New York State Convenience of the Employer Rule

New York State Convenience of the Employer Rule

According to the current version of the rule, this can put employees in a difficult position. For example, if they have a family of four living in a different state than their employer, they may be subject to the convenience of the employer rule. They may not qualify for an exemption, although it can be quite difficult for them to move to another state. While the new law applies specifically to non-Connecticut residents who travel to Connecticut from out of state, it may also apply to Connecticut residents who travel to a state with a convenience rule such as New York. Connecticut offers a resident loan “against [income] tax otherwise payable [in Connecticut] on an income tax imposed on that resident. for the taxation year by another U.S. state or political subdivision thereof. on income from sources contained therein,” which is also subject to Connecticut taxation. Moreover, it would likely be inconsistent internally, as we saw in Wynne (based on a previous Maryland tax system), and therefore unconstitutional, to refuse a loan in this situation, as it would result in inappropriate double taxation. Even in this situation, it would be unconstitutional to refuse the loan, as this would lead to abusive double taxation.

The location of the home office has a sign indicating that it is a place of business for the employer The onset of the COVID-19 pandemic in March 2020, coupled with New York`s income tax rate increase that took effect in April 2021, prompted many people to leave New York and move their tax residence to a low- or no-tax state like Florida. Even if these people have taken the right steps to move their residence from New York to the state of their choice, they may be surprised to learn that they can still pay taxes in New York on their salary if they work remotely for a New York-based company. What for? New York`s long-standing rule of “employer convenience.” According to the convenience of the employer rule, employees who work for a company in one state but do their work remotely in another state are subject to payroll tax in the state where their employer`s office is located. In most states, obtaining compensation or wage income from a non-resident worker is based on the location or physical presence of the employee for that workday. In general, a ratio or fraction is used to divide an employee`s income among the jurisdictions in which they were physically located during the year. The numerator of the fraction is the number of working days in the respective state and the denominator is the total number of working days everywhere. When defining a workday, most states take the position that a day or part of a day spent in New York doing business represents an entire working day in New York. But what about remote work? What happens if the employee works from home, from their vacation home, a hotel room or a parental home in another state? How does the tax law allocate income in such situations? Despite the name of the rule, it is actually imposed by states, not employers. Let`s say someone works for a company in New York, but does all their work from home in New Jersey. Under the employer rule, New York could levy state income tax because the person works remotely for a New York State company. This is in addition to the tax they already pay in New Jersey. Every state wants to levy taxes on every employee who is physically in its state, regardless of where the employee`s business is located, because this income tax is a source of revenue for the state.

Not surprisingly, we have seen lawsuits stemming from convenience laws that challenge the fairness of the law. As remote work evolves, payroll tax legislation will continue to change. The EP team wants to make sure you understand how complex laws affect payroll taxes and incentives in your production. If you have any questions, please do not hesitate to contact us. On October 19, 2020, New Hampshire filed a lawsuit against Massachusetts in the U.S. Supreme Court challenging the taxation of New Hampshire residents traveling to Massachusetts during the COVID-19 pandemic. New Jersey and Connecticut filed an amicus curiae letter asking the court to declare the program unconstitutional, citing their loss of revenue in New York. In one case that occurred in the 1990s, a professor at Cardozo Law School in New York taught three days a week in New York City and worked the other two days from his home in Connecticut. The professor split the percentage of his salary, which reflected the number of days he commuted to law school in New York, and allocated the rest to Connecticut.

However, the New York State Department of Taxation and Finance claimed that the professor`s entire salary was subject to New York tax because he chose to work from home solely for his own convenience. The professor challenged the assessment on constitutional grounds, but an administrative judge dismissed his appeal, as did the Tax Appeals Court, the Appeals Division and the New York Court of Appeals, the state`s highest court. Connecticut, Massachusetts and New Jersey also have a version of the rule. In Connecticut, employees are only required to take the COE test if the state in which the employee works has similar tax laws. Meanwhile, Massachusetts has temporarily introduced the COE test, but only for employees who have been working remotely as a direct result of the pandemic. In upholding the tax, the Court of Appeal concluded that the expediency test did not impose an excessive demand on or discriminate against trade. Instead, the Court concluded that the rule serves to prevent non-residents from manipulating their New York tax liability in ways that residents could not. The court further responded that even in cases of double taxation, this alone did not serve to invalidate the tax, since New York`s tax was fairly divided and the commercial clause did not protect residents from their own state taxes. The court further found that the tax did not violate due process because the professor had a minimal connection to New York through his employment there. In particular, the current regulations state that “any compensation claimed [by non-New York residents] for working days outside New York State must be based on the provision of services that, contrary to convenience, necessarily require the employee to perform extra-state duties in the employer`s departments.” In other words, while the tax is generally allocated to New York State based on the number of days physically worked in the state, the convenience rule acts as an exception to the general distribution rule based on physical location. Several other states have followed New York`s lead and introduced “employer convenience” rules to determine how the income of non-resident remote workers should be taxed. These states include Connecticut, Pennsylvania, Arkansas, Delaware, and Nebraska.

The employer`s business is wholesale and the employee stores inventory at home The primary factor is met when a home office is located near a facility required for work that the employer`s office cannot provide. Just meeting the main factor means that the office can be considered a “true employer`s office”. New York imposes a tax on non-residents on income from sources located in New York, including income from a “business, trade, occupation or occupation” carried on in the state. If a non-resident production employee works from two locations (one in New York and one in another state), taxable income from New York sources is generally determined by the proportion of hours worked in New York to days worked everywhere. However, things get a little more complicated by the “employer convenience” rule, often referred to as the “convenience rule.” The definition of an exception for “bona fide employer offices” is narrow and, as a result, few pandemic-related arrangements for working from home are permissible. This means that most of the work from home was treated as New York income. While most states outside of New York have lower income taxes or, in the case of Florida and Nevada, no income taxes, many employees are becoming aware that they may still have to pay state income tax in New York. The WCC was adopted in 2006 and allows companies to consider the salaries of a person who 1) resides in a state other than New York and 2) works for a New York-based employer as a source of income in New York.