TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Saturday, June 11, 2011

Zelinsky: New York's Irrational Income Taxation of Nonresidents

Edward A. Zelinsky (Cardozo), NY’s Irrational Income Taxation of Nonresidents: The Barker Decision (Oxford University Press Blog):

As a law professor, I routinely commute from my home in New Haven, Connecticut to Manhattan where I teach my classes at the Cardozo Law School of Yeshiva University. On most days when I don’t teach, I work at home. Modern technology (e.g., the internet, email, legal databases like Lexis and Westlaw) allows me to research and write at my residence in Connecticut while staying in touch electronically with my Cardozo students and colleagues. Given its obvious benefits, such “telecommuting” is blossoming.

On days when telecommuting nonresidents like me work at our out-of-state homes, New York takes the irrational position that we are really working in the Empire State, though in fact we are outside New York’s borders. By the legal fiction known as the “convenience of the employer” doctrine, New York assesses income taxes for nonresident telecommuters’ work-at-home days – even though we do not set foot in New York on those out-of-state days. New York’s convenience of the employer doctrine typically results in double taxation on the days nonresident telecommuters work at their out-of-state homes.

When I challenged New York’s convenience of the employer rule as unconstitutional, I found myself in a prolonged and public controversy over New York’s irrational taxation of nonresident telecommuters. I ultimately lost my case in New York’s highest court.

John J. Barker of New Canaan, Connecticut now finds himself enmeshed in an equally convoluted controversy about New York’s self-destructive tax policies vis-a-vis nonresidents of the Empire State. Mr. Barker was an investment manager who commuted regularly from his home in New Canaan to his office in Manhattan. ... New York concedes that the Barkers were domiciled in Connecticut from 2002 through 2004. Nevertheless, New York insists that the Barkers were New York residents and owe a second, New York income tax on their investment income by virtue of the modest beach house the Barkers owned in Napeague, New York. The Barkers used this house for short, sporadic vacations. In 2002, for example, the Barkers used their small New York beach house five times for a total of only nineteen days. ...

New York’s Tax Appeals Tribunal recently sustained this double tax. Even though the Barkers stayed at their small New York beach house for a handful of days each year, the Tribunal let the Department tax the Barkers as New York residents by virtue of their minimally-used vacation home.

Mr. Barker thus threatens to displace me as the poster boy for New York’s systematic overtaxation of nonvoting nonresidents.

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2011/06/zelinsky-nys-.html

New Cases, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef01538f1a820b970b

Listed below are links to weblogs that reference Zelinsky: New York's Irrational Income Taxation of Nonresidents:

Comments

Since the Barkers are legally residents of Connecticut, and since New York State has declared them legal residents of New York, does that mean that they can legally vote in both states?

Posted by: Dean | Jun 12, 2011 7:23:44 AM

Apparently it's heads they win tails you lose. I was in NY for medical treatment for several months, maintained my office in Singapore and provided no services to NY -- I only used a company provided desk to communicate with Singapore. Yet I was taxed in NYS for my income and not only that for my bonus which was awarded for work done in Singapore and had nothing to do with New York.

Posted by: Bill | Jun 12, 2011 7:43:38 AM

Even more interesting, it might be possible to create a coalition of people from all over the country who have no taxable income, and hence nothing for New York state to get. Give them a square inch or so of property in NY state and demand for them voting rights in the state.

After all, no taxation without representation is one of our bedrock principles.

Posted by: Michael W. Perry | Jun 12, 2011 7:43:54 AM

So if I lived in New York, but telecommuted for a company in say, Texas, I would not be obligated for New York taxes because of this “convenience of the employer” doctrine, since all the income was all made in Texas? Right?

Posted by: John | Jun 12, 2011 7:43:58 AM

>>So if I lived in New York, but telecommuted for a company in say, Texas, I would not be obligated for New York taxes because of this “convenience of the employer” doctrine, since all the income was all made in Texas? Right?

Not a chance, because you're then a NY resident.

Posted by: RLS | Jun 12, 2011 7:56:23 AM

I was a NYC resident living entirely on non-resident income. I paid my fair share year after year while knowing most around me were paying nothing, including Manhattan's hefty city tax. I left NYC and the entire Northeast sector at the end of Dec 2010-I am finished with providing a luxurious lifestyle to a bunch of whiny, insufferable Nanny-Bullies terrorizing my life.

The Empire State of Weinerville will never give up their luxuries and the only way to avoid the serfdom is flee to higher ground.

I have no pity for the Connecticut Professors and Bankers working and playing in the Empire of Weinerville-they once loved their serfdom until they had to pay for their miserable pleasures.

Posted by: syn | Jun 12, 2011 7:56:35 AM

This is why Rush Limbaugh left NY.

Posted by: Daniel | Jun 12, 2011 8:00:32 AM

You are probably aware that your situation is different from that in other states. Philadelphia levies an income tax on nonresidents; however, employers keep track of the days their workers are elsewhere (traveling on business, for example), and Philadelphia wage tax is not levied on the income earned on those days.

