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SALT Issues to Consider during COVID-19 Crisis

Jun 24, 2020, 16:23 PM by Matthew D. Melinson, CPA, Drew VandenBrul, CPA, and Adam Koelsch, JD
The economic repercussions of the COVID-19 pandemic have some economists forecasting that the U.S. economy will not rebound quickly to precrisis levels. The state and local tax implications, both in the current environment and in the long term, will be wide-ranging and require considerable attention.

The economic repercussions of the COVID-19 pandemic have some economists forecasting that the U.S. economy will not rebound quickly to precrisis levels.1 The state and local tax (SALT) implications, both in the current environment and in the long term, will be wide-ranging and require considerable attention.

Competing interests may characterize the new SALT environment. Some taxpayers will be seeking opportunities to maximize liquidity and cash flow to continue operations, including opportunities for tax reductions and refunds.

Likewise, state and local taxing authorities must ensure a steady stream of tax revenue as governments spend more to deal with the crisis. The Pennsylvania Independent Fiscal Office reported that, depending on the length of mandated business closures, General Fund revenues could fall by an estimated $2.7 billion to $3.9 billion.2 These differing interests have always been present, but the economic downturn will increase pressure on all parties to protect cash flow. Further, governments may wish to balance their own fiscal concerns with a desire to provide taxpayer relief. For example, despite declining revenue projections, Pennsylvania announced a general relief program that included offering flexible terms for new payment plans and limiting some enforcement activities.3 Taxpayers will need to navigate this changing landscape.

Short-term considerations remain, such as the impact of filing and payment date extensions. Other issues will require thoughtfulness in the longer term, including the question of how to maximize cash flow and liquidity for sustained business operation beyond the mandated closures. An array of broader tax issues is brought to light by this situation:

  • The impact of telecommuting on businesses and individuals (both temporary and sustained)
  • Planning opportunities around sales tax payments, credits and incentives, property valuation, and debt acquisition or restructuring
  • How businesses might reorganize legal entities for greater tax efficiency
  • The consequences to controversy matters, audits, and refund requests

This article outlines some of the opportunities for assisting businesses with these potential longer-term SALT issues.


On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The act provides tax relief to businesses and individuals economically hurt by mandated closures. Changes made by the act to the Internal Revenue Code (IRC) include the following provisions with SALT implications:


Although the CARES Act specifically provides federal income tax relief, many of its changes can also affect state and local income taxes calculated based on federal taxable income. Just as with the changes in the Tax Cuts and Jobs Act of 2017 (TCJA), state and local jurisdictions will address the changes made by the CARES Act differently. Some jurisdictions, including Pennsylvania, Philadelphia, New Jersey, and Delaware, automatically conform to changes to the IRC (known as rolling conformity). These jurisdictions may decide to legislatively decouple from certain provisions (as many have previously done with IRC Section 168(k), bonus depreciation). Other jurisdictions adopt the IRC as of a specific (fixed) date, and must decide whether to legislatively update their conformity and adopt the act’s new provisions. Special legislative sessions will likely occur in many states, during which legislators will decide whether to adopt or decouple from the provisions of the act. Delayed legislative action and closures of revenue agencies, however, mean guidance may come slowly and irregularly, requiring consistent monitoring. Indeed, each jurisdiction must balance the advantages to taxpayers of conforming against the fiscal impact, while simultaneously considering the effects of other planned relief efforts.

Each federal change adopted by a state or locality has the potential to impact businesses. Resulting reductions of tax liabilities would enable taxpayers to receive refunds or reduce estimated payments. The changes may also allow taxpayers to amend SALT filings for previous tax years, resulting in refunds or credits. In each of these cases, taxpayers will have the ability to generate or retain much-needed cash.

Taxpayers and their advisers must be aware of the evolving differences between the IRC and the tax provisions of the state and local jurisdictions where they conduct business. This is important not only to understand the potential tax benefits, but also to properly report adjustments to federal taxable income for tax return preparation and filing.


