© 2022 American Payroll Institute, Inc. APA’s Nexus Presence Report Now Available The APA’s Government Relations Task Force (GRTF) released its report, Employees Are Where? Presence, Nexus, and Employment Taxes: A Payroll Analysis. The report can be downloaded from APA’s website on the Hot Topics Multi-State Taxation page. The word “nexus” literally means connection. Nexus is established by having a business presence in a state. An office, store, or factory will create nexus, as will the mere entry of an employee into a state to make a sale or perform a service call. In the withholding context, the employer’s concern is whether it has a business connection, or any operations, within a state. If it does, it is subject to the withholding laws of that state. This will make the difference in whether an employer has to withhold income tax for an employee’s state of residence even though he or she performs no services there. The report provides an overview of existing state and local laws and regulations on business nexus and employment tax withholding and reporting. The report is intended to help payroll professionals and their employers identify business nexus and tax withholding challenges. Identifying state and local tax jurisdictions Employee work locations are an underlying criterion by which state and local governments identify business nexus. When business nexus is imposed, employers generally are obligated to file returns and pay corporate/business income taxes and other taxes, register with the secretary of state, and comply with other state requirements. Similar requirements may be imposed by local governments. These business requirements are in addition to any state and local income tax withholding and reporting for employees. Employers must find a way to clearly identify where employees are located during all hours they work. States and localities are often unsympathetic to payroll departments that fail to accurately withhold taxes because employees or their managers fail to inform payroll about work locations. Payroll management also must track differing state and local requirements, such as the length of time in a state that an employee must work to trigger state tax withholding. COVID-19 raised questions about tax management in emergencies, including government decisions to require the payment of taxes as if employees were still working in the original location. These requirements led to lawsuits, especially when employees worked and resided in states without income taxes or were subject to taxation from two states. While these laws were temporary, they helped to identify financial policies behind tax decisions. The stay-at-home orders also provided employers and employees with a better understanding of remote work productivity, remote worker management, and flexibility in work-life balance. Data on employee work locations A KPMG survey of APA members in October 2021 found that slightly more than half of the reporting organizations had at least 5% of their employees working in a state other than their primary home office. In 20% of organizations surveyed, more than 1 in 5 employees were working in states where they were not residents. Research by FlexJobs showed that at least 58% of workers would seek new employment if they could not continue to work remotely, while 39% said they wanted a hybrid environment. Together, 97% of workers wanted some form of remote work. APA Comments on Proposed New York Data Collection Legislation The APA opposed a pay data collection bill in New York. In what continues to be a growing trend, A.B. 1955 and its companion bill S.B. 2777 would greatly increase the amount of pay data collected by the state. The bills are intended to advance workplace pay equities, but, if passed, would create one of the most burdensome pay data reporting requirements in the nation. The APA’s Government Relations Task Force (GRTF) State and Local Topics (SALT) Subcommittee raised questions about the necessity of categories of data being collected and the ability of payroll professionals and their employers to maintain compliance should such a large requirement become law. Problems with the proposed legislation While the APA understands and supports the important goal of equal and fair pay, the New York bill contains significant hurdles. First, a huge amount of data is required to be reported. The data includes each employee’s race, ethnicity, age, sex or gender identity or expression, job category, date of hire, salary or wages, training received, raises, promotions, disciplinary actions, terminations, and benefits. Data required includes benefits or privileges such as flexible scheduling, the ability to work from home, or the ability to bring children to work. The APA offered to assist New York’s Department of Human April 2022 A Supplement to Payroll Currently, Issue 4, Volume 30
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