California Is Prepared for Remote Work Boom, Say FTB Staff

Original article posted at https://www.taxnotes.com/tax-notes-state/apportionment/california-prepared-remote-work-boom-say-ftb-staff/2022/06/20/7dkkh

California is prepared to address the tax enforcement complications that will result from the growth of telecommuting in the post-pandemic era, according to Franchise Tax Board staff.

In a June 9 presentation to board members, staff said the state’s rules will in some cases treat a business’s employees who telecommute from within California as causing the business to forfeit protections under P.L. 86-272. They also laid out the state’s rules regarding residency and the taxability of income earned by nonresidents who telecommute from within California and by residents working outside the state.

The presentation, which was delivered during the board’s regular meeting, comes as increased remote work — initially a reaction to pandemic-era lockdowns — appears to have become a long-term trend.

“There are reports that say there is an office vacancy rate in San Francisco as high as 24 percent, and the office vacancy rate in Los Angeles is at 22 percent,” said Malia Cohen (D), a member of the FTB and the State Board of Equalization who is running for state comptroller. “In San Diego it’s at 24 percent, and right here in Sacramento it’s at 17 percent.” 

According to FTB Deputy Chief Counsel Shane Hofeling, “Remote work is common and is only going to become more and more a part of our reality” going forward. But he said California’s tax rules will be adaptable, noting in particular the state’s use of facts and circumstances to determine whether someone is a resident, rather than a bright-line residency test. Ful article at link above.