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A closely divided New York Court of Appeals last week held that a telecommuter who lives and works in Nashville, Tenn., but is employed by a New York-based company, must pay New York taxes on 100% of his income even though he only spends 25% of his working time in New York. In the Matter of Thomas L. Huckaby, No. 8. The state high court rejected constitutional challenges to the “convenience of the employer” test that enables New York to tap the income of people who live outside the state but work for in-state firms. Under the convenience of the employer test, if an employee works out of state due to the needs of the employer, he or she may apportion income between the days spent in and out of New York. But if the employee works out of state for his or her own convenience, New York claims the right to tax all of the earnings, no matter how much time was spent working there. Telecommuting raises special problems as states struggle to determine which jurisdiction is predominant when a telecommuter’s activity blurs geographic distinctions. Most states have resolved the issue by apportioning income. New York, however, is loath to abandon an income stream that brings in an estimated $100 million every year. New York’s neighbors have urged the state to abandon a tax policy geared to ensure that people living in adjoining states pay their fair share for the public services they use by virtue of their employment with a New York firm. However, Thomas L. Huckaby lives some 900 miles from the company that employs him. He thus has little opportunity to benefit from New York’s public services. Judge Susan Phillips Read, writing on behalf of the majority, nonetheless concluded that the convenience of the employer test does not inherently offend either the commerce clause or the due process provision in the U.S. Constitution. “Petitioner criticizes the convenience test as unfair and unsound as a matter of tax policy and a discouragement to telecommuting,” she said. “Maybe so. We do not view it as our role, however, to upset the Legislature’s and the Commissioner’s considered judgments so long as the convenience test has been constitutionally applied in this case.” The court said there may be some point at which the tax is so disproportionate that its application would violate due process. But it declined to draw any line and said that in the Huckaby case, spending 25% of one’s time in New York is plenty to justify the tax and “satisfy any rough proportionality requirement called for by due process.” A three-judge dissent led by Judge Robert S. Smith objected on both statutory and constitutional grounds. Smith accused the majority of concocting “a novel Commerce Clause theory as a companion to its novel due process theory.” Huckaby had argued that the convenience of the employer test was devised to prevent abuses by commuters whose main place of business is in New York, not “nonresident telecommuters”; that the due process clause mandates a fair apportionment of taxes when a citizen resides and works in different states; and that the commerce clause bars the sort of impact on interstate commerce that allegedly occurred as a result of New York’s application of the convenience of the employer test on Huckaby. New York countered that Huckaby’s employer receives the value of a New York venue every day of the year. Huckaby responded that it was he, not the employer, who was paying the tax at issue. Smith wrote that he was troubled by the notion that an in-state entity that pays a taxpayer’s salary is itself a “value” for due process purposes. “If the location of the taxpayer’s employer is a taxable ‘value,’ there is no reason in principle why New York may not tax all out-of-state employees of New York firms-for example, a New York company’s California sales manager, or a secretary who works in a New York law firm’s Boston office,” Smith wrote.

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