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On-Demand: State Ramifications of Remote Workers for Law Firms

Aug 19, 2021

In this webinar participants will understand nexus, apportionment and other tax and non-tax considerations of having a remote workforce.


Carolyn Dolci:Great, thank you for joining us today for our presentation on the state tax ramifications of remote workers for law firms.

Before the pandemic started, we were assisting clients with these issues on an occasional basis. After the pandemic hit, with people working from home or in other remote locations, the questions became pretty much an everyday occurrence. Well, some states came through with guidance on how to treat the work remote workers, others were silent. Many issued relief but that relief is either expired or will soon expire. And as we all know, people got used to working remotely and from home and they may want to continue. So there's lots of issues and considerations out there that we are going to address today. And I'm going to turn this now over to Bill Gentilesco to take us through the agenda.

William Gentilesco:Thank you, Carolyn and good afternoon, everyone. Our agenda for today, we're going to talk about remote workers and the nexus implications, the apportionment and the sourcing of income implications, withholding taxes, unemployment insurance, and non-tax considerations. Starting with nexus. As a general rule, having an employee working in a state regularly, either full-time or a couple of days a week or even a day a week, that usually creates really nexus for any type of state taxes that a state might impose on a law firm. That would include state income taxes, usually withholding taxes apply if you have a remote worker working in state. And sales and use taxes now sales tax, probably isn't a major concern for law firms. Legal services tend not to be subject to sales tax, but there might be some use taxes on computers and other apparatus, printers that the remote worker has.

So, under a general rule, having a remote worker in a state usually creates nexus and that would also include the Ohio Commercial Activity Tax or the Washington's B&O tax. Now during COVID, many states provided temporary relief from their normal nexus rules. Immediately when COVID took hold in early 2020, law firms and other businesses began to ask questions, "Does an employee working remotely in a state create additional payroll obligations? If an employee is temporarily working in a state due to COVID, does the business have income tax nexus? How about if the employee is permanent?" Some companies during the pandemic hired new people and they were set up as working from home primarily from day one. And probably technically in that case, they might not fall under a particular state's COVID exception because that person was hired with the intent to work from home. And they weren't going to be returning to the office when COVID kind of lessened.

Many states that took action on this provided a specific safe harbor. They generally did not assert corporate income tax nexus on a business based upon the employee working there temporarily due to COVID. Some states extended that safe-harbor to include sales and use tax and withholding tax. Now there's a caveat with regard to the income tax nexus. Most states expressly said, "We're not going to impose corporate income tax nexus to a temporary worker in the state." And it's unclear to us whether that was deliberate or if those exceptions can be applied to other types of entities like partnerships. We think that it would be difficult for a state to say, "Well such as such corporation doesn't have nexus due to the COVID exception, and then say that a partnership does have nexus." If they're both in the same fact pattern, specifically a temporary worker in the state.

And most states link their expiration of relief to the expiration of the state's declared state of emergency, or some type of a COVID-19 executive order. And as we'll see in the next slide, many of those exceptions are starting to be lifted. Well, I actually it's the one after this slide. So we have states in groupings here, the first group of states that provided a COVID nexus exception and there's quite a few states in that list. Then there are states that came out and said, "No, no, our normal nexus rules continue to apply during the COVID emergency." And lastly, you have the last group of states that didn't release any guidance and leaves a question in these states, well, are they going to assert nexus or are they going to give us a break?

I would say that more often than not, we're seeing that states were not really pressing their advantage if you will, during the COVID emergency. Hopefully the states that haven't come out with anything, they're going to follow the first traunch of states there, but we'll see. And I have to point out that this list is changing from time to time when states come out with guidance. And also here we are in August, 2021, states are starting to lift their or end their COVID exceptions.

Then you have a group of states that apply what we call the convenience of the employer rule for payroll tax withholding. And how does the COVID emergency effect that? First of all, a little background on convenience of the employer. States like New York, Connecticut, Pennsylvania and a couple of others say that if an employee normally is assigned to an office in New York or in their state, and that employee doesn't come to the office for a day or a number of days, they work from home for their own convenience, not because of some work or requirement to do so. And they're not visiting a client in their office, if they're working from home for their own reasons, New York and these convenience of the employer states say, well, that's still New York wages for withholding and personal income tax non-resident personal income taxes on those employees.

