Let’s Talk About Tax

Since the beginning of the pandemic, Minnesota’s nexus waiver policy provided that the state will not assert nexus for business income tax or for sales and use tax purposes “solely because an employee is temporarily working from home due to the COVID-19 pandemic.” This relief was intended for a business that had no physical presence in Minnesota (other than telecommuters who were in the state “due to the COVID-19 pandemic”) and no economic nexus with Minnesota (e.g., for sales and use tax purposes, businesses with less than $100,000 in sales to Minnesota customers and fewer than 200 transactions with Minnesota customers). In that situation, the Minnesota Department of Revenue offered that it would not require the business to file income tax returns or sales and use tax returns solely because of the telecommuters’ presence.

It was never quite clear what the Department meant by “due to the COVID-19 pandemic.” Did it mean that the telecommuter had to be quarantining at home? Could it apply to a telecommuter whose children were remote-learning or unable to go to daycare/school? Did it require that the business’s offices be closed? Did it apply to immunocompromised employees? Or did the phrase “due to the COVID-19 pandemic” encompass all telecommuters who simply chose to work from home for any pandemic-related reason?

Regardless of what “due to the COVID-19 pandemic” meant, the Department has now decided that the pandemic no longer provides a sufficient excuse for allowing telecommuters to work in Minnesota without subjecting their employers to state income and sales/use taxes. According to the Minnesota Department of Health’s data, the pandemic is certainly not over—with testing revealing approximately 2,000 new cases per day. Perhaps the Department is concerned that telecommuting has now become the “new normal,” with latest polls showing that nine out of ten employees want to maintain the ability to work remotely to some degree, and one in three employees state that they would quit their jobs if they could no longer work remotely. Or perhaps the Department is focusing on businesses “opening up” and allowing or requiring employees to return to the office at least some of the time.

Without stating its reasons for the change, on June 6, 2022, the Minnesota Department of Revenue decided to end its nexus relief policy and issued the following release:

During the COVID-19 pandemic, some businesses had workers telecommuting from Minnesota rather than working in their regular offices outside of Minnesota. To help businesses and taxpayers impacted by the pandemic, the Minnesota Department of Revenue provided nexus relief from business income tax and sales and use tax specifically related to telecommuting due to the COVID-19 pandemic.

From March 13, 2020, to June 30, 2022, Minnesota will not seek to establish nexus for business income tax or sales and use tax solely because an employee is temporarily telecommuting due to the COVID-19 pandemic. We are updating this guidance as businesses reopen their offices and workers return to their regular work locations.

This latest guidance gives businesses who have been relying on Minnesota’s telecommuter nexus relief policy to quickly figure out (by June 30, 2022) whether they will continue allowing employees to work remotely from Minnesota and thus subject themselves to potential income, sales and use, and other state and local tax filing requirements.

Given the expiration of nexus relief provisions, companies and their advisors should continuously evaluate their nexus footprints and carefully draft (and enforce) remote work policies that thoughtfully address the state and local tax implications of allowing employees to work from other states.