NYS Tax Law Sets Up Coming Showdown With Other States Over Revenues

Chris Gaetano
Published Date:
Apr 28, 2020
New York state tax law, specifically the provisions regarding people who work from home, is setting up Albany for major conflicts with other states over who gets billions of dollars worth of tax revenue, according to Bloomberg. The state tax code says that all those who work in New York have to pay New York taxes, even if they don't technically live in the state. This applies even if someone works primarily from home, say in New Jersey or Connecticut.

Attorney Mark S. Klein, chairman of Hodgson Russ, talked about this issue during the Foundation for Accounting Education's New York and Tri-State Taxation Conference on Dec. 11. He said that Albany is becoming increasingly aggressive in taxing those out of state, and telecommuters are no exception. States have generally taken the position that having a single employee in the state means that a company is doing business and is therefore obligated to pay taxes.

New York, he added, is a little tougher because of the "convenience of employer" rule. Essentially, the state says that if you absolutely have to be in another state, and if the employer wants you to be in that other state, and you're working there, "that's OK, we'll treat it as a non-New York day" for tax purposes." But if someone is another state simply because it is convenient to be there, then New York counts it as work done in New York, even if the person is not physically in New York every day.

Bloomberg notes that nonresidents account for one fifth of New York's tax income and so, despite widespread stay-at-home orders that indicate people are not telecommuting out of convenience, Albany will likely be loathe to give up such a huge chunk of cash to other states. But then again, so will neighboring states like New Jersey, Connecticut and Pennsylvania. While, so far, states are being cooperative in light of the global pandemic, Bloomberg said that as time goes on and revenue dries up, this could all change, leading to major conflicts between states as they all try to claim tax revenue they believe should rightfully be theirs. Bloomberg added that New York will likely react aggressively, as it is notorious among other states for how far it will go in chasing down revenue it believes it is owed. Then again, given the massive scale of stay-at-home orders across the country, Bloomberg also noted that it will likely be too much of a hassle to audit every single out-of-stater who works for a New York company and that, furthermore, the Empire State will be hesitant to even try because there is no way it can avoid coming across as the bad guy in such a situation.

Yet New York might not have any choice but to shrug off the negative reception and grab as much as it can anyway, as it is no exception to the widespread financial troubles that state and local governments were already experiencing when the pandemic amplified the problem immensely.

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