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New Jersey Temporarily Waives Certain Corporate Nexus Thresholds

By: Kristina Stibrich Ron L. Tambasco |

Says Employees Working From Home Solely as a Result of the Coronavirus Will Not Create Sufficient Nexus for Out-of-State Corporations

On March 30th, the New Jersey Division of Taxation (the “Division”) announced that it will not treat the presence of employees working from their homes in New Jersey as creating sufficient nexus for out-of-state corporations if those employees are working from home solely as a result of closures due to the coronavirus outbreak and/or the employer’s social distancing policy.[1]

This temporary relief does not change the Division’s position that out-of-state corporations that otherwise permit or require their employees to work from their homes in New Jersey (i.e., for reasons other than the coronavirus) have sufficient nexus for corporate business tax purposes.  In this context, the Division does not generally allow for any type of de minimis exception to taxability and has successfully defended the position that an out-of-state corporation employing a single employee working from home in New Jersey is subject to New Jersey corporation business tax.[2]

This temporary relief should help out-of-state businesses maintain some level of normalcy with respect to their multistate corporate income tax function; however, it also causes a number of employer withholding tax and personal income tax questions to arise.  To address some of these questions, on March 31st, the Division announced related guidance regarding the following Employer Withholding Tax and Personal Income Tax issues:[3]

Employer Withholding Tax

  • There is no extension for withholding tax payments.
  • During the temporary period of the coronavirus pandemic, employers may continue to source the wage income of telecommuting employees in accordance with the employer’s jurisdiction. The Division’s current audit program will continue to include the review of sourcing of income.
  • The Division will not require employers to change the work state set-up in their payroll systems for telecommuting employees; however, employers are required to consider their circumstances and decide whether it is appropriate to make any changes. Relief from penalties and interest for under-withheld employers will be considered on a case-by-case basis.

Personal Income Tax

  • The due date for personal income tax returns and tax remittances are extended to July 15th.
  • Individual taxpayers whose employers maintain their existing work state data in their payroll systems may use a different allocation method to reconcile their 2020 nonresident income allocation on their 2020 state individual income tax returns. However, the Division may ask for supporting documentation.  If the Division challenges the allocation, interest is mandatory but relief from penalties will be considered on a case-by-case basis.


[2] See Telebright Corp, Inc. v. Dir., New Jersey Div. of Taxn., 38 A.3d 64 (N.J. Super. Ct. App. Div. 2012), in which the court held that an employee who developed and wrote software code from a laptop computer in New Jersey was carrying out the purpose of her employer’s organization in the state; and, therefore, caused the corporation to be subject to New Jersey corporate business tax.


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