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A Benjamin N. Cardozo School of Law professor who often works out of his home in Connecticut can be taxed by both New York and his home state on income earned while working from his residence. Matter of Edward A. and Doris Zelinsky, 817065, litigated in the New York State Division of Tax Appeals, is one of a series of recent cases where courts have been asked to resolve disputes arising from taxation by different states with different standards. Some states, like Connecticut, base taxation on residence. Others, like New York, impose a tax based on the source of income, or where it is earned. The question that is arising with increasing frequency is which state is entitled to collect income taxes. Here, both states won, and Professor Edward A. Zelinsky lost. As a result of New York Administrative Law Judge Dennis M. Galliher’s decision, Professor Zelinsky and his wife face double taxation on that portion of his salary earned while he worked from home, with both New York and Connecticut taking a share of those earnings. Galliher’s ruling upholds the constitutionality, despite due process and commerce clause challenges, of the so-called “convenience of the employer test” embodied in 20 NYCRR 132.18 as applied in this matter. Professor Zelinsky said his case is one of several where the doctrine of employer convenience is being questioned in terms of modern realities. He said he will appeal. “The issue is one of increasing importance in a world where you have more and more telecommuting and more and more people spending part of the work week at home,” Professor Zelinsky said. “There is also a very serious conflict between the states. This is becoming a source of more and more tension between Connecticut and New York.” Several similar cases are pending. This decision arises from a challenge initiated by Professor Zelinsky and his wife, Doris. Professor Zelinsky is a resident of New Haven, Conn., and tax professor at the Benjamin N. Cardozo School of Law at Yeshiva University in Manhattan, N.Y. He commutes to New York a few days a week to teach classes and meet with students. On other days, he works from home, preparing examinations and conducting research and writing. Since Professor Zelinsky is employed by a university in New York, that state claims the right to tax his entire salary, since it bases taxation on the source of the income. However, since Connecticut bases taxation on residence, and there is no question that Professor Zelinsky is a resident of that state, it contends that the income the professor earns while working from home is subject to Connecticut tax. After New York denied a petition by Edward and Doris Zelinsky for a refund, the professor and his wife challenged the constitutionality of the employer convenience doctrine as it was applied in their situation. Under that doctrine, income earned by a nonresident employee who chooses to work at home for convenience and is not required by necessity to work at an out-of-state location is deemed New York source income subject to New York tax. The rule was established under the theory that since a New York resident would not receive any special tax benefit for working from home, neither should a nonresident. Additionally, courts reviewing and upholding the rule have expressed concern over the potential for abuse when apportionment of tax liability is predicated solely on the physical presence of the employee. Professor Zelinsky did not dispute the constitutionality of the employer convenience doctrine on its face. Rather, he argued that under the facts of this case where Connecticut employs a physical presence test to sourcing income and does not recognize the convenience of the employer approach, the application of the doctrine violates the Due Process and Commerce Clauses of the U.S. Constitution. He argued that the income earned while working in Connecticut should be apportioned to Connecticut. Galliher found a clear nexus between the income earned and New York State, and therefore “it cannot be said that the income in question bears no reasonable connection or fair relationship to New York such that subjecting the same to New York income tax violates due process standards.” The court also rejected Professor Zelinsky’s attempt to shield himself with the Commerce Clause on the assertion that he is engaged in interstate commerce. “Simply because Connecticut does not, under its physical presence sourcing rules, recognize the income in question as New York source income, and instead taxes the same as Connecticut source income without credit for taxes paid to New York, does not serve to invalidate the regulation in issue as applied to petitioner or require New York to disavow the income as New York source income properly subject to tax,” Galliher wrote. The decision has “troubling” implications, according to tax expert Walter Hellerstein, a law professor at the University of Georgia at Athens, who has written many articles and books on local and state taxation. “Suppose I were a professor at New York University and was living in Paris and arranged to do classes by video, without New York giving me any protection or benefit … can New York tax me on that income?” Hellerstein asked. Normally, Hellerstein said, a state that bases tax on residence gives a credit for a tax against a source state, but only for income derived from the source state. In this matter, however, Connecticut does not recognize the earnings at issue as New York source income. Galliher said both New York and Connecticut have valid sourcing rules, subjecting Professor Zelinsky to taxation by two different jurisdictions. “Ultimately, petitioner pays a price for choosing to work at home,” Galliher observed. Margaret T. Neri appeared for the Division of Taxation. Professor Zelinsky appeared pro se and represented his wife.

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