Tax Policy Changes Needed if Remote Work Outlasts COVID

By Christopher Emigholz, NJBIA Vice President of Government Affairs On May 27, 2021

As the vaccine supply increases and the pandemic eases its grip on New Jersey, many of us look forward to summer trips to the Jersey Shore and a return to something closer to normalcy. But the way we work may not easily revert to how it was before COVID-19 upended our lives – and may be changed permanently. That may be good news for workers and businesses, but it could also mean trouble if state tax policies are not adjusted accordingly.

Some businesses are encouraged by how productive employees have been working from home and the savings realized from having fewer people in offices. Many of these companies are now likely to reduce their office footprints and continue using remote workers long after COVID-19 is only a bad memory. This means the state must reassess a wide range of tax policies – income taxes, gas taxes, and business incentives to name a few – that will all be impacted by a shift to more employees working from their homes. 

Business Incentives. Remote workforces will pose challenges for the state when designing economic incentive packages for businesses relocating to New Jersey. Before COVID-19, awardees made commitments to hire or retain a certain number of employees in a New Jersey office. Although those jobs were created as promised, some employees shifted to remote work during the pandemic and may never return to those offices. 

The new Economic Recovery Act of 2020 provides some flexibility for remote work going forward, but whether it will be enough remains to be seen. Will the coming regulations to implement this law enhance that flexibility or revert to the old way of counting jobs created in offices? The New Jersey Economic Development Authority will need to adjust its requirements to focus more on job creation and retention in New Jersey and less on antiquated models of work done in office settings. 

Income Tax. Employees pay taxes where they work, and that policy has always hurt New Jersey whenever its high-earning residents commuted to jobs in New York City. If people are now working from their New Jersey homes instead of Manhattan skyscrapers, shouldn’t they be paying taxes on their income to New Jersey? New Hampshire has taken Massachusetts to court over this same tax issue and New Jersey has joined that suit. The outcome has the potential to provide tax relief to New Jersey residents who formerly commuted to New York City and now work remotely – and produce more tax revenue for New Jersey without raising the tax rate. 

Gas Tax. New Jersey’s gas tax, and the Transportation Trust Fund (TTF) it supports, are also impacted by fewer commuters. The gas tax is calculated to maintain a fixed revenue stream for the TTF, so if less gas is purchased, the tax rate increases. As pandemic restrictions ease, there will be more drivers on the road purchasing gasoline, but not as many as there were pre-COVID-19 if people continue to work remotely. Policymakers must plan for the impact that fewer commuters and less gasoline consumption may have on gas tax revenues. 

Remote work has ushered in significant changes beyond working from your home in your pajamas and missing the great lunch place around the corner from your office. There are tax and other policy challenges that come with remote workforces that must be considered as we move to a new post-pandemic normal. NJBIA will keep advocating for New Jersey businesses as policymakers address those challenges.

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