Many businesses have remained operational during the mandated closures and stay-at-home orders by having their employees work from home. These businesses will likely evaluate whether telecommuting is a viable way to operate even after the current crisis subsides. Allowing or requiring employees to work from home raises many SALT questions.6

One question is whether employers should withhold tax from nonresident employees working from home, especially in jurisdictions following the so-called “convenience of the employer” rule. This rule subjects nonresident employees to tax at their normal work location on income earned when working outside the jurisdiction, unless required to do so by the employer.7

Another question is whether allowing or requiring employees to work from home may unintentionally create nexus in jurisdictions with which a business has no other connection. The New Jersey Superior Court held in 2012 in Telebright Corporation Inc. v. Director, N.J. Division of Taxation that the presence of a single telecommuting employee in the state created sufficient nexus for an out-of-state corporation with no physical office or payroll in the state.8 Due to government mandated closures, some jurisdictions, including Pennsylvania, Philadelphia, and New Jersey, have temporarily waived the presence of telecommuting employees as exceeding nexus thresholds for business taxes. However, these waivers may last only for the duration of the state-defined emergency, and they may not extend to following periods when employers and workers might continue social distancing. Furthermore, taxpayers should remember that other nexus-creating activities may exist, including those activities that exceed the protections of Public Law 86-272 and the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair Inc.9 Following Wayfair, states have begun to address economic nexus requirements for income tax purposes, including Pennsylvania.10 These activities, as well as telecommuting, should be part of any comprehensive nexus review.

Other questions arise related to how employees working in other states affect the sourcing of payroll and receipts for purposes of calculating income and franchise tax apportionment factors.11 Should part of the payroll of remote workers be sourced to their remote work location? Will the shift in working locations impact the analysis of the costs of performance for sourcing receipts from sales of other than tangible personal property, such as services? These are issues still to be addressed by both states and taxpayers.

Planning Opportunities

Sales and use taxes – Taxpayers who collect and remit sales taxes are often confronted with a variety of payment alternatives. Under normal circumstances, large taxpayers in some jurisdictions (such as Pennsylvania and Ohio) are required to accelerate their periodic payments. In light of the pandemic, some jurisdictions waived accelerated payment requirements.12 Eventually, states may offer new prepayment discount options to increase short-term revenue, as some did even before the pandemic. Businesses – such as retail operations suspended as a result of mandated closures – should evaluate any opportunities to accelerate or decelerate their sales tax remittances based on their circumstances.

If a taxpayer properly collected and remitted sales tax on transactions where the purchaser has failed to pay, they should consider whether to adjust current returns or file bad debt refund claims for the remitted tax.

Credits and incentives – Taxpayers may be eligible for credits or incentives based on in-state activities, employment or investment expansion, or the consolidation of activities from multiple states to a single location. These may be existing credits and incentives, or those created in the future to spur economic development. Conversely, some businesses may have previously received credits or grants based upon a commitment to complete planned expansions or maintain workforces. As a result of the economic downturn, they may no longer be able to meet the requirements. Many such programs contain “clawback” provisions requiring repayment if the original terms of commitment are not met. Due to the unique causes of the current economic situation, recipients may be able to request relief from, or alternatives to, the clawback provisions. Taxpayers should monitor for any such developments and search for opportunities to help themselves meet their obligations.

Real property taxes – During the economic downturn, both commercial and residential property values are likely to decrease. However, the local authorities that typically administer real estate taxes sometimes do not reappraise properties in their jurisdictions for years. Consequently, property owners should be vigilant about reviewing the property values and evaluating whether to challenge valuations that fail to account for declines in value.

Mergers, consolidations, and reorganizations – Taxpayers may view the current situation as an opportunity to review their current legal entity operating structures. This can provide benefits of offsetting income and losses, maximizing the use of valuable tax attributes, and facilitating the deduction of interest expenses. Many of these changes can be accomplished by merging, consolidating, and restructuring business entities within the existing operation. Some may require reviewing and changing existing debt agreements to maximize the utilization of interest expenses after considering the limitations imposed by IRC Section 163(j). If properly executed, these can produce immediate cash flow savings through reduced estimated payments, as well as financial statement benefits and reduced tax compliance costs.

Controversy, Audits, and Refunds

The economic downturn presents both potential opportunities and risks in areas of SALT controversy, including audits.
First, the current environment might be conducive to resolving tax matters by negotiating settlements. Administrative agencies deciding petitions for reassessment and refunds have closed or are working remotely after mandated closures. The Pennsylvania Board of Appeals, for example, suspended all in-person hearings, although it offered to conduct online hearings for those cases already scheduled and to conduct informal teleconferences. Backlogs may incentivize both taxpayers and taxing authorities to resolve cases as quickly as possible. Revenue departments may be eager to obtain or retain as much cash as possible to take care of short-term government needs by settling reassessment audits and petitions. Conversely, some states may be motivated to resolve matters in a somewhat more favorable manner toward taxpayers, knowing the financial challenges many businesses are encountering.

