Employees who work in one state and reside in another may present compliance challenges for employers and need to be tracked carefully. While these employees generally are subject to income tax withholding rules of the state where they work, the type and extent of the activities need to be monitored to avoid unintended compliance problems.
The 2018 Survey of State Tax Departments sheds light on which employment activities trigger nexus in states. In 2018, 42 states, the District of Columbia, and New York City responded to the survey, which was released April 27, 2018, by Bloomberg Tax.
Nexus, which generally means that a physical contact must exist between an employer and a state before taxes can be levied, is at the center of multistate tax and out-of-state authority issues.
Nexus can occur when an employer has a business location, sales transactions or employees performing services in a state. When a business triggers nexus, it likely would be required to register and pay corporate, sales, excise and employment taxes within that state.
Nexus has implications that reach beyond payroll tax, but may overlap with payroll tax obligations that cross state boundaries. In 13 of the states surveyed, an employer may trigger nexus through registering for payroll with a state agency.
Download the 2018 State Nexus Policies and Payroll now and gain insights into determining nexus and employment taxation.