Why does a US company need to know the location of their employees for tax purposes?

Question

I read in the news (mirror):

[Facebook] would take a more “measured approach” with existing employees based on job function and past performance, he said, and set a January 1, 2021 deadline for staff to update the company on their new locations for tax purposes.

Similarly, I read on CNBC (mirror):

“We’ll adjust salary to your location at that point,” said Zuckerberg, citing that this is necessary for taxes and accounting. “There’ll be severe ramifications for people who are not honest about this.”

Why does a US company need to know the location of their employees for tax purposes?

Answer 1

In addition to the information in Andrew Timpson's answer, it is important to understand that the information is critical for the employer itself. A company with even one employee in another state is frequently considered by the other state to conduct business in that state. The employee's location may be considered a branch office of the employer; employer provided property (such a laptop) is considered employer property in that state and may be subject to sales/use tax. As a foreign (i.e., out of state) employer doing business in that state, the employer will have to obtain from that state a qualification to do business there, file tax returns, pay various state mandated benefits, etc.

And, in some places (such as New York City), the whole approach is again applied at the local level.

Frequently, it's a major PITA to comply with those requirements, which is a reason employers try to avoid getting into that situation to begin with. That, incidentally, may be one of many problems with allowing employees to work from home on a regular basis.

Answer 2

US employees are taxed based on where the work occurs. Each state has its own tax rate, and in some cases individual cities have income taxes as well. Companies need to know where their employees are working so they can perform the necessary tax withholdings, and remit them along with W-2 data to the appropriate authorities in each locale.

Answer 3

Although it doesn't answer your literal question I think it is important to note that in the specific example you are citing, Facebook wants to adjust/lower the salary of an employee according to the cost of living in their locale.

This is briefly touched in one of the articles you quote but more clearly in some other articles, for example https://www.nasdaq.com/articles/facebook-embraces-remote-work-but-salaries-will-reflect-local-cost-of-living-2020-05-22 (mirror). This might be main reason for "the severe ramifications for people who are not honest about this".