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Tax Implications of a Majority Remote Workforce: Predicting the Post-COVID Economy Part II

CoffyLaw, LLC June 15, 2020

“With a majority remote workforce or better, Boards of Directors should demand that corporations move their operations to more tax-friendly jurisdictions. A decision to stay in a high tax jurisdiction when a corporation will have a remote workforce is practically malfeasance.”

The COVID-19 pandemic seems to be coming to a slow but steady close in Europe, with no evidence of a spike despite loosening of lockdowns, at least according to outlets like the Washington Post and Wall Street Journal. Although some media continue to report spikes in the number of coronavirus cases in certain states and areas, other media, such as Politico, acknowledge that two weeks after the widespread protests in virtually every major American city started there is no evidence of a spike. Of course, Politico has also reported the exact opposite.

Whatever the case may be about whether COVID-19 and the coronavirus are increasing, decreasing, waning, spiking or likely to spell imminent doom, as sure as Americans are tired of being locked down, corporations of all sizes are rethinking their future. Many corporations, from startups to small businesses to the largest multinational technology corporations, have discovered that their workforce can operate just as effectively from home, if not more effectively.

Going Remote

Indeed, a recent survey of Venture Capitalists and Founders found that one-third (32.9%) will emerge from the economic shutdown caused by the COVID-19 crisis with a fully remote workforce. Another 40.7% will emerge with a majority of their workforce being remote. Another 20.7% said they will have at least some of their workforce remote, while only 5.6% responded that they will have an all-in-office workforce. That means that 94.4% of respondents will have at least some remote workforce, with 73.6% having at least a majority of their workforce working remotely from home.

Numerous technology giants are similarly rethinking the future of their workforce. Most notably Facebook, which has announced plans to eventually become a fully remote workforce. Meanwhile, Google employees will be allowed to work from home at least through the end of 2020, and Twitter CEO Jack Dorsey has given employees permission to permanently work from home if they wish.

Tech companies have spent lavishly on office space and buildings in Silicon Valley and San Francisco in recent years – think Apple’s particle accelerator shaped office space in Cupertino, California, or the many leases entered into even before ground is broken in San Francisco. But the prospect of a remote workforce is simply too enticing to pass up. From a truly national and international recruiting base, talent acquisition will be easier than ever. And from a tax standpoint, the savings could be enormous.

The Rankings Flip

Why would or should any corporation of any size remain in a high tax jurisdiction? With a majority remote workforce or better, Boards of Directors should demand that corporations move their operations to more tax-friendly jurisdictions. A decision to stay in a high tax jurisdiction when a corporation will have a remote workforce is practically malfeasance.

Typically, when states compete for corporations, they tout many things, including quality of life for employees – which will no longer matter for many technology companies in the post-COVID economy. States also tout their overall tax rankings, which are a function of corporate tax rates, individual tax rates, sales tax rates, and property tax rates, among other things such as fees and licenses, etc. The picture often looks like this ranking, which is from the Tax Foundation for 2020.

With a majority remote workforce, or a fully remote workforce, the metrics that go into the overall picture that affect the individual seem less important. Focusing just on the corporate tax rates, a somewhat different picture emerges, with some notable states even switching from a “top” ranking position to a “bottom” ranking position.

For at least some corporations (perhaps many corporations), the thought of relocating to South Dakota, Wyoming, South Carolina, Mississippi or West Virginia would not be appealing for a variety of reasons. On the remainder of the list would be cities such as Charlotte, NC, St. Louis, MO, Atlanta, GA, Denver, CO, Oklahoma City, OK, Jacksonville, FL, Orlando, FL, Tampa, FL, Miami, FL, Indianapolis, IN, Salt Lake City, UT, New York, NY, and although not a particular “city” the Northern Virginia area generally, which is a growing suburb of Washington, DC. All of these locations have major airports, some obviously would have lower overheads than others (i.e., Indianapolis would be far cheaper for whatever footprint one might need than New York City).

Surprisingly, when you do not consider individual tax, property tax and sales tax burden, New York flips from a worst tax jurisdiction to a top 15 tax jurisdiction. Similarly, Texas flips from a top 15 tax jurisdiction to a rather unattractive tax jurisdiction.

More to Learn

Obviously, there are a lot of considerations that go into where to locate, or relocate, your business. Cities and states are known to put rather enticing tax packages together to attract businesses that they want, but those are premised on jobs. What the new post-COVID economy will look like and the sales-pitch states and cities will have to make to attract new and relocating businesses will undoubtedly change. So too will the calculus for those businesses small to large.

For more information on this topic, I invite you to join me for a free webinar conversation on Tuesday, June 30, 2020. Our conversation will focus on what the post-COVID U.S. economy will likely look like, how corporations and law firms can and should be positioning themselves today, what types of computer systems and resources they can and should deploy to enable their workforce to safely and securely collaborate together and with clients while keeping sensitive data and information secure, and much more.