In Telebright Corp. v. Director, Division of Taxation, the New Jersey Division of Taxation effectively used a single employee's act of telecommuting as the jurisdictional hook to tax the income of a Delaware corporation. Significantly, the corporation maintained no offices in the State of New Jersey. Rather, the corporation's only contact with the State of New Jersey was in the form of an employee who telecommuted to work from her home in New Jersey.
This employee received her work assignments in New Jersey and completed such assignments from New Jersey using a company-provided laptop. Based on these indirect contacts through its employee, the corporation was held to be "doing business" in New Jersey. As a result, its income was subject to taxation in New Jersey under New Jersey law.
More significantly, the court held that such taxation was consistent with the Due Process and Commerce Clauses of the U.S. Constitution. First, the court held that the corporation's tax liability did not violate the Due Process Clause because the corporation had sufficient minimum contacts with New Jersey to justify taxation. In this respect, the court emphasized that the corporation had "fair warning" that its employment relationship with a New Jersey resident could subject it to New Jersey's jurisdiction. Second, the court held that the employee's presence in New Jersey in an employee capacity satisfied the substantial nexus requirement of the Commerce Clause because the corporation enjoyed the benefits of New Jersey's labor markets.
Key Takeaway: In this modern age of technology, corporations must be mindful of their telecommuting policies. Indeed, having a single employee telecommute from a state with otherwise insufficient minimum contacts to justify income taxation could subject that corporation to taxation in that state.