And New York early on in the COVID emergency issued guidance saying that their convenience of the employer rule continues to apply during the COVID emergency. So a lot of New Jersey employees that worked in New York and now were required to work from home because maybe their building was closed or New York City had a state of emergency and they weren't allowed to go to work or their employer said, "We don't want you to come into the office." New York still said, "No, no, our convenience of the employer rule continues to apply." And that's upset New Jersey because New Jersey feels like they should be able to tax those wages, particularly during the pandemic. And I understand that New Jersey has set up some sort of the commission to look into this. I'm not sure how much power really New Jersey is going to ultimately have on what New York decides they can tax and can't without going through litigation.

But going forward as Carolyn alluded to, we're getting more and more law firms and other businesses that are looking to have some type of a permanent remote work type of a model where they're hiring employees in some far-flung states, you might have a New York law firm hiring an employee in Colorado or Utah or Maine. And that's going to be their work location, their home office. You want to think about that as it relates to the convenience of the employer rule, because if you set that person up as a New York employee, in some cases that person in Colorado might be subject to New York, non-resident personal income tax, and also New York withholding.

And then Colorado might say, "Well, I don't care about New York's giving something employee there. If they're working in my state, I'm taxing them too. And by the way, you also have to withhold them my state." So we've worked with some law firms and some others we're trying to maybe if you have another office in Virginia or another state, you might want to try and set that employee up as an employee of that office, rather than a New York or a Pennsylvania office to try to avoid a potential double personal income tax and a double withholding.

And here we are, as I mentioned earlier states are starting to repeal their emergency nexus relief of their COVID nexus relief rules. And the first group are states that repealed it before July of 2021. And that includes California, Connecticut, Indiana, Maine, Massachusetts, Pennsylvania. And then you have some upcoming expirations in Iowa, Maryland, Oregon, Rhode Island, South Carolina, New Jersey, and Mississippi and Wisconsin. The COVID emergency was starting to subside a couple of months ago and states are started to lift these exceptions. Now you have unfortunately the Delta variant kicking up and gaining steam, unfortunately. And so maybe we'll see some of these expirations with the states that have it, and then maybe they'll slow down some. And then we have a withholding relief that's expiring in a handful of states, Maine, Maryland, Nebraska, and South Carolina.

And I should mention that the expirations that I went over on the prior slide and this slide, these are states that came out with some formal announcement saying "Our COVID nexus exceptions are expiring" and Bloomberg or IntelliConnect and some of the other tax research databases are tracking this. But if you're relying on a COVID nexus exception, there may be other states that have expired because their status of emergencies have expired or will expire soon. So if you're a law firm and you're relying on these nexus exceptions, and you're continuing to rely on them you probably want to check them and double check and see if a state of emergency is still ongoing or if it's ending or ending soon. Here's our first question.

Bella Brickle:Poll #1

William Gentilesco:Okay. False of course the COVID emergency has had a lot of impact on where employees are performing their services and probably where they will be performing their services in the future. Great. Thanks. Most of you got that right. New Jersey released a detailed notice on their expiring COVID relief and it's effective October 1st, 2021. And it applies to New Jersey's withholding relief. That's being lifted their sales and use tax nexus rules exceptions are being lifted October 1st and the corporate business tax nexus is also being lifted as of October 1st. And with that, I'm going to turn it over to Gary Bingel, who's going to address state apportionment considerations.

Gary Bingel:Thanks, Bill. Hi everybody. Before I get into this, I wanted to give one or two comments on some of the items Bill addressed at least tangentially. And throughout all this and some of the COVID guidance and such, and a lot of it seems, I'll say what we're getting from the states a little bit, either haphazard or an applicable in some ways. And I want to say it's good to remember that when a lot of this came out and a lot of the states were giving us their positions on things like nexus and convenience of employer and such was very early on in the pandemic. It was maybe last April, May, June, and people thought this was going to be really much more temporary than obviously it's turned out to be.

So a lot of those rules were, states came out and said, "Hey, just keep withholding for income taxes, wherever you are withholding before. It's only going to be a couple of months. We don't want to ding anybody on this." And obviously as it's turned out, it's been a lot longer than that. And it's dragged on and on and on. And so some of the things I said, they may be either going back on a little bit or trying to figure out some wiggle room in some of these areas. And I think that's always important to keep that in mind, for instance, New Jersey came out early in the pandemic and said, "Just keep withholding wherever you were withholding on before. We're not going to subject you to withholding here," because they thought it was going to be a couple months.