My wife pays a wage tax to Tinicum Township, PA, but New Jersey gives her a dollar-for-dollar offset of income tax otherwise payable to New Jersey. If you've had to pay New York City income tax (as well as the state tax) you should look into that.

When my grandmother died, she had been a Florida resident for a number of years, and owned a house there. However, she maintained a rental apartment in New York, and her financial affairs were handled in New York. On the strength of that, New York asserted the right to levy their inheritance tax on her estate. Ultimately, though, they were not successful.

Posted by: Randolph Resor | Jun 12, 2011 8:10:25 AM

Over the road truck drivers who work for New York State trucking companies have all their wages taxed in New York, even when they are residents of other states and rarely, if ever, enter New York.

Posted by: Mike | Jun 12, 2011 8:10:54 AM

But...but we have to provide for the poor! I mean, those who can work should provide for those who can work but really don't want to, right? It's social justice!

NY and CA will be the first states to go bankrupt...

Posted by: ID | Jun 12, 2011 8:16:08 AM

Refuse to pay...the state thugs only succeed because folk pay when challenged.

Posted by: JIMV | Jun 12, 2011 8:19:41 AM

All these legal niceties aside, let's face it, if this wasn't New York you wouldn't wanna cross a state line. The State figgers it's such an attraction that everyone should pay to keep up the act. The tax you geographically-challenged nonresidents pay may p*ss you off. But if this wasn't New York -- with all its extravagances -- you wouldn't wanna sneak onto our boat. Just fork it over and shaddap.

Posted by: Noo Yawka | Jun 12, 2011 8:21:52 AM

Mr. Barker and people like him need to take the John Galt approach and vote with their feet. If this experience has taught him the value of small government and he is willing to take that experience to the voting booth, we would love to see him contributing to the economy in Texas.

Posted by: Todd | Jun 12, 2011 8:44:03 AM

I escaped from the People's Republic of New York five years ago and life has never been better. For the life of me, I don't understand why any business or citizen would put up with their relentless theft and nannying.

You should set up a corporation in CT and have the school subcontract to the company. Then, just for spite, draw a minimum salary and take your compensation in the form of corporate distributions to avoid income taxes.

Posted by: John | Jun 12, 2011 8:47:08 AM

Up through 2009, I'd have to rent a tiny office in CT every year, the absolute cheapest I could find, but never use it, because though I work at home in CT, about one day a month, on average, I went into my corporate office in NYC. Without that office, as far as NY State was concerned, I was a full time worker in NYC.

In 2010, the recession has battered my income to the point where it has finally decreased enough that paying the NY State tax and foregoing the office rental was cheaper than paying CT tax and renting the office. CT loses twice: My income tax payment and the in-state money for office rental. (The NY State tax counts as a credit against the CT tax; the vampires try not to kill their victims outright.)

In three years, the last kid is out of college and its out of the Northeast entirely. CT is turning into the new Michigan. The current governor didn't even win the election legitimately, but the unions and dem machine pushed him over the top. You should see the new contract he just gave them: ELEVEN YEARS of guaranteed NO LAYOFFS or reduction in health benefits. What a joke this state is about to become.

Posted by: JoeYnot | Jun 12, 2011 8:52:52 AM

John: They would tax you as a resident. Professor Zelinsky must have been taxed under a commuter tax law. The Barkers were taxed for both owning a residence in New York and for Mr. Barker having been present in New York for 183 days. You need both to be taxed in New York. Now Mr. Barker was present in New York because he commuted to work in New York. Look, there is a reason New York is going to hell in a hand basket. It is not because of under taxation.

Posted by: hal | Jun 12, 2011 8:53:56 AM

Ultimately, it will take a federal law to prohibit states like NY and California (and it sounds like the rest of the Rustbelt and Old North states) from poaching taxes that they don't really deserve. I would bet that a coalition of Congress-critters would be happy to ensure that their residents are free from left-wing double taxation. Unfortunately for me, I live in this rat-hole until my residency is finished.

Posted by: David | Jun 12, 2011 8:58:57 AM

When one lives in a bankrupt Red state, does business in the state, uses a temporary office in the state, owns or rents property in the state for any purpose for any length of time - one creates a presence there, however tenuous. One then enters the category of potential tax/legal victim, and the bankrupt Red state is making and enforcing all the rules. If one isn't comfortable with the likely negative consequences of being in that situation, perhaps one should re-examine one's basic assumptions including the probable effectiveness of one's self-defense strategies.

Posted by: Patrick | Jun 12, 2011 9:02:13 AM

Seems to my you enjoy a salary premium because you work in New York. New York jobs tend to pay more in most fields. I've noticed that my friends who develop web sites and are New York based seem to have higher hourly rates than I do. I don't know if this is due to New York being more expensive than the San Diego beach town I live in, or because there's more talent and money in New York.