Second, taxpayers may require assistance with controversies arising from the crisis, as revenue agencies may increase audit activity and assessments to make up revenue shortfalls. In contrast, there may also be a general desire by governments to provide taxpayer relief on audits or appeals to support the economy. Further, governmental agencies may also be torn between the desire to hire more auditors to maximize revenue and the inclination to cut budgets in an economic downturn. Some states may decide to ensure that refunds should be issued as quickly as possible with a reasonably limited review to ensure businesses receive much needed cash, while other states may decide to increase scrutiny on refund claims.

Future controversies may arise with respect to trust fund taxes, such as sales tax and also employer withholding. Such taxes are collected by businesses as agents of the state. States typically expect that the collected funds are segregated from other business funds. Consequently, in comparison to other taxes, states may take a hardline approach when businesses fail to timely remit trust fund taxes, irrespective of any underlying financial difficulties. Furthermore, business owners, officers, and employees can be held personally liable if there is a corresponding “responsible party” assessment. As businesses are planning cash flow management, it is advisable to be particularly cautious with trust fund taxes.


The prospect of an extended period of economic uncertainty and the diverse state and local responses to federal tax changes present unique challenges. Many businesses have understandably focused on immediate issues, such as filing and payment deadlines. However, there is a wide array of additional SALT considerations stemming from the pandemic that taxpayers should confront. Monitoring the rapidly evolving state and local tax landscape is necessary for organizations to understand their options. Those who act quickly, yet thoughtfully, will be in an optimal position to take advantage of the various opportunities to help businesses at an important time. 

1 Diane Swonk, Navigating COVID-Tainted Waters: In Search of an Endgame, Grant Thornton (April 3, 2020).
2 Projected Revenue Impact of COVID-19, Pennsylvania Independent Fiscal Office (April 8, 2020).
3 Relief for Taxpayers During COVID-19 Pandemic, Pennsylvania Department of Revenue (April 15, 2020).
4 The listed considerations represent planning issues and opportunities that may result depending upon whether a state or local government conforms to the corresponding federal CARES Act provisions. See State Conformity section of this feature.
5 New York specifically decoupled from IRC Section 163(j) in its 2020-2021 budget legislation. Wisconsin is a static conformity state that has adopted the IRC as of Dec. 31, 2017, but has recently passed legislation selectively conforming to the act (Assembly Bill 1038), which did not address IRC Section 163(j).
6 Matthew D. Melinson, CPA, Drew VandenBrul, CPA, Patrick Skeehan, JD, and Thomas Boyle, JD, “State and Local Tax Responses to COVID-19 Economic Challenges,” CPA Now (April 7, 2020).
7 The Pennsylvania and Philadelphia revenue departments have issued some guidance regarding employer withholding. See Pennsylvania Department of Revenue, “If an employee who normally works in PA and receives PA source compensation works from home in another state temporarily due to the COVID-19 pandemic, does the source of his compensation change to non-PA source compensation?” (April 3, 2020); City of Philadelphia Department of Revenue, Wage Tax Policy Guidance for Non-Resident Employees (April 14, 2020). and
8 38 A.3d 604, 612 (N.J. Super. Ct. App. Div. 2012).
9 15 U.S. Code Section 381-384. This federal statute disallows a state from imposing a net income tax if the taxpayer’s activity within the state is limited to solicitation for sales of tangible personal property; and 138 S. Ct. 2080 (2018).
10 Pennsylvania Corporation Tax Bulletin 2019-04.
11 Both the Pennsylvania and Philadelphia departments of revenue maintain that an employee temporarily telecommuting because of the pandemic does not change sourcing for income apportionment purposes. See Pennsylvania Department of Revenue, “If an employee who normally works in PA and receives PA source compensation works from home in another state temporarily due to the COVID-19 pandemic, does the source of his compensation change to non-PA source compensation?” (April 3, 2020). See also Philadelphia Department of Revenue, “BIRT and NPT nexus and apportionment policies due to the COVID-19 pandemic” (April 23, 2020).;
12 Pennsylvania has waived its accelerated payment requirements until July 2020. See “Pennsylvania Businesses to Benefit from Waiver for Prepayments of Sales Tax” (April 14, 2020).


Matthew D. Melinson, CPA, is a partner at Grant Thornton LLP in Philadelphia, leader of the Atlantic Coast region state and local tax practice, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at


Drew VandenBrul, CPA, is a state and local tax managing director at Grant Thornton. He can be reached at

Adam Koelsch, JD, is a state and local tax manager at Grant Thornton. He can be reached at

The authors thank Patrick K. Skeehan, JD, and Thomas Boyle, JD, for their assistance in the development of this feature.