Then as time wore on, they realized, "Hey, we're losing a ton of money here because all these people who used to commute into New York are now working from home in New Jersey. Maybe we should be getting a piece of that." And that's why, as Bill said, they formed a commission last year to start to look at things like this, convenience of employer rule and how they can get around it a little bit. Because I think they started to realize how much money they're losing. I don't know what's happened with that commission. I know it was formed. I haven't really heard anything about it since it was formed. So I don't know where it's going. As Bill said, I don't know how much power it will have. I think a lot will depend on some pending litigation. So it's always good to keep in mind how these things developed and not just try to look at them in a vacuum, so to speak. The other thing I wanted—

William Gentilesco:Gary, I wanted to point out that New Jersey historically has allowed New Jersey residents to credit for taxes subject to New York under the convenience employer rule. And other states might not allow that. And New Jersey, I know, years ago, somebody at the Division of Taxation said, "Yeah, we'll allow credit, but that we may not allow it forever." So one day they may decide to revisit that.

Gary Bingel:Yeah. And when they were seeing how much money they were losing that day, maybe coming sooner than we think. So. Yeah. It's something to keep in mind. The other thing to keep in mind for all of these all say exceptions to nexus where they're saying, "Hey, we won't impose nexus, whether it's for sales tax or income tax or withholding, what have you, if your only connection now is having a remote employee due to working here due to COVID." That's a very narrow exception. So keep in mind things like economic nexus provisions still apply. So that if you've got, maybe you've been breaching economic nexus, well, this is just another thing that's going to pull you in. You can't say, well, we have a remote employee there. So now we're exempt, even though we might otherwise have nexus.

Also, as Bill pointed out a little bit, I do want to point out a lot of these exceptions for whatever reason might only apply to one tax, not another. So they may apply to income tax, not sales tax or vice versa. Just the way that the states do things. So moving on to some income tax considerations. What about the payroll factor, does having a remote employee in a state suddenly impact the payroll factor for apportionment? Several states initially provided some COVID exception for this to again, be mindful of expiration dates. And as most people know those, the apportionment factor, the payroll factor for apportionment generally follows the state unemployment tax provisions. So you have this four part test here of this, do you look at the state where was the state where the services are localized? Where is the person really working from?

Then you go down if there was nowhere where they're working from, maybe they're traveling, 20% each to five states, where is the employer's base of operations located? Well, that might be more difficult now too maybe we have a lot of clients that went fully remote, don't really have a full office, or maybe people are just spread out so much again, that base or operations may be more difficult. What about works directed or controlled? Well, again, you might've directed and controlled from New York City or Center City Philadelphia before now it's directed and controlled from somewhere else. And you have to look at well, where's the true seat of management where the law firm let's say CFO or CEO is sitting? Or do you look at well, geez, that part, that employee, that staff attorney reports up to this partner who, yeah, used to come into Philly, but now he's working remotely from New Jersey or from Colorado, you get into all these kind of odd situations.

And then the default is where does the employee reside? Which also may have changed, obviously because you've got people moving all over. So a lot of these things get— It can really go down a rabbit hole here. And I always tell people throughout, as I've been advising folks on this, there's the technical answer and there's the practical answer. Sometimes you have to look at the practicality of, I've got one employee working remotely from their in-law's house in North Carolina or South Carolina, we really have to register there and you have to weigh, "Okay, what are the chances of detection?" Yes, technically we should probably register. What are the chances we're going to get detected if we've got that? And then if that staff person hopefully is going to be moving back, we're going to be requiring them to move back. At some point, we want to register for six months and then try and withdraw.

Those are all the sorts of practical balancing acts you have to look at when looking, not just at the technical aspects, but also with the practicality of it, because a lot of this, like I said, you can really find yourself going down a rabbit hole here with some of these rules and get some really odd answers. As Bill mentioned, a lot of states use convenience of the employer rule. And I wanted to point out here that impacts both the employee and the employer because obviously it impacts where the employee has to file their income taxes potentially and how much income they have to source each state? Which obviously impacts the employer and where they have to be withholding. So it is, you're going to see us bring this up several times because of this convenience of the employer rule really impacts several different areas that we're going to talk about, especially as we move to remote workforce, not just under COVID, but work full time.

As Bill said, it is used to really tax non-resident employees work remotely and it's called the convenience employee or convenience the employer rule. And really, I think what it should be termed is necessity of the employer rule because the way New York can ask it, they really look and say, "Hey, you have to prove to us, there's some reason why this employee is working from somewhere other than their New York office." It's a pretty strict rule. And especially in times of COVID, it clearly was not front up or initiated during something like a pandemic was for the typical, hey, we've got a professor teaching at NYU that doesn't want to come into New York every day because they live in Connecticut or New Jersey.

