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In the latest of a slew of cases involving nonresident taxpayers working at home, a New York administrative law judge has denied the petition of a man who lives and works in Portland, Maine, although his company is based in Nassau County, N.Y. The most recent case to hinge on the convenience of the employee versus the necessity of the employer involves an engineer who moved out of New York eight years ago but continues to work from home as president of a company with its principal office in Plainview, N.Y. At issue was whether the engineer, George A.P. Wallace, is liable for New York State personal income tax. Administrative Law Judge Brian L. Friedman of the Division of Tax Appeals found that Wallace could not meet the necessity test set forth in departmental Regulation �132.18. “While there may be no need for petitioner to work daily at [his firm's] Plainview, New York office, it is his burden to prove that there is a need for him to work out of his Portland, Maine residence,” ALJ Friedman wrote in Matter of the Petition of George A.P. and Joan H. Wallace, 817182. “Petitioner has failed to sustain this burden.” The record shows that Wallace is president of Wallace Eannace Associates (WEA) Inc., a sales, marketing and distribution firm that represents manufacturers of technological equipment for fluid handling and motor control. Before 1990, WEA had a small office in New York City and Wallace worked from that office while living in a Manhattan co-op apartment. In 1993, he sold the co-op, moved to Portland, Maine, and has continuously resided there ever since. WEA is now headquartered in Nassau County. Day-to-day management of WEA is in the hands of other managers and Wallace has, since 1988, been chiefly responsible for strategic planning. His job is largely to maintain WEA’s business relationships, partially through attending industry shows and conventions. In his Maine home, Wallace has two dedicated telephone lines for business calls and faxes that are separate from his residential lines. Wallace cited the fact that, unlike most cases involving nonresident taxpayers, he does not live within reasonable commuting distance to WEA’s Plainview office and came into New York only a limited number of days during the years at issue. He also cited an advisory opinion (TSB-A-99[4]I) rendered on June 30, 1999. That opinion involved a stockbroker who sold his New York residence, moved to Wyoming and worked out of his home. In that case, the stockbroker communicated with the New York office and his customers by phone and fax. The stockbroker was relieved of any duty to pay New York income taxes. However, unlike Wallace, the stockbroker was not performing any services for his employer within New York’s borders. LIMITED WORK IN STATE The Division countered that the fact that Portland is not within commuting distance to New York is irrelevant. It also argued that there was no showing that Wallace’s work could not have been performed at the Plainview office, so the work performed in Maine was for his convenience rather than the necessity of the employer. ALJ Friedman said the convenience of the employer test, as set forth in 20 NYCRR 132.18(a), does not apply when the nonresident employee of a New York company performs no work in New York and has no office in New York. However, he said Wallace did in fact perform some work in New York. Friedman also followed precedent and embraced a strict reading of the convenience of the employer test. “The policy justification for the ‘convenience of the employer’ test is that since a New York State resident is not entitled to special tax benefits for work done at home, a nonresident who maintains an office or performs services in New York State should not be either,” ALJ Friedman said in the determination. “Because of the obvious potential for abuse where the home is the workplace at issue, a strict standard of employer necessity has been employed by the Division which, with rare exception, has been upheld by the courts.” Kevin R. Law argued for the Division of Taxation. Wallace was represented by Alan M. Blecher of Manhattan. TELECOMMUTING BLUES This decision adds to an increasingly controversial body of law covering the liability of nonresident taxpayers in an era where telecommuting is becoming commonplace, and virtual offices are often established in states other than the main work site. It is particularly controversial in cases such as a pending matter involving a Benjamin N. Cardozo School of Law professor who often works from his home in Connecticut. Since Connecticut bases its tax on residence and New York bases its tax on source, the professor is doubly taxed. Professor Edward A. Zelinsky is appealing to the Tax Appeals Tribunal a Nov. 2 determination by Administrative Law Judge Dennis M. Galliher, who refused the professor’s claim for a refund of nonresident income taxes. Galliher rejected Professor Zelinsky’s Due Process and Commerce Clause claims. Further, he justified application of the convenience-of-the-employer test because of the public services New York made available on the days that Professor Zelinsky worked at his home in Connecticut. In his appellate brief, Professor Zelinsky argues that New York has an obligation to apportion taxes fairly based on in-state and out-of-state physical presence. He said there is no question that if New York levied a tariff at the New York-Connecticut border to tax residents coming to New York, it would be in violation of the Commerce Clause. Similarly, he maintains, there is no question that New York would violate the Due Process clause if it started taxing residents of Connecticut on the theory that citizens of that state can use New York public services if they wish. “There is no viable distinction between these unconstitutional assertions of New York’s taxing authority and the application of the convenience-of-the-employer doctrine to the facts of this case,” Professor Zelinsky argues in his brief. The State’s response is due Feb. 1. Two years ago, the North Eastern States Tax Officials Association (NESTOA) identified the issue as one of the most significant modern matters involving tax administration. It did so following an advisory opinion from the New York Commissioner of the Department of Taxation and Finance. In the opinion (TSB-A-96[10]I ), the commissioner considered the tax consequences of a man whose company chose him to participate in an alternative workplace strategy program. The employee, who had been working a normal five-day week in New York City, was then working out of his Connecticut home four days a week and reporting to the Manhattan office once a week. The commissioner found that the employee was subject to New York State income tax on his entire compensation. As a result, the taxpayer was liable to two jurisdiction, New York and Connecticut, for taxes on the same income. NESTOA is attempting to forge agreement from its members in Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and the cities of Philadelphia and New York, for a uniform solution that would reduce or eliminate the double taxation of tangible income.

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