Massachusetts Releases Updated Pandemic-Related Tax Guidance

Taxing authorities have been grappling with the potential state and local tax impact of remote workers since the beginning of the COVID-19 pandemic in the United States earlier this year. The Massachusetts Department of Revenue (“the Department”) first issued guidance in this area in late April of 2020, in the form of a technical information release (“TIR”), far earlier than many other states.

Initial Guidance

TIR 20-5 provided guidance in the following four areas:

  • Personal Income Tax & Withholding
  • Sales & Use Tax Nexus
  • Corporate Excise
  • Paid Family & Medical Leave

Specifically, while these rules remain in effect, having an employee or employees working remotely in Massachusetts due to defined “Pandemic-Related Circumstances” will not, in and of itself, create a withholding obligation for an employer with respect to such employee(s). In the TIR, the Department took the position that the income of a non-resident who immediately prior to the state of emergency worked in Massachusetts and began working remotely solely due to a Pandemic-Related Circumstance should continue to be treated as Massachusetts source income, subject to personal income tax withholding. The TIR also provides guidance regarding eligibility for a credit for taxes paid to other states, and provides rules intended to limit the potential impact of double taxation, but makes it clear in a footnote that these rules do not impact the existing 183 day statutory residency test contained in Massachusetts General Laws Ch. 62, §1(f).

While these rules remain in effect, having a remote employee or employees in Massachusetts solely due to a Pandemic-Related Circumstance, “including the presence of business property reasonably needed for such persons’ use while working remotely,” will not create a sales/use tax collection obligation for a business, nor will such a presence alone subject a business to the Massachusetts corporate excise (or corporate apportionment adjustments). Businesses are advised to keep adequate records to support any claimed nexus exemptions under the TIR.

The TIR also provides guidance with respect to the Massachusetts Paid Family and Medical Leave (“PFML”) program from a pandemic-perspective. While these rules remain in effect, an employee who previously worked outside of the Commonwealth and was not subject to the PFML provisions will not become subject to them solely due to his/her temporarily working in Massachusetts as a result of one of the defined Pandemic-Related Circumstances outlined in the TIR. Similarly, an employee who previously performed services in Massachusetts and was subject to the PFML provisions who is now temporarily working outside of the state continues to be subject to the PFML rules.

The Department’s stated goal in issuing this guidance was to minimize disruption for both employers and employees by providing guidance on how to handle employees working remotely and the tax consequences stemming from such work after the state of emergency was declared in Massachusetts on March 10, 2020. The initial guidance in this area was scheduled to expire when Governor Baker gave notice that the declared state of emergency in the Commonwealth would be ending.

Revised Guidance – July & December

The April guidance was revised in July as it became evident that the pandemic and the state of emergency in Massachusetts (and across the country) would be with us for some time. This second iteration (TIR 20-10) called for an expiration date at the earlier of December 31, 2020, or 90 days after the state of emergency in Massachusetts has been lifted.

On December 8, the Department issued the third iteration of its guidance in this area, which superseded, revised, and restated the previous version. TIR 20-15 maintained the substantive positions outlined in the earlier releases, but removed the December 31, 2020, expiration date. At this time, these rules will remain in place until 90 days after the state of emergency in Massachusetts is lifted. The regulations in this area have also been updated throughout the year, and a public hearing is scheduled for next month.

The release of TIR 20-15 puts to rest the question of whether employers will need to rush to make any major changes as of January 1, 2021, as it is now clear that Massachusetts will not be returning to the “normal,” pre-pandemic rules from a tax perspective in the near future. However, the ultimate outcome of the Department’s position remains to be seen as a New Hampshire lawsuit concerning the constitutionality of the income tax withholding components of the guidance remains pending. We expect Massachusetts to file its initial reply to the suit soon.

It is important to note that the tax relief provided by other states such as Maine and Rhode Island related to the presence of remote workers within their borders, as well as income tax withholding rules currently in effect, may be set to expire prior to the Massachusetts guidance. Businesses should monitor the guidance in all of the states in which their employees may currently be working.

If you have any questions, or if you would like to further discuss how Massachusetts or other states are addressing remote employees in the current environment, please contact Leanne Scott or your preferred BNN professional at (800) 244-7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.