December 21, 2023
United States | Employment Tax | New York state ‘convenience of the employer’ ruling
Impact High
Summary
New York state has upheld its long-standing convenience of the employer rule even during 2020 when employers required employees to work from home under state government shut down orders.
Overview
New York’s Division of Tax Appeals (ALJ) recently posted a determination in the Matter of Zelinsky (Nos. 830517 and 830681). This case is the Taxpayer’s second attempt to make an argument against New York’s “convenience of the employer test.” The facts presented by the taxpayer are as follows:
• 2019: Taxpayer filed an amended NYS nonresident return to reduce their nonresident income allocation from 55.41% to 20.50%, allocating income from NYS to their home state of Connecticut. Taxpayer reported that he worked from his home in Connecticut a total of 84 days performing legal scholarship (researching and writing) and performing administrative tasks. These facts of petitioner’s work situation in tax year 2019 are the same as they were in tax years 1994 and 1995, which were at issue in the Zelinsky v Tax Appeals Trib., 1 NY3d 85 (2003), cert denied 541 US 1009 (2004) decision.
• 2020: From January 21, 2020 to March 15, 2020, Taxpayer taught his classes in person at the Benjamin N. Cardozo School of Law of Yeshiva University in Manhattan (Cardozo), beginning on March 16, 2020 to December 31, 2020, Taxpayer worked exclusively at his home in Connecticut and never physically went into New York to work in compliance with NYS governor COVID-related executive orders. Taxpayer filed an amended NYS nonresident return to reduce their nonresident income allocation from 73.27% to 7.03%.
The ALJ determined that for 2019, the facts in the case were the same as the facts in Taxpayer’s prior case and as such ruled that the prior ruling was binding – denying refund claimed. The ALJ provided that the Taxpayer failed to carry his burden of proof to show that the Division of Taxation’s allocation of all of his income from his employment with Cardozo to New York in 2019 violated the Due Process and dormant Commerce Clauses.
For 2020, and specifically for the period of March 15, 2020, through December 31, 2020, the ALJ determined that the Taxpayer did not meet his burden of proof to show that working from home was for his employer’s necessity and not his convenience. Below are some of the ALJ determinations:
• The ALJ provides that the case is an issue of first impression, a new legal issue or interpretation given that the pandemic was unprecedented. Although Taxpayers New York office was not available due to the pandemic, it did not result in the determination that the out-of-state services were performed for the employer’s necessity. Taxpayer offered no support that his New York employer required him to perform any work in Connecticut or any other state than New York.
• The work performed at home by Taxpayer was not found to be so specialized that it had to be done away from New York by the necessity his employer. Additionally, “The Executive Order mandating that all employees work from home due to a worldwide pandemic cannot result in special tax benefits to those who do not live in New York, but nonetheless work for, and benefit from, a New York employer.”
• The argument that during March 15, 2020 – December 31, 2020, the Taxpayer worked “wholly without New York State” and therefore should not be subject to the convenience of the employer rule was also ruled against since it directly contradicts the convenience rule. The Taxpayer worked in NYS partially during the year and continued to work in his position in the same capacity for a New York employer. The ALJ further provided that petitioner “remotely connected to Cardozo and had a virtual presence in New York when hosting Zoom classes and meetings with his students. In this modern economy with its internet technology, one can be present in a state without needing to physically be there.”
• The ALJ also ruled that neither the Due Process nor dormant Commerce Clauses were violated in the allocation of income as determined by the Division of Tax. Taxpayer performed duties for and received an income from Cardozo, which constitutes New York source income. Taxpayer was also able to earn a New York salary and receive “tangible and intangible protections, benefits, and values connected with New York” by virtue of performing his duties virtually.
How we can help
Vialto can assist with New York state convenience of the employer issues, documenting remote/hybrid work positions and determining risk factors with such remote work arrangements. In light of the current New York state audit environment, Vialto can assist in reviewing the current state and local employment tax setup of employees in the payroll system specifically for New York, help to draft policies on state and local withholding tax requirements for remote workers and/or short-term business travelers, and provide support with employment tax notices or audits.
Please reach out directly to your Vialto contact or one of the individuals listed below to discuss next steps.
Contact us
Please reach out to us to discuss further.
Tina Schrob
+1 (201) 787-0114
cristina.g.schrob@vialto.com
Greg Fetter
+1 (908) 313-6439
gregory.fetter@vialto.com
Jessica Castro-Acevedo
+1 (347) 204-8729
jessica.j.castro.acevedo@vialto.com
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