NY Court of Appeals rules that a telecommuter must pay NY state income tax

In a 4-3 decision, the NY Court of Appeals ruled yesterday that a telecommuter who lives and works in Tennessee but is employed by a New York-based company must pay New York taxes on 100 percent of his income even though he spends at most 25 percent of his working time in the Empire State.

In Matter of Huckaby, 8, the court rejected constitutional challenges to the so-called "convenience of the employer" test that enables New York to tap the income of people who live outside the state but work for an in-state firm.

Under the convenience of the employer test, if the employee works out of state due to the needs of the employer, he or she may apportion income between the days spent in and out of New York. But if the employee works out of state for his or her own convenience, New York claims the right to tax all of the earnings, no matter how much time was spent working here. The rationale for New York's convenience test was explained 31 years ago in Matter of Speno v. Gallman, 35 NY2d 256 (1974): "Since a New York resident would not be entitled to special tax benefits for work done at home, neither should a nonresident who performs services or maintains an office in New York State."

In Tuesday's opinion, the majority expressed some reservations over the fundamental fairness of taxing out-of-state residents who have only remote links to New York. But in the final analysis, Judge Susan Phillips Read, joined by Chief Judge Judith S. Kaye and Judges Albert M. Rosenblatt and Victoria A. Graffeo, concluded that the convenience of the employer test does not inherently offend either the Commerce Clause or the Due Process provision in the U.S. Constitution.

On Tuesday, the court majority said there may be some point at which the tax is so disproportionate -- for instance, if the taxpayer works only one day a year in New York -- that its application would violate due process. But it declined to draw any line and said that in the Huckaby case, spending 25 percent of one's time in New York is plenty to justify the tax and "satisfy any rough proportionality requirement called for by due process."