Remote worker state income tax nexus creates invisible multi-state filing obligations for small employers

What: A single remote employee working from a state where the business has no physical office can create income tax nexus for the employer in that state, triggering corporate income tax filing obligations, payroll withholding requirements, and potential sales tax registration — even if the employer never intended to operate there and has no customers in that state. New York's "convenience of the employer" rule (upheld by the Tax Appeals Tribunal in May 2025) taxes wages in New York even when the employee performs all work from another state, meaning a remote worker can owe income tax to both their home state and their employer's state simultaneously. Why it matters: A five-person startup that hires remote workers in three states now has tax filing obligations in four jurisdictions instead of one — so what? Each state has different nexus thresholds, withholding rules, and filing deadlines, creating a compliance burden that costs $5,000-15,000/year in accounting fees — so what? That compliance cost is disproportionate to the payroll involved and effectively penalizes small businesses for offering remote work — so what? Non-compliance carries penalties and back-tax assessments that can exceed the original tax owed — so what? The complexity forces small businesses to either restrict hiring to their home state (losing access to talent) or unknowingly accumulate multi-state tax liabilities that surface years later during audit. Structural root cause: Each of the 50 states independently defines what constitutes nexus and how to source income from remote workers, with no federal standard or interstate compact governing the allocation of taxing rights over remote employees. States have financial incentives to assert broad nexus claims, and Public Law 86-272's interstate commerce protections do not cover modern service and SaaS businesses.