed interest in reforming tax laws that impact traveling and remote workers. Groups such as the Mobile Workforce Coalition are working to simplify nonresident state personal income tax laws to ease the burden on employers and their employees that are subject to a patchwork of confusing and onerous rules. For more information on joining the Mobile Workforce Coalition, click here. 

Track State Tax Legislation

MultiState’s team is actively identifying, categorizing, and tracking these issues so that organizations, their government affairs professionals, and other internal stakeholder teams have the information they need to navigate and effectively engage. If your organization would like to further track remote work tax legislation in the states, or other tax policy issues, please contact us.