NY Appeals Court to Hear Telecommuting Tax Case

January 3, 2005 (PLANSPONSOR.com) - A long-running case involving New York State's right to tax telecommuters of businesses based in its jurisdiction will come to an appeals court Wednesday.

>The case involves Thomas Huckaby of Tennessee, who telecommutes with an employer in Queens. Despite spending little time in New York, not living there and doing no work there, 100% of his income is taxed in the state, according to the New York Law Journal.

>New York is one of the only states that effectively “double-taxes” people. Most states apportion income, taxing only income that is made in their own state. New York, however, claims that that it is entitled to tax 100% of income made in the state if the employee is working out-of-state for convenience rather than necessity.

The case deals with the years 1994 and 1995, when Huckaby spent 75% of his time working in Tennessee and apportioned his income accordingly between the two states – 75% for Tennessee and 25% for New York.  New York though says 100% of Huckaby’s income should be subject to income tax in enforcing a law meant to ensure nonresidents pay their fair share for the services they receive by virtue of working for a New York employer.  The 3 rd Department agreed and said the taxpayer “derives benefits from New York and, thus, there is ample justification for the state to tax the income he derives from New York.”

>In May, The Appellate Division for the 3 rd  Department found that since the employee Huckaby worked from Tennessee for his own convenience rather than employer necessity, all of his earnings are taxable under New York State’s tax rate (See TN Resident Subject to NY Tax ).