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[Jon8503]

State Telecommuter Ruling May Have Wide Implications
Associated Press - March 29, 2005 1:04 p.m.
Complete Article Out Of The Wall Street Journal, Date:

ALBANY, N.Y. -- A telecommuter who lives out of state while working by computer for a New York employer must pay New York tax on his full income, the state's highest court ruled Tuesday in a case that could have wide implications in the growing practice.The Court of Appeals ruled that computer programmer Thomas Huckaby who lives in Nashville, Tenn., owed New York income tax for his full salary, not just the time he spent working at the New York offices of the union for which he worked.Mr. Huckaby paid tax on about 25% of his income over two years for the time he spent working in New York state. But the court upheld a state tax department ruling that all his income should be taxed. That amounts to $4,387 plus interest. However, the ruling could lead to much greater income for the state as it is applied to the growing field of telecommuting.The U.S. Census Bureau's latest statistics show that nearly 4.2 million people worked at home in 2000, up from 3.4 million in 1990. The bureau also reported that the International Telework Association and Council found that 8.8 million people telecommuted daily in 2003, and 12.4 million in 2004 – almost double the 2000 Census figure.

"The way the work force is evolving and that companies are evolving, you are going to see more people working for companies from different states even across the country," said Bob Smith of the telework association based in Silver Spring, Md.Mr. Smith said the issue of which state gets their income tax is a growing debate. "It can be a damper on telework," he said. "What's important in our country overall is to make sure laws keep up with technology developments and the needs of both the employee and the employer, because there are benefits for both."In February, President Bush proposed several new tax changes, including one to encourage telecommuting."New York provides the job, New York provides the professional opportunity, and New York should be able to tax that income, even if the employee for his own convenience was working outside of New York state," said Marc Violette, spokesman for state Assistant Solicitor General Julie Mereson, who won the case.The issue split the court, and the majority acknowledged the decision could discourage telecommuting.

"New York has the right to tax 100% of a nonresident employee's income derived from New York sources," according to the 4-3 decision by Court of Appeals. The court relied on a fairness rule called the "convenience of the employer" under law that says a worker's income is taxable if he chooses to live outside the state, as opposed to if he or she was transferred there.Mr. Huckaby "criticizes the convenience test as unfair and unsound as a matter of tax policy and a discouragement to telecommuting. Maybe so," the decision stated. "We do not view it as our role, however, to upset the Legislature's and the Commissioner's considered judgments so long as the convenience test has been constitutionally applied."In a strong dissent, Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is."

"But the commissioner's rule is still supposed to make sense," Judge Smith wrote. "The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."The telework association's Bob Smith is no relation to the New York judge. Mr. Huckaby's attorney, Peter Faber of New York City, declined to comment until he received the decision.

[Jon8503]

1. What about the employees in India outsourced by American

companies? Should they have to pay federal & state income taxes?

[spindoctor]

8. That was my first thought too

Of course 25% of nothing is still nothing, but how about a minimal social security contribution for companies hiring foreign resources to "telecommute". That might be the most solid way to "save" social security.

[proud2BlibKansan]

2. I am a teacher and I live in a different state

from where I work. There is an earnings tax in the city where I work but we don't have to pay it for the summer months, when we are not working.

I guess this means we will have to start paying that tax in the summer.

[Jon8503]

4. Yeah, I know what you are talking about on the Earnings Tax, we have that

too. My question is this guy is not using any of New York's services such as libaries, streets, zoo, etc., so why tax him. That is the basis of the city earnings tax, we in the suburbs drive into town earn money out of there and use their services. I have no complaint on that.

This could lead into murkey waters.

[proud2BlibKansan]

13. The earnings tax doesn't bother me either

but I think this case could lead the city into making us pay the earnings tax in the summer too. I mean, if they are taxing folks who never enter the jurisdiction, . . .

[Lars39]

3. Is there a link for this?

This is horrible.

[Jon8503]

5. Hi Lars, I got this off of the Wall Street Journal Online. Subscription

only. So put the paragraphs all together and this is the entire article. Just don't tell the monitors.

[Lars39]

7. Ok. Thanks!

:)

[On the Road]

6. I Think It's Appropriate ONLY

if the employee has a dedicated office in New York and chooses to work from home. That happens a lot among Verizon management employees.

But it's not surprising that state governments want to tax whatever they can get their hands on. You need clear guidelines that people can buy into. Otherwise, it appears greedy and feeds anti-tax sentiment.

[eallen]

9. Watch this case goes to federal court. Sounds like interstate commerce.

[Kenneth ken]

10. raises the question

of taxing the employee in his/her home state as well, but that doesn't seem to be addressed by this article. It could easily lead to double taxation of income; taxed in one's home state as well as one's work state. Sounds like a bad idea to me.

edit:typo

[proud2BlibKansan]

14. I am taxed in two states

I work in one and live in another. Have to file a tax return in both. And I have to pay taxes in both states.

[BigMcLargehuge]

11. a scary precedent for me

if they do decide he is taxable... I live in NH and work in a home office for a company based in Kansas.

[CC]

12. What will this do to people

that work on other states for companies based in Delaware? DE is a very corporation friendly state so lots of them are incorporated there and they (DE) are not very good at reciprocal agreements. Those that work in DE and live elsewhere have to pay the differences between their state taxes and Delaware's which is higher. Do they now tax like that for all Dupont. W.L. Gore, MBNA etc. employees across the country?