Working From Home in New Jersey? You Just Created Tax Nexus!

Posted on Mon, May 07, 2012 ©2021 Drucker & Scaccetti


Laptop Work-6.jpgNexus generally means a connection.  In tax law, it's used to indicate the degree to which a business has presence in a state or locality, which may subject it to tax there.  Telecommutting has blurred the lines of what "presence" in a state or locality means for many businesses.  A recent Tax Court decision in New Jersey clarifies that State's position on the subject.

 

In March 2012, the New Jersey Appellate Division held that an out-of-state corporation employing a telecommuter who works from home in New Jersey has nexus in New Jersey and is thus subject to the State’s corporate income tax.

 

The Telebright Corporation, a Delaware software corporation based in Maryland, hired a New Jersey resident to write code for the company’s web application.  The employee uploaded the written code to the company’s server upon completion.  She traveled to Maryland for company meetings twice per year, but communicated by phone and email at all other times.  She did not participate in sales or any form of solicitation, nor was she reimbursed for expenses incurred.

 

Although the company asserted that imposition of the New Jersey corporation tax in this scenario would violate the due process and commerce clauses of the United States Constitution, the Tax and Appellate Court rejected these claims.  The Courts held that having even one employee working from home in the state provides the “minimum connection” to the state to permit taxation consistent with the due process clause.  Further, it was held that the commerce clause was not violated since the act of writing code produced a part of the company’s product in New Jersey where the corporation benefits from the employee protections provided by New Jersey law.

 

If you need help reviewing the tax nexus exposure of your business in New Jersey, or any state or locality, click here to learn more about Drucker & Scaccetti's Multi-State Tax Services or click here or on the button below to contact the Tax Warriors at Drucker & Scaccetti.

 

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Topics: Nexus, Commerce Clause, state and local taxation, due process clause, minimum connection, telecommuting, New Jersey

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