NY To Continue Out-of-State Telecommuter Taxes

March 30, 2005 (PLANSPONSOR.com) - A New York Court of Appeals has narrowly ruled that a state policy that taxes out-of-state telecommuters on 100% of their income does not violate the Commerce Clause or Due Process provisions of the US Constitution.

>In a move that continues to set New York apart from its neighbors and infuriate telecommuters, the court, in a 4-3 decision, upheld a law that forced one Tennessee-based worker to pay New York taxes on 100% of his income, despite that fact that he telecommuted to a Empire State company and only spent 25% in the state.

>In the ruling, the court rejected challenges to the so-called “convenience of the employer” test, which allows the state to tax people who live out of the state but work from a New York-based company. Under the test, if an employee works out-of-state because of the needs of the employer, he or she can apportion income between the days spent in and out of New York. However, if the employee works out of state for his or her own convenience, the state claims the right to tax all of the earnings regardless of how much time was spent working in state.

The case before the court centered on   Thomas Huckaby of   Tennessee, who telecommutes with an employer inQueens. In the years 1994 and 1995, Huckaby spent 75% of his time working inTennessee and apportioned his income accordingly between the two states – 75% forTennesseeand 25% forNew York. New York,though, said 100% of Huckaby’s income should be subject to income tax in enforcing a law meant to ensure non-residents pay their fair share for the services they receive by virtue of working for aNew Yorkemployer. 

In May 2004,   The Appellate Division for the 3 rd  Department found that since the employee Huckaby worked from   Tennesseefor his own convenience rather than employer necessity, all of his earnings are taxable underNew YorkState’s tax rate (See   TN Resident Subject to NY Tax). Huckaby appealed, and the state Appeals Court agreed to hear his case (See  NY Appeals Court to Hear Telecommuting Tax Case ).

In its ruling, the court did admit that there might be some point – if the worker earned income in the state for one day of the year, perhaps – when the law did not apply, but refused to draw a line.

The ruling is available  here .