Do Remote Employees Trigger Tax Obligations?

Does the presence of a company employee in Colorado create nexus in Colorado?

Working remotely has been on the rise since the mid-1990s. Businesses and people espouse the practice for a variety of reasons, from the flexibility it provides to the benefit of having a face in a distant area. Yet businesses should bear in mind that remote employees may trigger sales and use nexus in the state where the employee resides.

The Colorado Department of Revenue (DOR) has recently released a General Interest Letter on this very topic. It responds to a question raised by a business that is incorporated outside Colorado, with two resident employees but no office or inventory in Colorado. One employee is scheduled to move out of state to the company’s home state. The other employee “will remain in Colorado and support the Company’s activities in the western part of the country.”

This situation raises the following questions:

• Does the presence of the Company’s employee in Colorado establish sufficient nexus in Colorado to require the Company to charge sales tax on sales into Colorado?
• If not, is retailer’s use tax due?

Doing business in Colorado

Businesses engaged in the following activities in Colorado are considered to be doing business in the state and liable for sales and use tax:

• Delivering, leasing or selling tangible personal property (TPP) by a retail sale in Colorado, for use, storage, consumption or distribution in Colorado.
• Any activity in Colorado in connection with the selling, leasing, or delivering (TPP) by a retail sale in Colorado, for use, storage, consumption or distribution in Colorado.

In addition to having two employees in Colorado, the company in question occasionally sells at retail and delivers spare parts in Colorado. Because of that, according to the Department of Revenue, the company is doing business in Colorado and must collect and remit sales tax.

Were there no sales occurring in Colorado, the company would still likely have a tax obligation. As the letter points out that “a seller has nexus in a state if it maintains employees in that state, even if the activities of the employees are completely unrelated to the sales transactions at issue.”

General interest letters

General interest letters can provide a glimpse into how state departments of revenue interpret tax laws. As such, they can be quite instructional. That said, please note that general interest letters pertain to the taxpayer in question and the specific situation addressed. The DOR “does not make a specific determination here on any of the issues raised and the Department is not bound by this general information letter.” It also points out that it cannot interpret on policies in the state’s home rule jurisdictions. Read GIL-15-016.

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