The New Jersey sales tax nexus waiver extended to out-of-state businesses with employees working in the state came to an end on October 1, 2021. Specifically, back in March 2020, the state granted a temporary waiver on the threshold that treats employees' presence as sufficient nexus for out-of-state firms. Other states that also adopted the physical nexus relief included Massachusetts, Indiana, South Carolina, Maine, and Pennsylvania. However, the New Jersey Division of Taxation announced the changes on August 3, 2021, ushering back the pre-pandemic sales tax obligations and laws.
The waiver of the sales tax nexus targeted out-of-state sellers who had employees working from a New Jersey home. However, it only applies if the seller does not have any physical presence in another state. Additionally, the sales must remain below the state's economic nexus thresholds.
What Are the Sales Tax Nexus Implications?
Now, sales tax nexus is established if an out-of-state employer solely from an employee working in New Jersey. This means that businesses can no longer shield themselves from sales tax obligations before $100,000 in gross revenue. Businesses also no longer have to exceed 200 separate transactions from sale and delivery of tangible personal property, specified digital products, or services into New Jersey. An out-of-state seller also triggers a physical presence tax nexus due to the presence of telecommuting workers. With things returning to pre-pandemic conditions, businesses proactively track their employees' locations to avoid missing sales tax triggers.
The end of the waiver also seems to be happening at a time where many companies have not quite yet gone back to normal. A good number of workers are still telecommuting, which is likely to become permanent in the post-pandemic era. The state would have reverted to usual, as sales tax makes up a big portion of their tax revenues. However, this raises more concerns for businesses with employees in multiple states and who have to monitor the complex sales tax rules when calculating apportionment for tax filing.
The New Normal
According to Gallup, 45% of full-time employees plus two-thirds of white-collar employees (67%) are still part of a work-from-home arrangement. Employers will have to adjust to this new way of working as well as the state tax considerations. It may require a business to outsource tax-related assistance to ensure they meet their multi-state sales tax obligations as needed.
Revenue departments, including New Jersey, also must work through the confusion of state taxes and tax agreements between states. New Jersey and New York have a reciprocal agreement to minimize violation of sales and use taxes on cross-border sales. This offers a solution to avoid double taxation, which can be burdensome for small businesses.
If you would like further clarification on your sales tax nexus, apportionment, and other tax issues, our sales tax experts are here to help. Please get in touch with us anytime.