TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, September 15, 2004

Senate Bill to Prevent NY from Taxing Portion of Cardozo Tax Prof's Salary Attributable to Work in Conn. Home Office

Wednesday, September 15, 2004

Senators Dodd and Lieberman last week introduced The Telecommuter Tax Fairness Act of 2004 (S. 2785) to prohibit a state from applying the "convenience of the employer" rule to impose its personal income tax on a nonresident individual's salary with respect to any period of time the individual is not physically present in the state. The bill was spurred by the result in tax litigation involving Tax Prof Edward Zelinsky (Cardozo). In Zelinsky v. Tax Appeals Tribunal (Nov. 24, 2003), the New York Court of Appeals held that Zelinsky was subject to New York tax on his entire Cardozo salary the even though he worked 2 days per week at his Connecticut home. The press release explains:

In an effort to prevent Connecticut and telecommuters nationwide from unfair double taxation, Senator Chris Dodd today announced his intention to introduce a measure to prevent the state of New York from levying taxes on Connecticut telecommuters for work they perform in Connecticut.

"Connecticut workers help drive our economic growth. They shouldn’t have to pay an unfair ‘toll’ tax simply because they work from home," said Dodd. "Telecommuters in our state play a big part in our economy and they shouldn’t be penalized for their work. This measure will help shield and protect them from unfair and unwarranted taxes and ensure that they can reap the benefits of telecommuting."

Currently, the state of New York requires telecommuters to pay income tax on 100% of their earnings regardless of where they work as long as their company is based in New York. Employees who work part-time from home in Connecticut must still pay income taxes to New York for work performed in Connecticut, while at the same time becoming obligated to pay taxes to Connecticut for that work. The result is that Connecticut workers may be taxed twice on income earned by telecommuting - once by Connecticut, and again by New York. This threat of double taxation can serve as a powerful disincentive for people to telecommute.

Dodd’s initiative will prevent states like New York from collecting taxes from employees for work performed outside that state. Employees would have to be physically present and working in the state for a state to be authorized to collect income tax from the employee.

For a web site dedicated to passage of the bill, see here. For detailed press accounts, see here. (Thanks to Kirk Stark (UCLA) for the tip.)

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