And so they're going to work from home two or three days a week. And New York said, "Hey, you're really a New York employee. We should be getting the whole piece of that." It wasn't implemented for situations like we have now. There is at least arguably this one day rule for the convenience the employer to apply. The way the law is technically written or the provision is technically written. It says "This convenience of the employer rule only applies to the extent you have someone working both within and without New York." Which would seem to imply if they never set foot in New York, 365 days, they're outside New York, this rule should not apply. I think that's difficult if you have a headquarters in New York and such, what about you're suddenly go in for one training day or a meeting or something and you go from potentially zero to 100% in some circumstances.

Gary Bingel:But it is something to be made aware of because a lot of folks have opened up other offices and such and they might not need to go to New York. They might be able to do remote training like we're doing now from an office somewhere else. So it's just something to keep in the back of your mind. One thing we've seen as far as on the bottom here, the inquiry. Can an employee permanently work out of another office? Document it, can you say, "Okay, we transferred this employee, they used to be in New York employee. Now they're working out of our Chicago office." And that's something that I think is certainly possible. It's like everything, there's a slight there's that yet definitely yes, definitely. No. And then there was everything in between, which is 99% of the circumstances. I think it's something New York is going to be looking very closely at those situations.

If you were a law firm that had multiple offices to start with, might be easier. If you're a law firm or a business that only had one New York office, and then all of a sudden, you say, "Wow, we're transferring this person to our WeWork's office in Florida." Well, how many other people are working out of that WeWork's office? Well, nobody just this one employee, I think New York's going to look at that very closely and with a lot of skepticism. So these things to be aware of as far as how you're going to document it and how you substantiated because the proof is, devil's always in the details so to speak.

It should be aware that again, for apportionment even though this convenience of the employer rule applies for withholding and such does not apply for New York City taxes or for apportionment. So the big thing that came about early on that applies to Kevin firms and law firms alike at any partnership. Is New York City Unincorporated Business Tax. For those purposes services or revenue from services are source based on where the services performed and the convenience of the employer rule does not apply to that. At least New York has not tried to apply to that yet. So previously, if you had everybody coming into your New York City office and now almost nobody's in, well, in theory where you might've had 80% of apportionment, it's New York city before, maybe you've got 10% now, for 2020 or 2021 or going forward. Just because there are so many fewer people going in. Again, you have to be careful your document that if you're claiming people are not going in and New York City audits it and they see, "Hey," they said, "This person never worked in the office, we can audit their swipe cards. We can see the building security. And they swiped in 30 times during the year, maybe on the weekends or something else to pick things up and then came back," all those things are going to be taken into account. So just be aware of that.

And a lot of this, for that's for New York city UBT for New York State, apportionment purposes, New York's got to have a different rule for every different type of entity and such. Service revenue for partnerships for New York State, is sourced based on the office from which the sale was negotiated or consummated or where the agent is located. Well, again, previously that might've been New York, your sales team is in New York, your partners were going in New York was pretty easy to say where that sale was negotiated and such. Well, what about now? Okay, now my partners aren't in New York, they're sending in their home office in New Jersey, do all that revenue for New York State purposes suddenly get sourced out of state.

Where is it really negotiate or if there's a bunch of different people on those negotiations and one lives in Connecticut, one lives in PA, one lives in New York. You have to come down on something here and say, "look, we're going to locate where the partners were and where do they really do these, sign the contracts and such," which may be difficult, how do you prove, where are you saw the contract? I guess on DocuSign, if you're doing it through DocuSign, maybe you can go through the IP address or something, but that might not always be the case, say, "Wow, I signed it in New Jersey versus New York or somewhere else."

But again, there's a little bit of an opportunity there to say, "Well, we're going to source more of our partnerships income out of New York and into Connecticut, New Jersey or wherever it was." Maybe it was going to be a lot of partners moving to, they move to Florida for that all of a sudden, hey, all these contracts are negotiated in Florida. That's great. Or New York revenue goes down. Be aware that it's not just New York issue. There's things like this all over the country, Seattle imposes a tax on firms or companies that have over $7 million of payroll. And or one employee is earning at least $150,000 a year. It's imposed on wages earned in Seattle, same thing, like New York. Okay, all these people are moving out of Seattle. Seattle doesn't have convenience of the employer rule.

