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Remote Work Causing Disputes Over Tax Between States

(Noted News) — Remote working has created complications in tax jurisdictions, with states battling each other to recover tax revenue taken from their telecommuters who stopped commuting into their states because of the pandemic. 

Fueled by the COVID-19 induced economic crisis, states like New Jersey are scrambling for every tax dollar they can get, asking the US Supreme Court to recover an estimated $1.2 billion in tax revenue taken from their remote workers by the state of New York.

According to Bloomberg, before the pandemic, more than 400,000 residents of New Jersey commuted to New York City for work. Since they’re working remotely now, their taxes should be “more fairly attributed to New Jersey,” state Treasurer Elizabeth Maher Muoio said in a statement.

New Hampshire has joined New Jersey’s suit with the country’s highest court after Massachusetts began taxing New Hampshire residents who normally commuted into Massachusetts for work but started working from home because of the pandemic.

New Hampshire officials believe that not having broad-based tax systems is “central to its sovereign identity” and that Massachusetts’ current stance runs contrary to constitutional values.

Seven states currently tax residents based on where their office or workplace is, even if they don’t physically go to that office because they work remotely. Six of these states have permanent policies on nonresident income taxes, whereas Massachusetts’ current policy is said to be only temporary during the pandemic. 

Phil Murphy, governor of New Jersey, believes that states do not have the constitutional right to tax workers who don’t live or work in their state.

“In the course of this once-in-a-century pandemic, hundreds of thousands of New Jersey residents who typically commute to New York and pay New York taxes have been working from home for the last nine months. We are hopeful that the Supreme Court will hold that states do not have the constitutional authority to tax individuals who neither live nor work there.”

According to a new survey by Gartner though, remote working is likely a permanent feature of America’s workforce, so states will have to resolve these disputes. The survey found that 82% of company leaders plan on continuing remote working after the pandemic was over. Gartner’s vice president of advisory in HR, Elisabeth Joyce said:

“The COVID-19 pandemic brought about a huge experiment in widespread remote working. As business leaders plan and execute reopening of their workplaces, they are evaluating more permanent remote working arrangements as a way to meet employee expectations and to build more resilient business operations.”

47% of respondents said they intend on keeping employees working remotely full time after the pandemic. 43% of respondents said they will grant employees “flex days”, and 42% saying they will grant “flex hours”.

“The question now facing many organizations is not how to manage a remote workforce, but how to manage a more complex, hybrid workforce,” Joyce said.

“While remote work isn’t new, the degree of remote work moving forward will change how people work together to get their job done.”

Another survey by PWC echoes the Gartner survey, stating 

“Perhaps unsurprisingly, respondents believe shifts towards remote collaboration, automation, low-density workplaces, and supply chain safety will have a lasting impact.”

“A majority of CEOs surveyed (78%) say the shift towards remote collaboration is enduring, a nod to the momentum building around flexibility. More than half of our respondents (54%) believe the trend away from traditional employment and towards the gig economy is here to stay. Of course, the latter arrangement offers flexibility but often comes at the cost of stability and, in parts of the world, benefits such as healthcare insurance.”

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