One of the biggest reasons that New York scores as the 4th-worst state for remote workers on NTUF’s 2023 Remote Obligations and Mobility (ROAM) Index is that New York is one of just a few states that enforces a “convenience of the employer” rule. This misnamed rule requires that out-of-state taxpayers who switch from commuting to a New York business to telecommuting for the same business continue paying New York taxes — even as they live and physically work in an entirely different state — unless New York officials agree it is a necessity not merely a “convenience”. Since New York has a well-deserved reputation as one of the most aggressive states in targeting out-of-state taxpayers, plenty of taxpayers have been caught in New York’s tax web by this unfair and illogical rule.
One such taxpayer is Professor Edward Zelinsky, a Connecticut resident and tax professor at Yeshiva University's Benjamin N. Cardozo School of Law in New York City. Like many taxpayers during the pandemic, Zelinsky telecommuted during the pandemic. In fact, he had no real choice in the matter, as the law school was closed in compliance with public health orders in 2020. Nevertheless, New York demanded that Zelinsky pay New York taxes for days he lived and physically worked in Connecticut.
Zelinsky is challenging this assessment, arguing that New York is exceeding its constitutional bounds by reaching across state lines to demand a Connecticut taxpayer pay New York taxes.
“Convenience” rules are not only confusing for the taxpayers hit by tax obligations because of them, they also violate every reasonable concept of “nexus.” Commuters into another state make use of that state’s roads, police, utilities, and so on, which may create a nexus for them to face tax obligations. But telecommuters, on the other hand, do not. While their employers may have New York-based offices and their fellow employees may physically work in New York, any strain that imposes on New York services is already covered by property taxes, corporate taxes, and those in-person employees’ income and payroll taxes.
While many of the facts of Zelinsky’s case are focused on the specific circumstances of the pandemic, Zelinsky rightly argues that New York’s “convenience” rule should be struck down in its entirety. Zelinsky unsuccessfully challenged New York’s “convenience” rule in 2003, but the nature of telecommuting has changed greatly since then. New York is well aware of that fact, as its focus on taxing out-of-state taxpayers is in large part a reaction to accelerating trends of taxpayers fleeing its high taxes.
Aside from the 2003 ruling originating from nearly a decade before Zoom was founded, New York is also relying heavily on the 2018 Wayfair decision to claim the legal power to tax Zelinsky’s income. But that case concerned sales tax collection and says nothing at all about income tax law. As Zelinsky notes in his reply brief to New York’s arguments, “it is fanciful to think that Wayfair abolished a century of income tax case law…without saying so.”
While New York is the biggest offender in assessing income tax obligations on nonresidents on the basis of “convenience of the employer” rules, it is not the only state to do so. Alabama, Delaware, Nebraska, and Pennsylvania also enforce similar rules, while Connecticut, New Jersey, and Oregon enforce more limited versions. A judicial rebuke of New York would send a strong message that these extraterritorial cash grabs will no longer pass legal muster.
When states are unable to restrain themselves from reaching across their borders to tax nonresidents without justification, it is up to the judicial system to do it for them. With Zelinsky’s challenge to his New York tax obligations, courts have a golden opportunity to do so.