Massachusetts and Oregon Release Guidance on Remote Working and Corporate Income Tax Nexus

August 11, 2020

Now that remote working may become more permanent (at least for the second half of 2020) states have released guidance on how the presence of remote workers in the state impacts an employer’s nexus in the state. In this Lawflash, we address two of the latest pronouncements from Massachusetts and Oregon.


The ongoing coronavirus (COVID-19) pandemic continues to present new challenges for employers. Many companies have announced plans to keep employees working remotely until 2021. In a May LawFlash, Morgan Lewis tax lawyers raised state payroll and corporate income/franchise tax nexus concerns.

Traditionally, the presence of employees in a state where a taxpayer engages in activities beyond the protection of P.L. 86-272 creates income tax nexus in the state and a resulting filing obligation. However, in light of COVID-19, many taxpayers are wondering if this general rule still applies when employees are required to work from home due to state order. Although most states have remained silent on the subject, a handful of states have released guidance either through formal announcements or postings to their Department of Revenue websites on whether the state will assert nexus on the basis of remote workers in the state. Of the states that have released guidance, the directives can be confusing and hard to follow. Massachusetts and Oregon are two of the latest states to issue such guidance.


On July 21, 2020, the Massachusetts Department of Revenue released Technical Information Release 20-10 (TIR 20-10) wherein it advised on the corporate excise implications of employees teleworking in the state. The department has advised that during the effective period of the TIR, the presence of one or more employees in the state for a “Pandemic-Related Circumstance”[1] alone will not establish corporate excise tax nexus nor will a taxpayer lose the protection of P.L. 86-272. Further, a corporation should not adjust its apportionment formula based on employees teleworking in the state. The COVID-19-related exceptions for nexus assertion under this TIR will only apply during the effective period that ends the earlier of December 31, 2020 or 90 days after Massachusetts lifts its state of emergency. The Massachusetts Department of Revenue updated its guidance on December 8, 2020 in Technical Information Release 20-15 (TIR 20-15). The updated guidance restated TIR 20-10 but removed “December 31, 2020” as a fixed date for exempting traditional nexus rules to the presence of remote workers in the state. The covered period of the TIR is 90 days after the Massachusetts state of emergency is lifted. After that date general nexus rules will apply even if an employee is in the state for a Pandemic-Related Circumstance.


The Oregon Department of Revenue posted to its website that for purposes of Oregon corporate excise/income tax or the personal income tax, the presence of the employer corporation’s teleworking employees in Oregon will not be a relevant factor when making a nexus determination if the employee would have otherwise been outside Oregon but for the COVID-19 pandemic. For the telecommuting employee to be a non-factor in nexus determinations, the employee must have been based outside Oregon starting March 8, 2020 through the expiration of the state’s notice. The notice expires at the later of (1) the expiration of Executive Order 20-67, (2) the expiration date of an emergency declaration, a stay at home order, or similar government order related to COVID-19 in the employee’s assigned work location, or (3) December 31, 2021. Note, the Oregon Department of Revenue’s prior guidance was that telecommuters would be considered a factor in nexus determinations after December 31, 2020. Oregon changed its approach March 15, 2021.


There has been a myriad of state responses to whether the presence of remote workers in a state creates corporate income tax nexus. The varying guidance among the states has made it difficult for taxpayers to adopt a uniform approach to stay ahead of these issues. For example, the Georgia Department of Revenue posted to its website that it will not assert nexus, nor will a corporation lose P.L. 86-272 protection, while there is an official work-from-home order issued by federal, state, or local governments or the employee is required to stay home pursuant to a doctor’s order. Per its website, the Iowa Department of Revenue will not assert nexus based solely on remote workers while Iowa has a declared state of emergency or there is a declared state of emergency in the state where the employee normally works. The Iowa Department of Revenue also commented, “[it] does not believe that the presence of employees who normally work outside of Iowa, but who are now working remotely from within the state solely as a result of the COVID-19 pandemic state of emergency represents the same type of business activity on the part of the employer contemplated by the law.” Morgan Lewis has continued to monitor updates from various state agencies; visit our regularly updated list of COVID-19-related state tax updates.

Additionally, as state guidance on this issue continues to evolve, we have yet to see states enforce these early nexus pronouncements with respect to remote working. A first take on state guidance raises many issues, including constitutionality questions, specifically whether the imposition of nexus due to the presence of certain employees in the state satisfies both the Due Process Clause and the Commerce Clause of the US Constitution. For example, purposeful availment, a basic tenant of nexus, is found when a taxpayer has directed business activities into a jurisdiction to take advantage of some economic benefit in the jurisdiction’s market. For remote working as a result of the ongoing COVID-19 pandemic, a corporation arguably has not directed business activities in the jurisdiction. Rather, businesses are often allowing employees to work remotely so as to provide them a safe work environment or, in many cases, remote working has been mandated by state or local government authorities.. Moreover, these issues are highlighted in circumstances where a taxpayer has one or more remote employees working in a state that has adopted an economic nexus threshold that the taxpayer has not exceeded.


As companies plan for a more permanent remote workforce, they should consider the corporate income tax nexus implications of these decisions. Companies are encouraged to reach out to Morgan Lewis lawyers to consider the state tax implications of remote working arrangements.


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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

New York
Cosimo A. Zavaglia

Justin D. Cupples

[1] A pandemic-related circumstance includes:

  • A government order issued in response to the COVID-19 pandemic
  • A remote work policy adopted by an employer in good faith compliance with federal or state government guidance or public health recommendations related to COVID-19
  • The worker’s compliance with quarantine, isolation directions related to a COVID-19 diagnosis or suspected diagnosis, or advice of a physician relating to COVID-19 exposure