In any case, you are certainly free to work at a law school in Connecticut if you don't want to pay New York taxes. Or you could move to New York.

Posted by: brian gulino | Jun 12, 2011 9:40:54 AM

The "easy" fix, and one used by many over the years, is to move to Texas or Florida or one of the states that do not tax income.

Posted by: Over50 | Jun 12, 2011 9:51:55 AM

Ok, tax theory question.

Suppose you have a person who works in 10 different cities. Can each one of those cities claim him as a Resident for taxing purposes on his entire income, and thus lay legal claim to over 100% of his income? (assuming that each city can claim a 10% tax rate or greater.)

Posted by: Georg Felis | Jun 12, 2011 9:58:59 AM

I quickly come to the following conclusion, do as little business as possible in New York.

Posted by: Doug | Jun 12, 2011 10:10:56 AM

I wasn't aware of the tax on telecommuters. I work for a large company which does business in 15 states, including New York, with our headquarters in Indiana. Several years ago because of NY taxing anybody who even passed through the airport we implemented a policy that anybody heading to one of the offices in New England were not to fly, drive, or otherwise venture through NY thereby saving HR the headache of having to report this. Given that much of the workforce telecommutes I wonder how long it will be before they come after us for working in NY even though for some of us we have never set foot in the state and have no intentions to.
I wonder how many other companies have also taken this approach which is of course having the opposite effect then the one the idiots in NY had in mind when they started their tax it all policy.

Posted by: Just A Grunt | Jun 12, 2011 10:35:04 AM

This is saddening. When I read stuff like this I wonder what the boys died for in the revolution. Ever wonder what they think when they look down and see this?

Posted by: teapartydoc | Jun 12, 2011 12:19:36 PM

Why are you living in CT? Are you too good for NY, like Letterman? NY has treated you very nicely. You owe everything you have to the state. What's a little double or triple taxation amongst friends?

I don't have any kids, but pay school tax for failing schools here in CA.

If you don't like it, leave. Just be prepared for the same thing that happens to Rush Limbaugh: every year he is audited by the state of NY, even though he has had no business in NY for years.

The long arm of the state knows neither time nor space boundaries.

We elect these people to rule over us.

Posted by: koblog | Jun 12, 2011 1:48:17 PM

This is why tax cheats will become not only more common, but more accepted as well.

Posted by: Diggs | Jun 12, 2011 1:55:44 PM

Sounds like a self inflicted wound. Anyone who has any contact at all with New York has rocks for brains. You can probably add California and a couple other states. Pretty soon they will start taxing you if you change planes there over ten days a year. Move - work somewhere else. When enough people do that then maybe New York gets a clue. Until then, don't whine. This is like lawyer shadenfreude.

Posted by: Giangho | Jun 12, 2011 5:18:22 PM

MOVE; don't go there. (You have heard of U-Haul perhaps?) That said, my employer (Fortune 500, 45K+ employees, etc.) recently implemented time-cards by zip-code (all on-line) so if I work in MD or SC for over 20 days per year I must log days above that threshold to those zip codes...and then at tax time file with those states. My job has NOTHING to do with these states directly so I say RUBBISH! BULL-SHIT THIEVERY!

Posted by: Gryphon | Jun 12, 2011 6:01:33 PM

Is it any wonder that you lost a case on New York's unfair taxation of out-of-state people in front of a panel of government officials from New York listening to arguments presented by resident lawyers representing the State of New York?

My question is this: How did you ever expect to win that trial? There was absolutely nothing fair about it. Your case was presented to a kangaroo court.

Posted by: TreeGuy | Jun 12, 2011 6:08:40 PM

I keep saying that California needs to tax ex-residents. People who *used* to live here, started a career, got an education, whatever, and then moved someplace else where the tax climate was friendlier. Those people *OWE* California, and the State should collect taxes from them. Come to think of it, the *WHOLE* country owes California, so you should all be paying California state taxes. You probably could get the state legislators to agree that New York trying this would be excessive, but California's special, and we have lots of expenses...

Posted by: DavidN | Jun 13, 2011 12:04:14 AM

Even stronger, George. Don't even visit New York. Not for anything, no vacation, no theater, no concerts, no movies, no museums. Treat it like a plague zone.

Posted by: LarryD | Jun 13, 2011 6:49:32 AM

Tax laws aren't even the best reason to avoid New York - they have other laws (like liability, for just one example) that are even worse and should scare every sane business person away all by themselves.

For the life of me, I can't see why any business remains there, certainly not any of the multi-state ones. If you're big enough to have offices in multiple states, you're big enough to replace all your New York people for half (or less) of the price, 1/10th (or less) of the floor space costs, and HUGE reductions in all kinds of other costs and/or liabilities.

I've looked long and hard, and really, just plain snobbery is all I'm left with. Seriously - I don't like that answer. Anybody have anything else?

Posted by: Deoxy | Jun 13, 2011 8:24:09 AM