Paul L. Caron

Wednesday, May 31, 2006

WSJ: NY Alters Telecommuter Tax Rule

Interesting article on today's Wall Street Journal:  New York State Alters Its Stance On Rule Affecting Telecommuters, by Tom Herman:

New York may be ceding some ground in its long-running tussle with telecommuters -- a struggle that could affect how other states treat workers who live outside their boundaries. The issue affects employees who live in another state, work at home for a New York employer, are assigned to the employer's New York office and come to New York to work some of the time. The question: Do these employees owe New York taxes on all their income from the New York job, or only on their income from work actually done in New York?

New York's tax department has long said that all of a nonresident employee's income from work done at home in another state is taxable by New York -- unless it's done for the employer's "necessity," not the employee's convenience. Only a few other states, including Nebraska and Pennsylvania, have similar rules, but New York is believed to be the only state that has vigorously enforced this "convenience" test.

According to a new memorandum, when an employee lives in another state and is assigned to the employer's New York office, the days the person works at home won't be counted as New York days if the home office is a "bona fide employer office," a spokesman says....

Or consider the case of Prof. Edward Zelinsky, who lives in Connecticut and teaches at Cardozo Law School in New York City. New York taxed him on all his law-school salary even though he spent about 60% of his working time at home doing research, writing and grading exams and papers. Prof. Zelinsky said he was getting hit with double taxation and argued that the New York rule was unconstitutional. He lost in New York's highest court, and the U.S. Supreme Court declined to review that decision in 2004. Prof. Zelinsky says federal legislation is needed to prevent other states from copying the New York rule.

For the New York State memorandum, see TSB-M-06(5)I (May 15, 2006), New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others, New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Technical Services Division

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