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:

• Bill to Prohibit NY Tax on Prof's Salary Attributable to Work in CT Home Office (Sept. 15, 2004)
• NY Court of Appeals to Hear Telecommuter Tax Case (Jan. 3, 2005)
• NY Court of Appeals Upholds Tax on Non-Resident Telecommuter (Mar. 30, 2005)
• Update on NY Telecommuter Tax (May 8, 2005)
• WSJ:  NY Alters Telecommuter Tax Rule (May 31, 2006)
• NY Times: Taxing Telecommuters (Aug. 6, 2006)
• Zelinsky: NY's "Convenience of the Employer" Rule Is Unconstitutional (May 9, 2008)
• Swine Flu, Telecommuting and NY’s Taxation of Nonresidents’ Incomes (May 6, 2009)
• NY's 'Convenience of the Employer Test' (Dec. 30, 2009)
• Court: NY Can Tax Income of Owner of NY Vacation Home Used 17 Days/Year (Feb. 11, 2011)