Multistate Tax Risks of Remote and Hybrid Work
With remote and hybrid work standard business practice, multistate tax obligations surface. CPAs who understand the complexities involved can help clients stay compliant.
By Mark Mirsky, CPA | Digital Exclusive – 2026
Despite remote and hybrid work being firmly embedded in the current business landscape, many employers continue to underestimate the multistate tax consequences that accompany these business practices.
Companies, particularly those in industries like professional services, technology, and health care, often assume the absence of an out-of-state office limits their tax exposure—but that’s simply not the case. Employees and customers located outside Illinois, for instance, are still subject to other states’ income tax, sales tax, and payroll obligations, even when a business has no physical presence in that state.
Notably, certified public accountants (CPAs) play an essential role in guiding their clients through the complexities of multistate work. Because many CPAs have clients that employ workers in remote and hybrid settings, send employees out-of-state, hire out-of-state contractors, or have property located in other states, it’s critical that they know the ins and outs of what’s required by each state they’re based or operate in. Here’s everything CPAs need to know to help their clients remain compliant and avoid tax risks.
Physical Presence Nexus and Other Common Multistate Issues
When it comes to remote and hybrid work, one common misconception employers make is that nexus requires a traditional physical footprint, such as an office, warehouse, or storefront. However, most states treat the performance of services within their borders as sufficient to establish physical presence nexus for income and sales tax purposes. This means that a single remote employee working from another state—whether permanently, hybrid, or temporary—can trigger filing and compliance obligations.
Technology companies face added complexity: remote engineers, developers, support staff, installers, repair personnel, and sometimes cloud infrastructure or data centers can create physical presence nexus.
States also rarely provide telecommuting exceptions for employers. Although Public Law 86-272 offers limited income tax protection, it applies only to sales of tangible personal property and only when activities are strictly limited to solicitation. The law doesn’t apply to services or digital products, doesn’t protect against sales tax, and is easily exceeded by common employee activities, leaving many businesses with little benefit.
Continuing with Illinois as our example state, another common misconception is that out-of-state clients are taxable only in Illinois if they have a physical presence. While physical presence does create nexus, states may impose sales tax even when there’s no physical presence due to the creation of economic nexus, which may still be established if revenue from customers exceed statutory thresholds (which is commonly set at $100,000).
Managing Compliance Pitfalls With Proactive Planning
Employers with remote employees or those who offer services to out-of-state clients and customers often encounter compliance issues related to multistate work that can be easily avoided with proper planning. Such compliance issues may include:
- Failing to register in a state before hiring a remote employee.
- Neglecting payroll withholding requirements in employee work states.
- Failing to consider reciprocal agreements.
- Collecting sales tax without proper registration or failing to collect when required.
- Failing to obtain exemption certificates from customers when tax isn’t charged.
- Overlooking non-income taxes, such as gross receipts or margin-based taxes, imposed by states like Ohio, Oregon, Texas, and Washington.
Internal policies governing remote work can help ensure that employee relocations, whether temporary or permanent, don’t occur without appropriate tax review. Sales tax compliance should include not only proper collection and remittance but also consistent documentation through exemption certificates when tax isn’t charged.
It’s also important to be aware that states are becoming increasingly aggressive in audits and collection. Therefore, if a client receives a nexus questionnaire, be sure they properly answer all the questions. If you find that a client has exposure from prior periods, be aware that most states have a process for voluntary disclosure, which would allow your client to pay back taxes with zero or reduced penalties and limit how far back a state may go to collect from them.
Overall, managing multistate tax risk requires ongoing attention rather than a one-time analysis. As CPAs, you’re the best line of defense against multistate tax risks. For your clients, make sure you conduct regular nexus reviews, discuss registration and withholding requirements, and obtain exemption certificates from their customers when not collecting sales tax, regardless of whether they’re registered in a state or not.
By staying proactive and guiding your clients through the complexities of multistate work, you not only help them avoid costly pitfalls but also reinforce your role as a trusted advisor in the ever-evolving business landscape.
Mark Mirsky, CPA, is tax partner at Aprio and a member of the Illinois CPA Society.