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Is New York’s 100 percent taxation of Connecticut telecommuters’ income constitutional? New Haven resident Edward A. Zelinsky, who teaches tax law in New York City but often works at home, is challenging a tax theory that may be technologically and legally obsolete. And Connecticut’s Revenue Commissioner Eugene Gavin is leading an effort to bring New York in line with the practice of all New England states. “New York’s approach is out of date, unconstitutional and unworkable,” Gavin says. In a case before the New York State Division of Tax Appeals, an administrative law judge has ruled that Zelinsky owes taxes on his income in both states. For his own convenience, he works part time at home in New Haven in his job as a tax professor at Benjamin N. Cardozo School of Law. New York has a “source theory” of taxation, basing its claim to tax Zelinsky’s income on the fact that it came from a New York employer. Connecticut bases its income taxation on where the income is earned, and gives a credit for income tax paid for work in another state. When Zelinsky requested a New York refund for himself and his wife, it was rejected. “When I went to the conciliation conference, the conferee, a very fine and responsible person, said, ‘You know, you can take a credit for these taxes on your Connecticut return — people do that routinely.’ And I said, ‘No, that is not what the law is’” in the 40 other states that tax income in the state where it was earned. “[T]hat came as a real surprise to him,” Zelinsky said, adding, “I would think Connecticut suspects a lot of people are taking its credit illegally.” From Connecticut’s point of view, the professor says, there are two grounds for taxing the income he earned working in New Haven. “On a day when I’m working at home, first, Connecticut is providing services to me, and second, I’m a Connecticut resident. It is very hard to see why New York purports to tax me, or why Connecticut should, in fact, have to extend a credit.” It boils down to the legal basis for taxation, and Zelinsky says that, under the Equal Protection and Commerce clauses of the U.S. Constitution, there should be apportionment based on where the income was earned. “The reason is, states do not have the right to tax people when they are in another state. That strikes me as a very basic principle of constitutional law under our system. “Connecticut’s position is that of the majority of states. New Jersey’s is much the same.” Historically, New York’s approach didn’t create as many problems. When it was the only state in the northeast to have its own income tax, it’s not surprising that New York took the position that when people were working at home they were not being subject to income tax in their own states. “That’s obviously not true now,” says Zelinsky. Connecticut adopted an income tax in 1991. That made interstate apportionment issues a front-burner issue, tax commissioner Gavin notes. The other reality that has changed is technology, says Zelinsky. “If I were to be in Paris and send some videotapes to classes, should they assess a tax? New York’s apparent answer is ‘yes.’ I think that example is a good sign that this doctrine is technologically obsolete in an era of telecommuting.” Zelinsky says he’s not surprised that he lost the first round, but plans to appeal. “Judge [Dennis M.] Galliher, the administrative law judge, was acutely aware of the fact that he was the first person to look at this issue, and that this was obviously an issue to be reviewed by higher courts. I view his opinion as having done a very good job of starting to frame the issue for a forum where the constitutional arguments are likely to get a more sympathetic response.” Gavin is currently the head of the North Eastern States Tax Officials Association, a 10-state group studying the issue of apportioning interstate income taxation. He says New York’s extreme minority position is likely to change within the next two years. Gavin says he feels confident that, through negotiation or through the courts, New York’s policy can be brought into line with other states on this issue.

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