All of a sudden this payroll tax in Seattle, if you're doing business there, it might be significantly reduced. Same thing with San Francisco and their payroll tax expense and gross receipts tax. A lot of times folks aren't going into San Francisco anymore, there's an opportunity to source a lot of this revenue outside of these cities. Philadelphia, same thing. So be aware, not just at the state level, but at these local levels as well in these city levels. For non-business income, to the extent it still exists. But some states will still, instead of apportioning certain types of income, maybe rents or interest dividends, other types of non-business income, you sell off a division or a practice or something of that nature. Some states still look at the commercial domicile for some of these purposes.

Where are the executive decisions made? How did we use to define commercial domicile? It's been pretty easy. Everybody had a headquarters, where everybody went into every day, CEO, CFO, COO, VP of finance. Everybody was in the same location. How do you determine that now if everybody's working remotely? You see, instead of going into Manhattan or Center City Philly, now you got one person working from the Poconos or one person work from Delaware, one person working from The Jersey Shore, one person went out to Colorado. Where is your true commercial domicile? Do you have one or is it just okay, it's virtual and nobody gets a piece of that? Especially where again, some companies went fully remote. If you went fully remote, how do you determine something like this? So just something to be aware of.

What about for cost performance? Again, for corporate purposes, most states have gone to market sourcing for sourcing their revenue. But for whatever reason for partnerships, a lot of states still use instead of single factor, still use three factor for partnerships and still use cost of performance for partnerships, as opposed to market sourcing. Well, have your cost performance changed? It's possible, maybe you don't really have nexus where a lot of your costs are now located under these COVID provisions or now all of a sudden you don't have, depending upon what type of cost performance percentage they use, if they use a majority or preponderance where they say, "Hey, you have to have a majority of your costs in this state and we get that revenue." But what if you don't have a majority of your costs anywhere because all of a sudden people scattered to the winds? How do you determine your cost to performance?

Especially if you take into account things like administrative functions and, or where your property is, things like that. All of a sudden there isn't that concentration. Same thing for states that still use market sourcing, has your market changed? I've got some examples here previously sold software to a company and they only had one or two locations, but now it's used by their employees across the country or plus across the world, do you have to get new information for how that's updated? For law firms, accounting firms, and such. Say you're doing income tax preparation or consulting for high net worth individuals and family offices, and all of a sudden those high net worth individuals moved. Well, did your market change when they moved from New York to Florida or New York to North Carolina or whatnot? Or maybe you do workers' comp claim something else, all of a sudden, your market could have changed just based on your customer's moving. Trust in the state, same thing.

All of a sudden the trust in the state got up and the trustee got up and moved well, did your market change? And maybe now all of a sudden you have economic nexus and states, you didn't have it in before because you didn't have any clients or any market and pick your state in Texas or California or wherever or now you do. And how often you have to go back and try and determine that? What if the people were there, your clients just moved temporarily. They moved for nine months during COVID. I've actually had some instances where high net worth folks, obviously where they said the heck with it and they moved onto their boat somewhere. Okay. My warm market for that client is all of a sudden out of the Atlantic Ocean somewhere. Again, you get in some odd situations. This brings us to our next polling question.

Bella Brickle:Poll #2

Gary Bingel:Okay. May impact both the payroll and receipts factor, got 88%. Good. Yeah, that's absolutely correct. May impact both of them, they impact neither, just depends obviously on your specific circumstances and facts and such. Again, employer tax withholding, individual income tax withholding. The issue is going to how many days, does a remote employee have to be present in the state to require you to actually withhold income taxes in that state? Before COVID, it was really state dependent like everything. Could have been anywhere from one day to 15 days, might've depended while they were there. If there were a lot of states have trade show, exceptions, things like that. And then you've got the convenience of the employer rule. A lot of state, many states again, in response to COVID said, okay, withholding, just keep it holding wherever your regular place of business was, you don't need to change it just due to COVID.

Gary Bingel:Again, a lot of that came out very early on when we thought this would only be a month or two or three, if you would have said all this is going to be going on for 18 months. I think some states might have had four different responses. Massachusetts, first New Hampshire, has a lot of folks know your Massachusetts came out with this same rules said, "Hey, if you were working here previously, basically we're imposing a temporary COVID." They went the opposite way. We're going to impose our own convenience of the employer rule during COVID and saying, "Hey, if you're working here previously, you need to keep withholding here." New Hampshire does not have a personal income tax. They took offense to this obviously, took Massachusetts to court, to the Supreme Court over this and said, "You know what? Our folks aren't working there, you can't impose it on them."

