4 ms·

Ask HN: Hiring Remotely and US Tax Nexuses

9 points by autarch 12y ago

I know that a number of companies discussed on HN (such as GitHub) have a policy of hiring from anywhere in the US or in the world. The company I work for has been trying to hire remotely, but we are having some trouble with the issue of tax nexuses. For example, we were interested in someone in NY state, but if we hired them we'd have to collect sales tax in that state. Is there some way that companies like GitHub and others have worked around this problem?

gamblor956 12y ago
There are two types of tax nexus: federal/national, and state. Federal/national tax nexus is a matter of federal law, and can be affected by treaties with other countries (i.e., "permanent establishment" or "branches"). Treaties can occasionally result in a foreign person/company having a US tax reporting requirement (i.e., tax returns) without actually owing any US taxes! State tax nexus is an entirely separate beast which differs from state to state and is not affected by US treaties! In some states, physical presence is required to have a nexus; in others, merely selling to customers into the state is sufficient. Generally, having an employee permanently working from a state is sufficient nexus to subject a company to state tax compliance as your company is then treated as being physical present in that state (through the employee). However, an independent contractor might avoid nexus concerns as an IC is usually legally and economically independent from his/its clients. Your best bet is to talk to a NY-based lawyer (or at least, a lawyer licensed to practice in NY).
- autarch 12y ago
  Yep, I'm aware of all those details. I'm just wondering if companies like GitHub simply bite the bullet and pay sales tax in each state as needed, or if they've found some sort of workaround (like incorporating a second entity that hires people but doesn't receive sales revenue directly, just to make up a random thing).
  - toomuchtodo 12y ago
    Some companies use an intermediary, like Trinet [1]. You write them a check every pay period, and they disburse the funds to your scattered employees for a small fee without you having to handle the logistics of it. [1] http://www.trinet.com/ http://www.trinet.com/
    - autarch 12y ago
      From research done by folks at our company this apparently does not eliminate the nexus issue. I had high hopes for this approach but it didn't pan out.
phantom_oracle 12y ago
Isn't it as simple as hiring as a contractor instead of hiring as an employee? Having contractors simply turns the situation from "we have labour laws to deal with" to "this is an expense like any other", although speaking to a labour + tax attorney wouldn't hurt. As far as your company hiring remotely goes, tell them not do it if this is their first time and everyone else is local. They will get burned (almost always likely) diving in the deep end, so if they do plan on doing it, this is (roughly) how: Find some obscure 50-hour task and give the contractor an opportunity to complete it (making sure it is possible to be done in 50 hours). AFAIK, when working with "contractors", the tax-reporting burden becomes theirs.
- tptacek 12y ago
  It's unlawful to hire full-time employees as contractors, and there is a somewhat elaborate test (in the sense that its results can be unpredictable when applied under duress) used by the USG to tell the two apart. This is, in fact, what several companies have done to resolve this problem for foreign workers. But there is a downside. It's a very bad idea to treat US full-time employees as 1099 contractors. This, by the way, is one of the reasons that freelancers sometimes have a hard time establishing a master agreement with Fortune 500 companies.
  - phantom_oracle 12y ago
    Thanks for this. It seems like labour laws in the US are similar to other countries in this regard. There could actually be another way around this, as the contractor could register his own LLC and work through that. I'd advise the OP (again) to consult a labour and/or tax lawyer on this.
    - autarch 12y ago
      We have consulted lawyers, I was just wondering how some companies are able to still hire from anywhere. I'm guessing that it's some combo of hiring non-US workers as contractors and simply biting the bullet on sales tax as needed in each US state.

9 points by autarch 12y ago

gamblor956 12y ago

There are two types of tax nexus: federal/national, and state. Federal/national tax nexus is a matter of federal law, and can be affected by treaties with other countries (i.e., "permanent establishment" or "branches"). Treaties can occasionally result in a foreign person/company having a US tax reporting requirement (i.e., tax returns) without actually owing any US taxes! State tax nexus is an entirely separate beast which differs from state to state and is not affected by US treaties! In some states, physical presence is required to have a nexus; in others, merely selling to customers into the state is sufficient. Generally, having an employee permanently working from a state is sufficient nexus to subject a company to state tax compliance as your company is then treated as being physical present in that state (through the employee). However, an independent contractor might avoid nexus concerns as an IC is usually legally and economically independent from his/its clients. Your best bet is to talk to a NY-based lawyer (or at least, a lawyer licensed to practice in NY).

autarch 12y ago
Yep, I'm aware of all those details. I'm just wondering if companies like GitHub simply bite the bullet and pay sales tax in each state as needed, or if they've found some sort of workaround (like incorporating a second entity that hires people but doesn't receive sales revenue directly, just to make up a random thing).
- toomuchtodo 12y ago
  Some companies use an intermediary, like Trinet [1]. You write them a check every pay period, and they disburse the funds to your scattered employees for a small fee without you having to handle the logistics of it. [1] http://www.trinet.com/ http://www.trinet.com/
  - autarch 12y ago
    From research done by folks at our company this apparently does not eliminate the nexus issue. I had high hopes for this approach but it didn't pan out.

phantom_oracle 12y ago

Isn't it as simple as hiring as a contractor instead of hiring as an employee? Having contractors simply turns the situation from "we have labour laws to deal with" to "this is an expense like any other", although speaking to a labour + tax attorney wouldn't hurt. As far as your company hiring remotely goes, tell them not do it if this is their first time and everyone else is local. They will get burned (almost always likely) diving in the deep end, so if they do plan on doing it, this is (roughly) how: Find some obscure 50-hour task and give the contractor an opportunity to complete it (making sure it is possible to be done in 50 hours). AFAIK, when working with "contractors", the tax-reporting burden becomes theirs.

tptacek 12y ago
It's unlawful to hire full-time employees as contractors, and there is a somewhat elaborate test (in the sense that its results can be unpredictable when applied under duress) used by the USG to tell the two apart. This is, in fact, what several companies have done to resolve this problem for foreign workers. But there is a downside. It's a very bad idea to treat US full-time employees as 1099 contractors. This, by the way, is one of the reasons that freelancers sometimes have a hard time establishing a master agreement with Fortune 500 companies.
- phantom_oracle 12y ago
  Thanks for this. It seems like labour laws in the US are similar to other countries in this regard. There could actually be another way around this, as the contractor could register his own LLC and work through that. I'd advise the OP (again) to consult a labour and/or tax lawyer on this.
  - autarch 12y ago
    We have consulted lawyers, I was just wondering how some companies are able to still hire from anywhere. I'm guessing that it's some combo of hiring non-US workers as contractors and simply biting the bullet on sales tax as needed in each US state.