Bradley attorney Bruce Ely was quoted in the Birmingham Business Journal on how remote work affects occupational taxes in Birmingham and several other cities. The coronavirus pandemic has caused many Birmingham employees to spend the bulk of 2020 working from home. That has raised the question of whether an employer should continue withholding and remitting Birmingham city occupational license tax from employees who typically work within city limits but who have been or are now working remotely in a suburb.
Ely said he has received many inquiries from dozens of Birmingham-based companies as well as several CPA firms about what to do.
In speaking from his own personal views, Ely said employers should not simply stop withholding and remitting the tax.
“Instead, if you and your telecommuting employees feel strongly enough about this after consulting with their tax advisers and can document the number of days of work performed from home, proving that the employee had no choice but to telecommute, go ahead and withhold and remit the tax to the city,” Ely said in an unofficial capacity. “Then get your documentation assembled and file a joint refund claim along with the affected employee.”
He said employers should stop withholding and remitting the tax only if an employee requests it and feels comfortable with the risk and level of documentation.
“The employer is on the hook for the tax, interest and penalties if they don’t withhold and remit it in a timely manner and later there’s an official ruling or settlement that all or some part of the tax was indeed owed,” Ely said. “Now, they may be able to recover the unremitted tax from their employees, but that’s another issue.”
Ely said this issue impacts hundreds of employers – basically any company with a headquarters or an office or another place of business in Birmingham or other local municipalities with occupational taxes but whose employees are now working off-site and outside the city limits. He said it also affects employers outside the city who have been remitting occupational tax to Birmingham on behalf of their employees who work part-time in the city, such as delivery vehicle drivers.
While this may be a more prominent issue now because of the impacts of the coronavirus, Ely said it is not a new issue.
He said it usually arises in the context of traveling salespersons or delivery vehicle drivers.
“For example, if there is a furniture store headquartered in Birmingham that delivers extensively to customers outside the city, the city’s revenue department has typically worked with them to allocate those employees’ wages based on their time spent working in Birmingham and elsewhere or on the basis of the employer’s gross receipts from customers in Birmingham vs. gross receipts from customers outside the city,” Ely said.
He said it isn’t just a Birmingham issue either as a number of other Alabama municipalities impose these taxes, including Bessemer, Irondale, Leeds, Gadsden, Auburn and Opelika.
The original article, "How Does Remote Work Affect Occupational Taxes in Bham, Other Cities?" appeared in the Birmingham Business Journal on December 10, 2020.