Remote work policies and state registration requirements

When your employees work remotely from another state, your company may be required to register as a foreign entity in that state and comply with multiple tax obligations. 

A single remote employee can trigger foreign registration requirements with the Secretary of State, as well as income, employment, and sales tax nexus, creating compliance obligations that extend far beyond payroll.

Understanding which states require registration, what tax implications arise, and how to build compliant remote work policies helps businesses avoid penalties that can reach tens of thousands of dollars while maintaining the flexibility that remote work provides.

How remote employees create state registration requirements

Remote employees establish physical presence in their work state, potentially triggering your company's obligation to register as a foreign entity with that state's Secretary of State. 

The landmark 2006 Telebright Corp. decision established that one full‑time telecommuter created sufficient nexus for New Jersey corporate tax. It illustrates how a single remote employee can satisfy “doing business” standards.

State approaches vary significantly. A good number of states (including Washington, DC) require Secretary of State registration for any remote employee, regardless of their role or activities. 

Other states consider what the remote employee actually does, examining whether their activities constitute "transacting business" or "doing business" within state borders.

Each state defines "doing business" differently, and thresholds that seem minor can trigger substantial compliance obligations. 

A marketing employee working from home in California, a developer coding from Colorado, or a sales representative making calls from Texas may each create registration requirements in their respective states, even if your company has no office, warehouse, or other physical presence there.

Tax nexus implications of remote workers

Remote employees create multiple types of tax nexus, each with distinct registration and filing requirements:

• Employment tax nexus triggers immediately when you hire an employee in a new state. You must register for state income tax withholding, unemployment insurance, and workers' compensation coverage before paying that employee. These obligations exist regardless of your company's revenue in that state.
• Income tax nexus may arise from a single remote employee. Many states consider any in-state employee sufficient to establish corporate income tax obligations. Factor presence thresholds, which measure property, payroll, and sales within a state, can also trigger income tax nexus when your payroll in that state exceeds certain dollar amounts.
• Sales tax nexus is established through physical presence, and remote employees constitute physical presence. If your company sells taxable goods or services, having an employee in a state typically requires you to collect and remit sales tax on transactions with customers in that state.

These tax types operate independently. You might owe employment taxes in a state without owing income tax, or have sales tax obligations without income tax exposure. Each requires separate registration and creates distinct filing deadlines.

The "convenience of employer" rule complication

Several states apply a "convenience of employer" rule that can tax remote employees as if they were working in the employer's state, even when they physically work elsewhere.

Under this rule, if an employee works remotely for their own convenience rather than at the employer's request, they may owe income tax to the employer's state in addition to their home state. 

This creates double taxation risk when the employee's home state doesn't provide a credit for taxes paid to the employer's state.

Documentation becomes critical. To avoid employer complications, employers must demonstrate that remote work arrangements are required (e.g., due to a lack of available office space or a business necessity for the employee's location), not simply because the employee prefers working from home. 

Maintain written policies and records to support your rationale for conducting remote work.

Consequences of not registering when required

Operating with remote employees in a state without proper registration exposes your company to significant legal and financial consequences:

• Loss of court access
• Financial penalties
• Contract vulnerabilities
• Difficult reinstatement

Beyond state-level consequences, tax obligations continue accruing. Back taxes, interest, and penalties compound over time, transforming a manageable compliance issue into a significant financial burden.

Building a compliant remote work policy

A compliant remote work policy addresses registration requirements proactively rather than reactively:

• Pre-hire nexus analysis: Before hiring employees in new states, assess foreign registration requirements, tax obligations, and ongoing compliance costs. Some states may not justify the compliance burden for a single employee.
• Registration requirements: Foreign registration typically requires filing with the Secretary of State, appointing a registered agent with a physical address in that state, obtaining a Certificate of Authority, and paying registration fees. You must also register for applicable state tax IDs.
• Ongoing compliance tracking: Maintain registered agents in each state, file required annual reports, and track employee relocations. When employees move to new states, compliance obligations follow them.
• Policy documentation: Define which states employees may work from, document the business necessity for remote arrangements (to address employer convenience rules), and establish approval processes for employee relocations.

Streamline remote workforce compliance with Discern

Remote work multiplies compliance obligations across jurisdictions, requiring foreign registration, registered agents, and ongoing filings in every state where employees work. Managing these requirements manually creates an administrative burden and compliance risk that grows with each new hire location.

Discern provides registered agent services across all 51 jurisdictions, automates compliance tracking, and handles foreign registrations so your team can focus on building the business rather than managing state-by-state paperwork. 

Ready to simplify multi-state compliance? Book a demo with Discern today.