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The Court of Appeals this week will hear a case of critical importance to the future of telecommuting in New York state. Although Thomas L. Huckaby of Tennessee spends little time in New York, does not live in New York and does virtually no work in New York, New York claims it is entitled to tax 100 percent of his income because his employer is based in Queens. An appellate court has unanimously held that the state is right. Matter of Huckaby v. New York State Division of Tax Appeals is being watched closely by states attempting to address the modern reality of telecommuting with tax codes written when the idea of telecommuting was futuristic. The questions is: To whom does a telecommuter pay state income tax? Most states resolve the issue by simply apportioning income. For example, if an employee works 80 percent of the time in his or her own state and 20 percent of the time in the employer’s state, 80 percent of his or her income is taxed by the home state and 20 percent is taxed by the employer’s home state. New York, however, has different ideas on how to tax out-of-state residents. In New York, if the employee works out of state for convenience rather than employer necessity, the state clams it is entitled to tax 100 percent of the income earned. Since some states, such as Connecticut, base their income tax on where the taxpayer lives rather than where the income is earned, that means some workers are subjected to double taxation on the same income. Virtually all of New York’s neighbors have urged it to revise its tax code and eliminate the convenience of the employer test, but Albany is loathe to abandon a source of income that brings in around $100 million annually. U.S. Senator Christopher Dodd, D-Conn., has gone a step further with his “Telecommunications Tax Fairness Act.” Dodd’s bill would bar states like New York from collecting taxes for work performed out of state. The bill was prompted by the case of Edward Zelinsky, a professor who teaches tax law at the Benjamin N. Cardozo Law School in Manhattan but frequently works from his home in New Haven, Conn. Zelinsky challenged New York’s tax scheme but lost at every level of state court and then was denied certiorari by the U.S. Supreme Court. Huckaby, however, raises different issues, which Peter L. Faber of McDermott, Will & Emery in Manhattan hopes will yield a different result. Unlike Zelinsky, Huckaby is a telecommuter. Also unlike Zelinsky, Huckaby’s principal place of business is outside of New York — so far outside New York that he rarely and only indirectly benefits from government services in the state. Huckaby lives approximately 900 miles from Manhattan. “Mr. Huckaby’s case presents the plight of a nonresident telecommuter,” Faber argues in his brief. “Telecommuting did not exist when the regulation at issue first appeared on the scene, but it is widespread now.” Faber contends that the convenience of the employer test, as applied to Huckaby, is in violation of the equal protection and due processes clauses of the U.S. Constitution and contrary to “common sense.” Court records show that Huckaby, a computer programmer, lived and worked in Nashville, Tenn., for a software development company called Multi-User Computer Solutions. One of the company’s clients was the National Organization of Industrial Trade Unions, which is based in Queens. After Multi-User Computer reorganized in 1991, Huckaby took a job with the trade union organization on the condition that he remain in Tennessee. BENEFITS TO EMPLOYER The tax dispute involves the years 1994 and 1995, when Huckaby spent 75 percent of his working days in Tennessee and 25 percent in New York. He acknowledged liability for New York income tax reflecting his workdays in this state, but objected when the state — citing the convenience of the employer test — demanded tax on his entire income. In her brief, Assistant Solicitor General Julie S. Mereson argues that the test helps protect New York’s tax base from “erosion” by ensuring that nonresidents pay their fair share for the benefits they and their employer receive in the Empire State. “New York … provides Huckaby’s employer with benefits and protections 365 days a year, enabling it to offer Huckaby employment,” Mereson contends. “[N]ew York provides Huckaby the opportunity to earn his income and the protections and benefits that flow from an organized and civilized society capable of supporting the business that employed him.” Faber counters that the benefits to which Mereson refers inure to the employer, not directly to Huckaby, who bears the tax burden. The case will be argued Wednesday. OTHER MATTERS: JUDICIAL AUTHORITY AND ASSIGNED-COUNSEL RATES Also this month, the court is scheduled to hear Levenson v. Lippman. The court begins the new year with a case centering on the authority of the chief administrative judge. The matter is rooted in the lengthy and ultimately successful political battle to increase assigned-counsel rates. During that long battle — rates had remained at $40 for court work and $25 for out-of-court work for 14 years — several judges were awarding higher fees than those statutorily mandated. The judges were routinely relying on a provision that allows them to exceed the statutory cap in “extraordinary circumstances,” and infuriating local governments that had to pay the bill. In 2001, Chief Administrative Judge Jonathan Lippman imposed a rule giving regional administrative judges the power to review and modify awards of trial judges. Several Manhattan lawyers who had received higher rates challenged Lippman’s authority, losing at the trial level but prevailing at the Appellate Division, 1st Department. In February, a unanimous 1st Department panel said the rule unconstitutionally shifted appellate jurisdiction from the appellate division to administrators. The appeal will be argued Tuesday by Michael Colodner for the Office of Court Administration and Peter J. Macdonald of Wilmer Cutler Pickering Hale & Dorr in Manhattan for the attorneys. BREACH OF FIDUCIARY DUTY CLAIM AGAINST PASTOR Another case before the court is: Wende C. v. The United Methodist Church. This appeal focused on whether a couple in Western New York can sustain a breach of fiduciary duty against their pastor and other church officials in connection with an adulterous relationship the cleric maintained with one of the plaintiffs. Court records allege that while Wende and David C. were undergoing marital counseling by their pastor, the Methodist minister was carrying on a sexual relationship with Mrs. C. The couple later sued for breach of fiduciary duty and sexual battery. Supreme Court Justice Andrew V. Siracuse of Rochester dismissed the suit in a ruling upheld by a 3-2 opinion from the Appellate Division, 4th Department. The majority, mindful of the establishment clause, said the claim is essentially one of clergy malpractice, for which there is no cause of action in New York. The dissenters said the claim should stand since it is not at all clear that it ventures “into ecclesiastical terrain.” Arguing Tuesday are Christina A. Agola of Rochester for Wende and David C.; James C. Gocker of Trevett Lenweaver & Salzer in Rochester for a bishop alleged to have negligently supervised the pastor; and Jonathan B. Fellows of Bond, Schoeneck & King in Syracuse for the Western New York Conference of the United Methodist Church and other defendants.

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