NY Judge Backs Taxpayer in Telecommuting Tax Case

May 18, 2005 (PLANSPONSOR.com) - A New York administrative law judge has ruled that the Empire State's Division of Taxation should not tax the income of a man who worked from his New Canaan, Connecticut home.

>According to a New York Law Journal article, Administrative Law Judge Brian Friedman issued the ruled in the case of C. Gregory Devers, an employee of a wireless communications company that had been based in New York but later moved its operations to Virginia.

>Winstar Wireless Inc. made the relocation in 1999, but maintained a presence in Manhattan, from which Devers telecommuted to the Virginia office, according to the court. Later that year, Winstar told Devers that he either had to likewise move to Virginia or work out of his home.

>The Law Journal said the case turned on “the convenience of the employer” test under which a taxpayer can allocate income earned in different states for the purpose of figuring tax liability only if he or she is working out of state because the taxpayer’s employer demanded it.

>Winstar eventually went bankrupt, and Devers’ employment with the company was terminated. Then, New York state came after Devers for about $12,000 in taxes it said was owned for 1999, the Law Journal said.

>Friedman acknowledged that “courts have generally upheld a strict standard of employer necessity where the residence is the workplace.” But he said this matter is different in that Devers really had no choice but to telecommute to Virginia so he met the test. “Had he not accepted the relocation, petitioner would have been forced to move to Virginia (and pay all expenses associated therewith) or lose his employment altogether,” Friedman wrote.

>The administrative decision comes only six weeks after the Court of Appeals, in a 4-3 opinion, upheld a tax scheme that permits New York to tax 100% of the income of out-of-state residents who work for New York-based companies but perform their work out of state (See  NY To Continue Out-of-State Telecommuter Taxes ).

>Also, US Senator Christopher Dodd, (D-Connecticut) and US Representative Christopher Shays, (R-Connecticut) re-introduced their Telecommuter Tax Fairness bill, which would bar states like New York from collecting income taxes on employees for work performed outside the state.