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ALBANY — A Tennessee resident who telecommutes to his New York employer must pay income tax on 100 percent of his earnings even though he spends only a quarter of his time in the Empire State, an appellate panel said yesterday.

The Appellate Division, Third Department, said that since Thomas L. Huckaby’s income is New York-sourced and since he works from Tennessee for his own convenience rather than employer necessity, all of his earnings are taxable here.

Thursday’s ruling came just days after the U.S. Supreme Court declined to hear the appeal of Cardozo Law School Professor Edward Zelinsky. Mr. Zelinsky unsuccessfully challenged a New York law that exposes him, a resident of Connecticut who frequently works from home, to double taxation.

In Matter of Huckaby v. State Division of Tax Appeals, 92539, the court again addressed an issue of growing concern as telecommuting becomes more commonplace: New York’s policy of imposing its taxes on nonresidents, no matter how far-flung.

Huckaby differs from most other cases challenging the convenience- necessity standard in that he lives a considerable distance from New York and rarely receives any of the benefits enjoyed by those who live just beyond the state’s borders. Most of the others, such as Professor Zelinsky, live in the Connecticut or New Jersey suburbs of New York City and have ready access to the professional and cultural opportunities offered in the Empire State.

Until 1991, Mr. Huckaby, a computer programmer, worked for a Tennessee firm. As part of his job, he provided services to the Queens-based National Organization of Industrial Trade Unions.

Eventually, he became an employee of the organization under an agreement whereby he would primarily work from home but would travel to New York when necessary.

In 1994 and 1995, Mr. Huckaby spent 75 percent of his time working in Tennessee and apportioned his income accordingly between the two states — 75 percent for Tennessee and 25 percent for New York. But New York sought to tax every penny, and the court said it can.

The case hinged on two factors: application of the “convenience of the employer” test and a constitutional attack under the due process and equal protection clauses of the U.S. Constitution.

Under the convenience of the employer test, out-of-state employees of in-state employers are allowed to allocate income between their home and working states, but only if they work out of New York state due to the employer’s necessity.

New York’s neighbors along the eastern seaboard have urged the state to revise its laws to reflect the modern realities of telecommuting. The Connecticut attorney general filed a brief in favor of Mr. Zelinsky’s petition to the Supreme Court.

New York argues that the law is necessary and reasonable, and that it ensures that nonresidents pay their fair share for the services they receive by virtue of working for a New York employer.

Nicole Belson Goluboff, an attorney in Scarsdale specializing in the legal consequences of telecommuting, said the Court’s refusal to hear the Zelinsky case was a setback. However, she said legislation seeking sponsorship in Congress would bar states from subjecting nonresident telecommuters to double taxation.

“The Supreme Court’s refusal to hear the case has significant implications for the states’ authority to impose extraterritorial taxes and for the growth of telecommuting in the United States,” Ms. Goluboff said. “By making telework too expensive for many Americans, the convenience rule deters telework.”

Draft legislation is circulating in Washington, D.C., but has not yet garnered a sponsor, Ms. Goluboff said.

Tax Law Reviewed

Mr. Huckaby’s attorney, Peter L. Faber of McDermott, Will & Emery in Manhattan, argued that the test contradicts Tax Law §631, which allows New York to tax nonresidents only on income resulting from work “carried on” in this state.

The Third Department, through Presiding Justice Anthony V. Cardona, said New York’s tax statutes clearly impose tax on income “derived from sources in this state.” The National Organization of Industrial Trade Unions — the source of the income — is undeniably in New York.

On the constitutional claims, Mr. Faber admitted that there was sufficient nexus between his client and New York to warrant the imposition of income tax. He argued, however, that it was not enough to warrant a tax on all of his income.

The court disagreed.

The unanimous panel pointed to the Court of Appeals’ ruling last year in the law professor case, Zelinsky v. Tax Appeals Tribunal, 1 NY3d 85, in which the judges upheld the convenience of the employer test on the grounds that a nonresident employee enjoys a “host of tangible and intangible protections, benefits and values” by working for a New York employer.

In Huckaby, the Third Department said the taxpayer “derives benefits from New York and, thus, there is ample justification for the state to tax the income he derives from New York.”

Also on the panel were justices Thomas E. Mercure, Anthony J. Carpinello, Carl J. Mugglin and Robert S. Rose. Assistant Solicitor General Julie S. Mereson argued for the state.

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