There were a lot of issues from what I read with New Hampshire's case, were they really the right litigant? That'll have to be an individual, could the state take it up? And the Supreme Court shot it down. Unfortunately, what that meant the Supreme Court, they didn't rule either way. They just declined to hear the case because they said, "Well, it's, temporary issue. We don't want to hear it." The issue you get now is that really gave, I think most people will say that gay states like New York that have this convenience of the employer rule, really embolden them to say, "Okay, Supreme Court doesn't want to hear this. We can basically do what we want. It's going to be free reign for us to keep going on this and start looking at folks."

As Bill mentioned, when you start having this rule coming simpler rule that risk of double taxation. Don't forget though, about reciprocity agreements like New Jersey and PA and such. Make sure you only look at this work where it's actually an issue. If it's something you want to fight, or you're going to spend time on changing your policies, if it's a matter of, okay, we're going to keep withholding New Jersey because that's where withheld before versus PA, may or may not be a big issue, just pinpoint which way the residency and the workers are go.

Again, several states. The one thing I want to point out here is that New York has always been the most aggressive on this. They continue to be again, I think because of that Massachusetts verse New Hampshire case being declined to be heard by the Supreme Court. And they've started auditing already 2020 returns. And I don't know if they put something in their system or what, here have been several articles out lately on this, where they've said, "Hey, look, we're not ordering any more than we did in the past, but basically everybody including us, our clients are getting a lot more notices. Anybody who shows a decline in New York source income from prior years, maybe they source 30% in prior years and 10% now they are getting a lot of notices automatically kicked out. Anybody who's claiming they ceased their New York residency or getting audited." So New York is being really, really aggressive on this. So just be aware of that.

Are there for unemployment. So security went through this a little bit. Are there a certain number of days you need to be present in the state? Generally states use that bright line rule. Some states have issued that formal guidance again, suspending it for some length of time. Again, I think the biggest issue here is the practicality. If you have one employee who's going to move to another state work from their in-laws or work at a vacation home for a few months, or even for maybe an extended period of time. What's the chance of likelihood of detection and such? I think that's something you always have to look at, because again, you can get caught in that trap of we're going to register them in six months, we have to withdraw. You're just opening yourself up to more audits. I think that's something to really be aware of and being taken into account. And with this, I'm going to turn it over to Bill to talk about some of the federal proposed legislation that's going on in this area.

William Gentilesco:Right. Thank you, Gary. There is a proposed legislation referred to as the Mobile Workforce State Income Tax Simplification Act of 2020. It's not simple to say, I'll tell you that much. And this is really a movement to get the states to simplify when a state income tax and state withholding taxes are due for people working in a state. Some employees and traveling salespeople, attorneys might be in a multiple states for a few days a year. The goal of this simplification act was to set a safe harbor, if you will. And the proposal is suggesting that, "Hey, they shouldn't have to withhold if somebody in the state for less than 30 days." And then after that 30 days is over then withholding would be required on all of the wages from that point on.

I don't put a lot of hope in this simplification act. This has been proposed before going back as far as 2006, and it comes up from time to time between now and then, and there is some renewed interest with the COVID emergency saying, hey, we need an official across the U.S. 90 day withholding exception during the COVID emergency. I just don't think this would involve states giving up some of their power to impose tax on non-residents and while it would be good for companies for law firms and for employees, at least thus far states, multiple proposals, they really haven't gone very far. And that's probably going to be the case here. But we just want to mention that this is out there. The next question.

Bella Brickle:Poll #3

William Gentilesco:Okay. And most of you went with false and that's correct, 95%. As Gary was explaining, mobile or remote workforce will certainly have an impact on your payroll taxes, both from an employer standpoint, as well as where your employees may have to start paying more taxes. In addition to tax concerns, there are many non-tax concerns, and we've listed a few of them here. Probably not covering all of them by any stretch. But people have said that the tax concerns are easy compare to the non-tax considerations. The first one jumped out early with salary modifications. Now let's say you have an attorney working in then law firms, New York offices. And they want to transfer to Florida or Tennessee, or some state where the cost of living is much less than it is in the New York City metro region.

If the firm approves that, do you adjust their salary? Do you adjust their billing rates? If you hire somebody, forget somebody transferring the existing attorney, but you hire someone in the state with the cost of living is lower than your main hub, do those people that get hired at a lesser salary? And then does work get out — tax registrations we talked about; I think that was my first slide. If you're going to have a continuous regular employee in a new state you're going to be subject to the particular taxes that apply in that state payroll taxes, income taxes. State might have a gross receipts tax like Washington or Ohio.

