The CPA Journal

TELECOMMUTING: WHAT NEW YORK STATE NONRESIDENTS SHOULD KNOW

By Barry Horowitz, CPA, Eisner & Lubin LLP, New York, N.Y.

New York State takes a different view of telecommuting from many other tax jurisdictions. Under the convenience test that New York uses for the allocation of wage income for nonresidents, a nonresident may allocate days worked from home only if it is for the necessity of the employer and not for the convenience of the employee. This test places an imposing barrier on nonresidents that wish to allocate.

Two recent cases echo this sentiment. In the first, Kenneth and Rosemary Phillips were domiciliaries of Pennsylvania and did not maintain any residences in New York State. Kenneth Phillips was a bond trader for a major investment house and specialized in hedging municipal bonds. His major clients were large institutional customers and his duties included analysis and monitoring of markets and trading of securities, both in the United States and overseas. The investment house provided equipment in Phillips’ home, including computers, fax machines, and 25 telephone lines. For security reasons, the New York office, which included an open trading room, was only open from 6:00 a.m. to 6:00 p.m. This schedule did not afford Phillips the necessary privacy for his trading activities.

The employer submitted a letter to the court stating that because of the sensitive and confidential nature of Phillips’ work, he needed to be isolated from other bond traders and work unconventional hours, including times when the New York office was not open.

In reaching its decision, the Tax Tribunal stated that even though an office in an employee’s home may be equipped by and intended for an employer’s purpose, the evidence must still establish that the work was performed at the employee’s home out of necessity for the employer. The letter submitted by Philips’ employer did not explicitly state that his presence in New York was not feasible or practical. Therefore, the strict standard required for establishing employer necessity was not met.

The second case was decided on December 21, 2000. George and Joan Wallace were residents of Portland, Me., and did not maintain any place of abode in New York State. George Wallace was the president of Wallace Eannace Associates (WEA), a company located in Plainview, N.Y. In 1988, WEA implemented a business succession whereby Wallace would be chiefly responsible for the strategic planning of the company and withdraw from its day-to-day operations. Since 1993, Wallace maintained an office in his home in Maine which WEA paid some of the expenses for, and he traveled on occasion to New York for work purposes.

Because Wallace did not live within commuting distance of the employer’s office, the burden of proof is on him to show that the necessity of working at home is for the benefit of the employer, and not his personal convenience. New York State’s policy for the convenience test is that because a New York State resident is not entitled to special tax benefits for work done at home, a nonresident should not be accorded different treatment.

Although Wallace did not appear at the hearing, he submitted a brief, which stated that because of the nature of his position at WEA and the telecommunications technology available, there is no need for him to work daily at his employer’s office. Furthermore, working at the employer’s office would disrupt his role as strategist. Wallace asserted that his day-to-day contact with company employees would distract from his primary responsibilities.

The judge found that although there may be no need for the taxpayer to work daily at the employer’s office, it remains his burden to prove that there is a need to work from his out-of-state residence. The taxpayer, in this case, did not prove such burden.

As more employees work at home, the issue of telecommuting will increasingly be litigated in New York. Taxpayers and planners should be aware of this tax trap and the challenges it creates.

State and Local Editor:
Stewart Buxbaum, CPA
S. Buxbaum & Company P.C.

Interstate Editor:
Nicholas Nesi, CPA
BDO Seidman LLP

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co. LLP

Steven M. Kaplan, CPA
Kahn, Hoffman, Nonenmacher & Hochman, LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

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The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

STATE AND LOCAL TAXATION