On May 15, 2020, the South Carolina Department of Revenue (the “Department”) published an information letter outlining temporary income tax withholding measures for employers with employees temporarily working remotely as a result of COVID-19.  The measures are effective from March 13, 2020, through September 30, 2020 (the “COVID Period”).  

Basically, a COVID Period-based change in an employee’s physical work location will not change the employer’s South Carolina employment tax obligations – regardless of whether the employer’s usual report-to-work location is inside or outside of South Carolina.  The apparent intention is for an employer to avoid having to register and/or withhold for a new state based simply upon COVID Period temporary work changes.   
 
For example, if, during the COVID Period, a worker who would ordinarily report to work to their employer’s South Carolina location instead works from their North Carolina home, that worker’s income taxes would be withheld according to South Carolina law and paid to the State of South Carolina. The COVID Period change in the report-to-work location does not change the application of the South Carolina tax withholding rules: in this case, the South Carolina rules applied before the COVID Period, which continue to apply during the COVID Period.  

Similarly, a North Carolina-based employer would not have to start charging South Carolina withholding tax during the COVID Period merely because its South Carolina resident employees – who ordinarily would report to work at the employer’s North Carolina facilities – instead work from their South Carolina homes during the COVID Period, assuming that the employer is withholding North Carolina taxes on their wages for that period.  Again, the COVID Period change in the report-to-work location does not change the application of the South Carolina tax withholding rules: in this case, these rules did not apply before the COVID Period, and do not apply during the COVID Period either.  

As a related matter, however, these rules do not apply if the worker’s change in their report-to-work location is permanent rather than temporary; in this case, the change is not merely a “COVID Period change,” and so the change in the report-to-work location does change the application of the South Carolina tax withholding rules.  For example, some large tech companies recently announced that employees will have the option to permanently work from home.  In this instance, if the technology company is not located in South Carolina, the company will need to start withholding South Carolina tax on the wages of employees who will be permanently telecommuting from within South Carolina.  Similarly, if the technology company is located in South Carolina, the company will need to stop withholding South Carolina tax on the wages of employees who will be permanently telecommuting from outside South Carolina (and comply with the withholding laws of the state in which their facilities are located).  The information letter does not define “permanent,” nor does it provide guidance for a hybrid remote work scenario (which would presumably be governed by the laws of each state in which work was performed). 

Additionally, the Department will not use an employee’s temporary work location during the COVID Period as a basis for establishing tax nexus with South Carolina, nor will it alter an employer’s apportionment of business income for South Carolina income tax purposes. 

Persons or businesses with remote employees in multiple states should check the employment laws and tax laws in each state. The IRS provides a list of state government websites here.