And so, you'll be required to register for that, if it applies to law firms. Then there's a question about tracking employees and where they're working. This might be more of an issue for some versus others where people might not be traveling around that much, but if they are and you might want to know, well, how many days did this person go into the New York office? I need to know because we're doing the Unincorporated Business Tax calculation, there is software available. Topia is one of them Minayo is another, there's others that will track for you where your employees are on a particular day. But that does raise some privacy questions. How are employees going to react to that? Some of them may not like it, the idea that their employer knows exactly where they are or can somehow get a report from the software.

So, I don't know specifically of many law firms that have rolled that out, but some are thinking about it. And then there's CLE credits, training in different states have different rules. Does the firm need to complete some type of licensing requirement in a state where employees are working remotely? That's all going to have to be looked at. What are the expectations regarding set work hours and being in the office? If people are working remotely, as long as they get their eight or nine hours in, can they do it whenever they want? Or do you need to have a formal rules for that? Who covers cost to travel? You got a remote employee in Florida, but they have to come back to the office. Maybe they need to go to court in New York or New Jersey, who's going to pay for travel? And as we've been talking throughout, this is to create convenience of the employer issues. And where do you set that employee up? Set them up as a New York office, or maybe you have a Virginia or Delaware office that maybe doesn't have a convenience rule.

And then there's other countries. I haven't seen a lot of this, but with remote work now, maybe firms will be hiring more people to work in other countries. Maybe they already have them, that certainly is going to raise international tax questions, which is not our area, but probably we'll need to consult with somebody to see what the filing requirements would be before you hire somebody or allowed somebody to transfer to another country. And to some extent that might affect your state apportionment, presumably it would be favorable for some states anyway. I don't know how many attorneys are going to be doing this, but you do read articles of people that are traveling across the United States in RVs and vans and working in various states. Gary mentioned the practical side of things.

Gary Bingel:I had actually a partner in a fairly large law firm in the Midwest or I got it from, who I've worked with. And he's had an RV and he's member, I guess, for a couple of parks. And every time I talked in the summer, it was like in a different location, was like, "Ah, now with this one in Alabama," and he's out of Chicago, "Oh man, there's one in Alabama and one" somewhere else. And what does that do to you? If you spend 40 days in different states. It's just, again, kind of crazy. Some of the circumstances you can get into.

William Gentilesco:You could have one employee record machine that somehow is making the partner's file instead of filing in four or five states, they're filing in 25 or 30. And that's where I think some of the practical decisions need to come into play that you talked about earlier. Gary, do you own up to every little slight presence in the state? Probably not. How about employee retention? How do you maintain a culture if all the employees are working remotely? We've talked about that in our firm and I'm sure other firms have as well. What about employees that don't have a homework environment conducive to work from home? Well, presumably if you still have an office, those employees still have the option to go into the office. If you close the office or it may be, you're going to reduce your lease space going forward.

You going to need to be able to accommodate people that say, "Hey, I don't want to work from home. I've got kids going on or it's noisy, or for whatever reason I work better in the office." So not everybody is going to want to work from home. But generally speaking, liberal remote worker policies will likely increase firm and partner tax compliance costs and may result in incremental tax liability for partners. Although most states the resident state where the partner lives will allow credit for additional taxes paid to other states, but that credit might not be dollar for dollar. And there are different apportionment rules in different states. And what we have seen is that sometimes apportionment can get over 100% because of the different rules. And the more states you have nexus in, the more possibility that you're paying tax on over 100% of your firm income. And with that, I think it's back to you, Gary.

Gary Bingel:Yeah. Thanks Bill. Just to hit on one or two items Bill mentioned, again as far as tracking employees, I think that's going to become more and more important. By that survey that Topia did, they found that most HR personnel, when they were surveyed, they said, "Oh yeah, we know where all our employees are pretty consistently. We've got that down, we make them fill out a time sheet, whatever." When they survey the employees that came out, they really didn't have a clue or a lot of their work about 25 or more percent, 30% of their employees were working or rendering their services. And I think that's going to be a bigger and bigger issue. I think one of the reasons for that, some firms, they don't make you put down the state at all, or location where you're working from and your time sheet. Others, it's either not a required area, or there's already a default there filled out.

And it's already filled out employees aren't going to change it. It's defaults to their home office. It's still staying there unless there's a distinct benefits, the employee to make sure they go in and change that every time they enter their time, they're probably not changing. And so I think that's going to be a bigger and bigger issue. The other thing is that I think companies really need to be aware of is making sure these policies are written. If they're going to fold remote workforce or alternative workforce, that they need to make sure these things are written and consistent. The biggest thing you don't want to do, or one thing you obviously want to avoid is telling some people they can work remotely and other people you can't. So you tell this person "Oh yeah, you can work from home, or you can move from Philly or New York out to Montana, and that's not a problem."

