RealTime IT News

New York Loves Telecommuters

A recent ruling by the New York Court of Appeals highlights a tax issue telecommuters might not be aware of: Which state gets the tax money on your income? If you're working for a company in New York or a small number of other states, they do.

Thomas Huckaby worked as a computer programmer working out of his home office in Tennessee for a Jamaica, N.Y., organization called the National Organization of Industrial Trade Unions.

The bulk of his work, roughly 75 percent according to court documents, was done at home, but Huckaby was required to visit the home office to train users on the software he created and to gather guidelines for program revisions.

Between 1994 and 1995, Huckaby filed nonresident returns with the State of New York for the time he spent in the state. New York's Department of Taxation and Finance officials had a problem with that and told Huckaby he needed to pay state taxes on all his income. It's a decision that was subsequently backed up by an administrative law judge, the tax appeals tribunal and ultimately the appellate division.

The crux of the issue is that Huckaby works out of his Tennessee office as a matter of convenience -- not necessity.

"Any allowance claimed for days worked outside of New York must be based on the performance of services which, because of the necessity of the employer, obligate the employee to out-of-state duties in the service of his employer," the taxation department explained in court documents.

"Such duties are those which, by their very nature, cannot be performed at the employer's place of business."

It's hard to judge how much of an effect the ruling has had on customers at H&R Block for this year's tax season, said Jackie Perlman, a senior tax research coordinator for the Kansas City, Mo.-based tax preparer, because they aren't required to note whether they're telecommuters.

She said in Huckaby's case, he'll likely get credit applied to his Tennessee income taxes for the income tax he paid into New York. New York tax rates are higher than Tennessee, she said, so he's hurt by paying 100 percent of his income tax through the Empire State.

In and of itself, New York's "convenience of the employer" test isn't onerous -- until the state where the telecommuter is working from starts asking for its own share of the employee's income.

What this amounts to is a double tax on telecommuters, said Chuck Wilsker, president and CEO of the Telework Coalition. If a teleworker spends 60 percent of his time in New York and 40 percent in Connecticut, pays 100 percent of his income to New York, but still needs to pay Connecticut its 40 percent, it's going to have a negative effect on the practice, he said.

"It's hard enough to get people to [telecommute] in the first place," Wilsker said. "Well guess what, while you're thinking about it, think about paying an extra 20, 40 or 60 percent [in taxes], " he said.

Congress has already put its two cents into the debate. In August 2004, Sen. Chris Dodd (D-Conn.) introduced the Telecommuter Tax Fairness Act of 2004 to prevent New York from levying taxes on Connecticut telecommuters.

"Connecticut workers help drive our economic growth," he said in a statement at the time. "They shouldn't have to pay an unfair 'toll' tax simply because they work from home."

The bill was never passed, and officials from Dodd's offices were unavailable at press time to say whether the bill would be introduced again this year.