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Doing Business in New York: The Post-Pandemic Tax Landscape

Elizabeth Pascal, JD, and Katherine Piazza
Published Date:
Oct 1, 2021

Over the past 18 months or so, we’ve been writing and speaking about the ways in which the COVID-19 pandemic has precipitated or hastened many changes that businesses were already facing:  reimagining the workplace; relocating offices and their owners; and operating within an increasingly complex multistate tax and compliance landscape. Nowhere has the pandemic seemingly accelerated these trends more than here in New York. Although we are still in the midst of the COVID-19 crisis, we wanted to look at how these developments are playing out with New York businesses and how they will likely impact decision making in the future.    

Living in New York is Expensive – Do I need to reside in New York?

At the onset of the pandemic, thousands of people who had the option to do so fled New York, particularly New York City. For the past 18 months, employees and business owners have lived and worked in their vacation homes, parents’ homes, rental apartments, and newly acquired abodes in locations across the globe. As companies contemplate whether and to what extent they should return to the “before” times, the high price of living in New York may no longer be justified by the need to go to work in a Manhattan office. Many New Yorkers noticed more cash in their pockets once they abandoned the city or the state, not to mention the newfound freedom for those who were holed up in tiny New York City apartments. As the pandemic recedes, it seems people are placing a higher value on having more space, a lower cost of living, lower taxes and a slower lifestyle.                                                                                         

Let’s look at a few statistics that reflect these trends.  Between March and November 2020, more than 692,000 New York City residents requested a change of address from the U.S. Postal Service with about half of those leaving the five boroughs altogether ( According to information released by United Van Lines, more than two-thirds of moves involving New York households in 2020 were outbound, a higher proportion than any state other than New Jersey ( And there is no sign that the exodus from New York has subsided in 2021.

At the same time that individuals began rethinking quality of life issues, New York raised its top personal income tax rates in its 2021-2022 budget legislation, increasing the top marginal rate from 8.82% to 9.65% for income up to $5 million, to 10.3% for income between $5 million and $25 million, and to 10.9% for income in excess of $25 million. The combined state and city top marginal rate for individuals is now 14.776%, handily beating out California for the highest state tax rate. At the same time, New York also increased corporate tax rates for the next few years from 6.5% to 7.25% for apportioned New York income of more than $5 million.

Admittedly, these tax rate increases do not directly impact the majority of New Yorkers. There aren’t too many New Yorkers with taxable income in excess of $25 million and many businesses are organized as pass-through entities not subject to the increased corporate tax rates. But the increase in tax rates at the same time that businesses and their owners are evaluating the need to remain in New York creates a perception that the post-pandemic climate here has become less hospitable for high-income earners and their businesses; that may reinforce the outbound trends already in motion.

However, business owners and their employees should think carefully before declaring their pandemic-era abodes their new residences. As we’ve often maintained, changing residency, particularly out of New York, is not an easy process. A domicile change must be clear and convincing with the intent to remain in the new location indefinitely, supported by the individual’s actions. COVID-era moves come with built-in skepticism as to whether the intent to remain in the new location is indefinite, particularly when the abode outside of New York is temporary, personal possessions remain in New York, and there might be remaining business ties to New York even if the office is shuttered.  Expect that New York will be keenly interested in which ties the individual retains to the state as the pandemic recedes and individuals have more ability to travel and return to an office. Certainly 20/20 hindsight is a powerful lens, and individuals who decide to return to their New York lifestyle in a few years will have a tough time convincing a Tax Department auditor that they ever intended to abandon New York in the first place.

Nevertheless, individuals who truly want to change their domicile out of New York will continue down the path of moving out of New York. A few years ago, many of these people likely could not fathom a wholesale move of their families and businesses out of New York. But as perceptions have changed during the pandemic, the high threshold of proof required to demonstrate their intent to the New York Tax Department and the high cost of remaining in New York may simply push them to move lock stock and barrel.       

Working in New York is Expensive. Do I Need to Keep My New York Office Space?       

As employees worked remotely during COVID, many businesses began realizing that they could operate effectively and sometimes more efficiently while allowing employees to telecommute some or all of the time. Consequently, many employers realized that their expensive New York City office space might no longer be necessary. Not only would a reduction of office space reduce expenses— it could come with significant tax savings.  Office space located in the core of Manhattan is subject to the often-overlooked Commercial Rent Tax, an almost 4% tax on commercial leases.  And businesses subject to either the City’s Unincorporated Business Tax or General Corporation Tax (for federal S corporations) can potentially reduce or eliminate their liability to the extent that service providers are no longer working in the five boroughs, whether or not they continue to retain office space in the City.

