![\"1742766a.jpg\"\/](\"https:\/\/www.newsbeep.com\/us\/wp-content\/uploads\/2026\/02\/1742766a.jpg\")
<\/p>\nMGO CPA LLP are most popular: <\/p>\n
\n within Real Estate and Construction and Law Practice Management topic(s)
\n with readers working within the Accounting & Consultancy industries
<\/p>\n
Key Takeaways:<\/p>\n
\nVPNs can make remote employees appear to be working in another
\nstate and complicate income sourcing and apportionment.
<\/p>\n
\nCost-of-performance states source income where the work is
\nphysically performed, not necessarily where the company’s
\nheadquarters, customers, or servers are located.
<\/p>\n
\nMisaligned data can expose organizations and employees to
\nunexpected multistate tax filing and withholding obligations.
<\/p>\n
Virtual private networks (VPNs) have become the quiet backbone
\nof remote work. They keep data secure and employees connected, no
\nmatter where they log in. But there’s a hidden side effect that
\nfew companies consider: when a VPN makes it appear as though an
\nemployee in Texas is working from a server in California, the data
\ntrail can mislead tax systems, auditors, and even internal finance
\nteams.<\/p>\n
With each state applying unique sourcing rules, and budget
\nshortfalls prompting closer scrutiny, that digital illusion can
\ntranslate into very real tax exposure.<\/p>\n
The Sourcing Framework<\/p>\n
One of the obligations for companies providing services is
\ndetermining the correct state in which those services are sourced
\nfor income tax purposes (and possibly sales and payroll tax
\npurposes). In this context:<\/p>\n
\nSourcing means the method a state uses to
\nassign a portion of a company’s receipts (especially from
\nservices or intangibles) to that state.
<\/p>\n
\nThere are two primary methods for sourcing income:
\n
\nIn cost-of-performance (COP) states, receipts
\nare attributed to where the “income-producing activity”
\nis performed.
\n
\n
\n
\nIn market-based sourcing (MBS) states,
\nreceipts are attributed to the state where the customer receives
\nthe service benefit or where the intangible is used.
\n
\n
<\/p>\n
Most states now use market-based sourcing. However, a handful of
\nstates use cost-of-performance rules or mix them with market-based
\nregulations.<\/p>\n
<\/p>\n
Remote Work + VPN = Sourcing Risk<\/p>\n
Now, layer remote working arrangements, VPNs, and multistate
\noperations onto that patchwork of sourcing rules across states.<\/p>\n
A VPN essentially acts as a tunnel between an employee and a
\nserver location. So, for example, the system may show the employee
\nworking in California based on an IP address or VPN endpoint, even
\nthough the employee is working from their home in Texas or a
\nclient’s office in North Dakota.<\/p>\n
If the company reports time or allocates revenue based on the
\nVPN location rather than tracking the employee’s actual
\nphysical work location, the sourcing basis may be incorrectly
\nskewed.<\/p>\n
With a cost-of-performance sourcing state, the place where the
\nwork is performed is critical. If the employee is physically in
\nTexas but the VPN makes it appear that the work was performed in
\nCalifornia, the company may misassign where the income-producing
\nactivity occurred.<\/p>\n
When employees travel or work in multiple states, tracking their
\nlocation can be complex. Without accurate records, such as
\ntimesheets with locations, travel logs, and other documents, the
\ncompany and its employees may face unexpected multistate filing
\nobligations.<\/p>\n
One Employee, Three States, and a Surprising Tax Bill<\/p>\n
Here’s an example of how tax obligations can catch employees
\noff guard. Say ABC Company is based in California and hires a
\nremote employee living in Texas and regularly traveling to
\ncorporate locations in Oklahoma and Kansas for work.<\/p>\n
The employee may assume that because their home state of Texas
\nhas no individual income tax, they don’t have to file any state
\nincome tax returns. However, Oklahoma requires workers to file
\nnon-resident income tax returns if they earn $1,000 or more in the
\nstate and requires employers to start withholding state income tax
\nif employees earn more than $300 in any quarter. Kansas requires
\nworkers to file non-resident income tax returns and their employers
\nto withhold income taxes if the employee spends one day
\nworking in the state.<\/p>\n
Since the company has corporate locations in Oklahoma and
\nKansas, it presumably is aware of its income, sales, and payroll
\ntax obligations in those states. But the employee could be caught
\noff guard at tax time when they realize they need to file
\nnon-resident returns in two states.<\/p>\n
Income-Sourcing Issues to Address<\/p>\n
Consider the following three steps to protect your organization
\nand its employees:<\/p>\n
1. Track Actual Work Locations<\/p>\n
If an employee is physically working at a location other than
\nyour premises, you should have a process to capture that location,
\neven if they’re using a VPN. For example, maintain timesheets
\nthat specify the state, travel logs for employees working in other
\nstates, and periodically confirm the employee’s state of
\nresidence. These records help support audit positions and align
\napportionment with where the work is performed rather than the
\nvirtual network location.<\/p>\n
2. Communicate With Employees<\/p>\n
Employees should understand that if they work in another state
\ndue to travel or relocation, they may trigger individual income tax
\nor withholding obligations in that state. Communicate with them
\nclearly so they’re not surprised by multistate filings or
\nwithholding changes.<\/p>\n
3. Establish Internal Controls for Sourcing
\nRevenue<\/p>\n
Consider how you track where services are performed for sourcing
\npurposes. Don’t rely solely on VPN logs or billing addresses.
\nMake sure you have a process for reconciling the employee’s
\nactual location.<\/p>\n
Budget shortfalls are forcing many states to pursue audits
\naround remote work and income sourcing, so ignoring the issue and
\nhoping you won’t get audited isn’t a sound strategy.<\/p>\n
The content of this article is intended to provide a general
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/p>\n","protected":false},"excerpt":{"rendered":"MGO CPA LLP are most popular:
within Real Estate and Construction and Law Practice Management topic(s)
with…\n","protected":false},"author":2,"featured_media":59608,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[23,3,21,19,22,20,25,24],"class_list":{"0":"post-459893","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-united-states","8":"tag-america","9":"tag-news","10":"tag-united-states","11":"tag-united-states-of-america","12":"tag-unitedstates","13":"tag-unitedstatesofamerica","14":"tag-us","15":"tag-usa"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/459893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=459893"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/459893\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/59608"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=459893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=459893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=459893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}