The Hidden Cost of Letting Workers Telecommute

If you let employees telecommute from out of state, you may face tax trouble.

Just how much of a tax hit companies face depends on state rules. Some impose income tax based on an out-of-state company's sales in the jurisdiction. Others also take into account the company's payroll and property in the state. However they figure the bill, lots of states seem to be on the same page as New Jersey. In a survey issued in April, 35 states, the District of Columbia and New York City said an employee who telecommutes from a home in the state would create "nexus"—a connection that warrants imposing income tax on an out-of-state employer. Most states don't offer companies clear guidance in this area, says Steven Roll, an assistant managing editor at BNA Tax & Accounting, which conducted the survey. And, he notes, states may face greater pressure to crack down, as they're "struggling to close significant budget gaps."