For partnerships, establishing an office in another state or elimination of a New York office altogether can result in substantial reductions in New York taxes, since the New York partnership tax regime relies heavily on the location of the offices of the business.  These potential tax savings come on top of the benefits businesses might gain from providing increased flexibility to their employees to work remotely, reducing commuting time and permitting some employees to more easily balance work and family considerations/  Of course, New York has also enacted some changes meant to encourage businesses and their owners from moving out. The new Pass-Through Entity Tax (PTET) provides a federal tax benefit to business owners who no longer get a federal tax deduction for more than $10,000 of state and local taxes. The PTET allows partnerships and S corporations to elect to pay their New York tax at the entity level, with their owners getting a dollar-for-dollar credit on their New York returns and the entity deducting the PTET on its federal return as a business expense.  Other programs, including the Pandemic Recovery and Restart Program, aid certain small businesses in hard-hit industries like restaurants, and are intended to keep these businesses open and remaining in New York.

But where there is a carrot, there is also a stick. As New York can make it difficult for individuals trying to change their domicile to another state, there can also be a long reach of the state’s ability to tax a business that has moved in whole or in part to another jurisdiction. Clearly, so long as the company keeps a presence or conducts business in New York, nexus with the state continues and there remains a filing obligation. Maintaining an office in New York, even if its owners reside elsewhere or they establish another office outside the state, can continue to subject the business to New York income taxes.  

What about the business’s employees?  Even if they are telecommuting from another state, they may still have their wages taxed by New York if they keep an office or report to managers in New York. Under the Convenience of the Employer rule, employees whose primary office remains New York, even if they spend very little time physically in that office, and who telecommute for their own convenience rather than the necessity of the employer, will still owe New York tax on their wages. At the same time, the state where employees or their owners are living and working may have different ideas as to which state is owed tax. Most states consider the presence of a telecommuter in their state as a sufficient business connection to give the business nexus in that state, giving rise to income tax and other tax obligations. Although some states suspended those rules for telecommuters temporarily in their state during COVID, many are starting to eliminate these temporary safe harbors. In addition, most states require an employer to register as a withholding agent and withhold its state’s taxes for employees residing and working in that state. Even if the employer is already withholding New York taxes under the convenience rule, the resident/telecommuting state might also subject the employee’s compensation to tax. Businesses may also have a host of tax and non-tax obligations in the telecommuting states, including unemployment insurance, workers compensation, and other employer compliance obligations, as well as local taxes and registration requirements applicable to a company doing business in the jurisdiction by virtue of the presence of a telecommuter in the state.           


The decision to remain in New York or move elsewhere is a complicated one for businesses and their owners. The mobility caused by the pandemic, along with increasing tax rates in New York and an increasingly flexible workplace have all been factors in the flight out of New York. But doing so, particularly for businesses that will continue to have a foothold in New York, can have unexpected tax consequences both in New York and elsewhere. Without careful planning, businesses can end up with ongoing New York tax obligations as well as tax obligations in the new states, resulting in increased tax and compliance costs.


Elizabeth Pascal, JD, is a partner in the state and local tax group of Hodgson Russ LLP, with a focus on New York State, New York City, Connecticut and multistate tax issues. She assists individual and business clients with New York State and New York City audits, including residency, withholding tax, unincorporated business tax, commercial rent tax, and corporate tax audits. She can be reached at or 716-848-1622. 

Katherine Piazza is an associate in the firm's state and local tax practice where she focuses on state and local tax litigation and planning. She represents clients in a wide range of multistate tax issues, from planning and compliance to audit and litigation. She also advises on issues concerning income, gross receipts, sales and use, and franchise taxes. In addition, she works with clients on tax planning, residency planning and other administrative law matters.

Views expressed in articles published in Tax Stringer are the authors' only and are not to be attributed to the publication, its editors, the NYSSCPA or FAE, or their directors, officers, or employees, unless expressly so stated. Articles contain information believed by the authors to be accurate, but the publisher, editors and authors are not engaged in redering legal, accounting or other professional services. If specific professional advice or assistance is required, the services of a competent professional should be sought.