The COVID-19 outbreak changed our daily routine, social life, interactions with people, commute, communication, technology, shopping, and most importantly, our working environment. Earlier this year, with the spread of COVID-19, many employers and employees have shifted their workplace from their office to their home. The change in where work is physically being performed may impact state and local apportionment and nexus.


The state and local taxing authorities use different methodologies to determine how a business must apportion revenue to their state and local taxing jurisdictions. The main two methodologies that are commonly used by state and local jurisdictions are the Cost-of-performance method, and Market-based method (market sourcing method).

The rules of these two methods are –

  • Cost-of-performance – where the service is performed or where the income-producing activity is performed.
  • Market-based method – where the customer or the client receives the benefit of where the service or product is ultimately received.

Although various taxing authorities have their own revenue sourcing methodologies based on the type of product or services provided, the above two methods are the foundation of those revenue sourcing rules.

COVID-19: Telecommuting (home office)

  • Sales apportionment – The presence of a home office employee may affect the business’s sale apportionment factor. For example, under the Cost-of-performance method, some states and local tax authorities require the company to apportion service revenue based on where the income-producing is performed by the employees.
  • Employee payroll withholdings and income tax – Generally, payroll withholding is due to the state where the employee performs work regardless of where the employer is located. Some states have special COVID-19 rules for employees when temporarily working from home.
  • Sales Tax – Generally physical presence in a state creates nexus to impose a sales tax. Having employees working remotely in other states may cause a sales tax nexus issue.

City of Portland and Multnomah County business tax

The City of Portland and Multnomah County use the Cost-of-performance apportionment method, based on where the service is performed. If you have an office in Portland and employees were working inside the Portland office, your revenue apportionment factor is 100% in City and County. However, because of COVID-19 if your employees are now working from their home office outside of the City of Portland and Multnomah County, your revenue apportionment factor numerator is less than the denominator which decreases the revenue factor and tax liability. On the other hand, if you have a business office outside of the City of Portland and Multnomah County and now your employees are working from their home office in Portland and Multnomah County, you may have a filing requirement. 

Tri-County Metropolitan Transportation District tax (TriMet Tax for LLCs/Partnerships and Self-Employed)

TriMet follows the Oregon market-based sourcing (OAR 150-314-0435), where the customer or client ultimately receives the benefit. Unlike the City of Portland and Multnomah County’s business tax, TriMet tax apportionment factor will not be changed by telecommuting. However, it is worthwhile to recheck where the customer’s contract is managed because sales are assigned to the state/local jurisdiction where the customer’s contracts are managed under market-based sourcing. For example, if you have clients in the Tri-County District (Multnomah, Clackamas, and Washington) and if the client’s ultimate benefit is within Tri-County, you must apportion revenue to TriMet. However, if the client is outside of Tri-County (i.e. Vancouver WA) then you can exclude that revenue from the apportionment factor.

Other Considerations

While many states issued guidance on temporary relief on income tax and sales tax nexus for COVID-19 related telecommuting (the City of Portland and TriMet have not), this is something businesses should measure again if employees are continually working remotely from their home office. The changes in the physical workplace may impact the business’s future state and local tax filing requirements. It is now crucial for your business to closely monitor apportionment and nexus issues as some states are seeking additional revenue by taking a belligerent position against employer’s work from home policies. Remember, currently some states have issued a temporary relief on telecommuting, but at anytime they could revoke such a relief and you do not want to fall into a double-taxation trap.

In summary, we encourage you to consult with your tax advisor about your specific situation regarding COVID-19 telecommuting and how states and locales are responded to this. We’re here to help, please reach out to your professional at McDonald Jacobs. We encourage you to follow McDonald Jacobs on LinkedIn and Twitter to stay up to date on any new information.