We'll accommodate you and then someone else comes and they want to do it. You say, "Oh no, you can't do it." And then you're facing a lawsuit for discrimination. "You'd let that person do it. And not me." And again we have had instances where got, yeah, I had some employees asking, "Hey, I can work from anywhere. I've been working for my in-laws in Ireland for the last few months. I want to work here permanently." Well now state local, they have international tax issues, potentially you need to be aware of. And do say, "Okay, well, yeah, you're working in Hawaii or Alaska now I got to go see, we still need you online between 9:00 to 5:00, our time. And if that means you're working in the middle of the night, well, that's up to you. We need people to be able to get ahold of you."

How do you set those work expectations that meets everybody's needs? And I think it's always best to have that written down. So you have something you can apply across the board. And that's really where a lot of companies start to see some of the issues with this. I've seen some say, "You can work remotely, but it's got to be within 100 miles of our current office." Let's say. And what that does, it keeps people from moving to Montana or Alaska, and they're working in the tri-state area, because everything you don't want to have is, "Okay, we need you to be back in the office tomorrow or day after tomorrow, we have an emergency meeting."

And all of a sudden the person's like, "Well, hey, it's going to take me three days to get a flight to find one. And I got to get to the airport." And all these kind of weird things you need to take and take into account. Just a couple last minute things here, statute extensions, some states, New Jersey. I know, and I believe California as well, extended or suspended their statute of limitations during COVID. I know this was specifically for taxes. I don't know if it applied to other statute of limitations. Although I assume the attorneys on here would probably know better for apply to all the statutes. New Jersey said, statute of limitations for audits and assessments is suspended so that it normally would have told over after essentially April 14th of '20 it's now extended. So it was suspended during this whole period until 90 days after the COVID state of emergency was lifted. So if it was going to expire four, 15, 20, all of a sudden now it's still open basically until I think 1/1, 22, the way it's set to play out here.

So you might've thought, "Hey, I've got this audit. I'm sad. I'm good to go." And I have had a couple people actually get audit notices from New Jersey on tax years it would have closed during this period, and now they're being assessed on. So you have to be aware of that.

William Gentilesco:There's also refunds are open, Gary. I'll point that out.

Gary Bingel:Yes, refunds and assessments that's right. Refunds and assessments. So be aware of that as well. So maybe, "What's good for the goose is good for the gander" and we can get some extra refunds out of it. So there might be some years where would have expired may still be open. It might also have a financial statement impact. Sometimes if your friend is involved with doing tax provisions or anything like that for clients, or setting up any sales tax reserves, hey, we would normally drop the past and a half off. Now we have to keep it open for these purposes. So there could be a financial statement impact as well. Incentives, if any clients or any companies have incentives, you open up a new office, you expanded, what impact does all this does a remote workforce have on this?

Do you still meet all our requirements. Hey, we said, we were going to have 150 people working on four new office in Center City Philly that we relocated from king of Prussia. Well, all of a sudden you don't have 150 people working in Philly because everybody's working remotely. Maybe some of those people aren't even in Pennsylvania anymore. So that's something to look at. Capital expenditures. Hey, we said we were going to spend X million dollars on CapEx on new computers and other equipment. And all of a sudden, all these computers are being bought all over the country. They're not just being bought in one location, being used in, where the offices are. Build brought up before. And what does that do? Maybe use tax, things like that. Maybe if you have R&D, if everybody's got their own software and things, they may be coming up with. If you're taking LRD credit or other credits, worse at work being performed. So all those sorts of issues.

If you have any of these, when your clients have them, I always recommend speak to the EDA office as soon as possible to get ahead of it. Practical concerns, I think we went over a lot of these. You always have to weigh the practical concerns against the technical. If you have one employee working remotely for short period of time, weigh that against registering and then getting out and search and what it's going to do to your filings and everything. And that brings us to the last poll.

Bella Brickle:Poll #4

Gary Bingel:Okay. False that's correct. It really has a lot of impacts as we went over. It depends, well, I guess if your workforce is just going from one suburban location to another in the same state, it may not. So I think generally it's going to have a big impact. And with that, I think we're at the end, I'm going to turn over. I think to Bella for the last minute housekeeping here, we didn't get time to address any questions. We didn't get very many of them. If folks have additional questions, I suggest to reach out to Carolyn or Bill or myself, we'd be happy to address them.

William Gentilesco:Thanks.

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