New jersey transaction tax6/10/2023 ![]() ![]() On October 19, 2020, New Hampshire filed a Motion for Leave to File Bill of Complaint with the United States Supreme Court challenging the constitutionality of Massachusetts’ regulation. Interestingly, the Massachusetts Department of Revenue took a similar approach to New York’s by promulgating a regulation requiring nonresidents that typically work in Massachusetts but are telecommuting from outside the state to pay tax on their wages. (See: TSB-M-06(5)I, New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others.) As is apparent in the FAQ, the Department is mechanically applying this test to employees working from home as a result of the pandemic and is not providing any special rules or accommodations for employees that have been required or encouraged by New York State and local governments to telecommute. The bona fide employer office test is a factor-based test and, for the most part, a home office will not qualify as a bona fide employer office unless the employer takes specific actions to establish the location as a company office. Since the outset of the COVID-19 pandemic and work-from-home mandates, New York employers and their nonresident employees have been waiting for the Department of Taxation and Finance to address the million-dollar question: Do wages earned by a nonresident who typically works in a New York office but is now telecommuting from another state due to the pandemic constitute New York source income? New York has historical guidance concerning the application of its “convenience of the employee/necessity of the employer” test, the test used to determine whether a telecommuting nonresident’s wages are sourced to New York, but until recently the Department had been silent as to whether or how such rule applied under the unprecedented circumstances of the COVID-19 pandemic.Īs many expected, in a recent update to the residency FAQs, the Department clearly stated its position that a nonresident whose primary office is in New York State is considered to be working in New York State on days that he or she telecommutes from outside the state during the pandemic unless the employer has “established a bona fide employer office at telecommuting location.” The Department adopted the “ bona fide employer office” test in 2006 as its way of applying the convenience of the employee rule to employees that work from home. Posted In Income Tax, Local Tax, Massachusetts, Nationwide Importance, New Hampshire, New Jersey, New York New York Issues Much-Anticipated Guidance on Taxation of Telecommuting Employeesīy Richard C. Sources familiar with the initiative report that the Division will consider prospective-only settlement agreements under the initiative, under the right circumstances. Ednaldo Silva, Founder & Director of RoyaltyStat, to assist with the initiative. Notably, the Division is warning taxpayers that do not reach an agreement through the initiative that in the future it will: (1) “assess all applicable penalties ” (2) “not waive any penalties ” and (3) audit according to the Division’s “regular audit schedule” without agreeing “to a methodology or settlement for any unaudited open tax years.”Įvidently, the Division has hired Dr. As part of any agreement reached with a taxpayer, the Division will agree to waive all applicable penalties and all rights to assess any additional tax, interest or penalties except for adjustments relating to federal corrections. Taxpayers must agree in writing to participate in the initiative by September 15, 2022, and comply with Division deadlines thereafter (including by providing “all required transfer pricing, tax, and financial information and documentation” to the Division by October 31, 2022). However, the initiative does not apply to matters in litigation. The initiative is broadly available to taxpayers with related party intercompany pricing, even if those taxpayers are currently under audit or have a case pending before the Division’s Conference and Appeals Branch. According to the Division, the initiative is targeted toward companies that have intercompany transactions that would be subject to transfer pricing adjustment. The New Jersey Division of Taxation (Division) has announced a “voluntary” transfer pricing initiative beginning June 15, 2022, and continuing through March 2, 2023.
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