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A controversial tax policy that enables New York to collect roughly $100 million from out-of-state residents — but which forces a Cardozo Law School professor to pay tax to two states on the same income — was upheld Monday by a unanimous Court of Appeals. Chief Judge Judith S. Kaye said the application of the so-called “convenience of the employer test” in determining the taxes owed by professor Edward A. Zelinsky is constitutionally sound and consistent with reasonable public policy objectives. She said New York “need not subsidize” Zelinsky for opting to work at times from his Connecticut home. “Allowing this taxpayer to allocate his income to Connecticut when he stays home to do his work in connection with his teaching activity would enable him to avoid paying taxes that his colleagues who do that work at home in New York — or at the law school — pay,” Chief Judge Kaye wrote for the Court in Zelinsky v. New York State Tax Appeals Tribunal, 129. Also Monday, the securities industry survived a scare when the court, responding to a certified question from a federal appellate panel in Philadelphia, upheld a common tax-deferred compensation arrangement. Marsh v. Prudential, 126, raised a question of whether New York’s Unpaid Wages Prohibition Act barred forfeiture of tax-deferred compensation when the employee is fired or quits. Unanimously, the court said the Prudential Securities Inc. (PSI) plan is not counter to Labor Law � 193. The Zelinsky case has attracted considerable attention from other Northeast states, which are virtually unanimous in condemning New York’s tax policies, as well as an unusual amicus curiae from the Connecticut attorney general supporting the law professor. It stems from New York’s tradition of imposing income tax on people who work in that state but live elsewhere. The tax policy was adopted to ensure that people reaping the benefits of New York City’s job market paid their fair share of taxes for the various services that make their employment possible. A problem, however, arises when someone lives out of state and performs work out of state for an in-state employer. Such is the case with Zelinsky. The professor contends that since he pays income tax to Connecticut on the salary he earns while working from home, he should not be doubly taxed by New York on the exact same income. New York does not entirely disagree, although it suggests that it is Connecticut — not New York — that should credit Zelinsky so he is not doubly taxed. New York adheres to what is known as the “convenience of the employer” test, under which a taxpayer is entitled to an out-of-state benefit only if he or she works out of state for the necessity of the employer rather than personal preference. Zelinsky readily admits he frequently works from home for his own convenience, but he argues that New York’s tax policy violates the Due Process and Commerce clauses of the U.S. Constitution. Monday, the Court of Appeals — like the New York Appellate Division, 3rd Department, and the Tax Appeals Tribunal — flatly rejected Zelinsky’s arguments. Chief Judge Kaye observed that the convenience test, which she said would “more aptly be called the ‘necessity of the employer test,’” was adopted to prevent commuters who spent an hour working at home each day of the weekend from claiming that two-sevenths of their income was off-limits to New York. Here, the court said, there is no reason why Zelinsky could not work in New York every day, and no reason New York should suffer a loss of tax revenue because he chooses to do otherwise. “New York … provides a host of tangible and intangible protections, benefits and values to the taxpayer and his employer, including police, fire and emergency health services, and public utilities,” Chief Judge Kaye wrote. “Petitioner’s election to absent himself from the locus of his New York employment does not diminish what New York provides in order to enable him to earn that income.” Zelinsky, who argued pro se, said Monday that he is “grateful for the clear and cogent manner in which Judge Kaye has outlined the issues, and I will, of course, apply for review by the United States Supreme Court.” Assistant Solicitor General Julie S. Mereson argued for the state. Tax Department spokesman Tom Bergin said of the decision that the state is “pleased but not surprised, given that the lower courts had consistently ruled against Mr. Zelinsky.” BROKER CASE Marsh v. Prudential came to Albany via the U.S. District Court in Northern New Jersey and the 3rd U.S. Circuit Court of Appeals in Philadelphia. The case involves Todd B. Marsh, a PSI broker who resigned under fire in 2000. Like other brokers, Marsh opted to participate in an investment opportunity called the MasterShare Plan. Under that plan, a percentage of the broker’s gross income is deducted and ultimately invested. Marsh agreed that if he left the firm for any reason other than retirement, those funds would be forfeited. When March left PSI, his MasterShare account totaled about $165,000, $145,000 of which was attributable to his own contributions. He challenged the forfeiture in federal court, and lost. On appeal, the 3rd Circuit looked to Albany for guidance. Monday, Judge Victoria A. Graffeo, writing for the unanimous court, declined a request by the plaintiff and the state Commissioner of Labor to adopt a per se rule against forfeiture. She said Labor Law � 193 requires an analysis of whether the forfeiture provision is purely punitive or whether the wage deduction is “for the benefit of the employee.” In this case, the court said PSI’s “golden handcuff” MasterShare Plan provides several potential benefits — including tax deferral, investment opportunities — to the employee. Thomas J. Kavaler of Cahill Gordon & Reindel in Manhattan argued for PSI. Representing Marsh on the appeal was Frederic J. Gross of Mount Ephraim, N.J.

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