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New York Relaxes its Tax Rules on Telecommuting

2 min readBy: Chris Atkins

A Wall Street Journal article (via TaxProfBlog) says that New York is relaxing its onerous “convenience of the employer rule”. This rule originally said that workers who telecommuted from outside the state had to pay New York income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on 100 percent of their income unless they telecommuted out of necessity. Since telecommuting is almost never done based on necessity, this rule ensnared many New York telecommuters in double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. because they could face tax on 100 percent of their income in New York as well as their home state.

Although New York won two state court battles over this rule, federal legislation was introduced that would force New York to alter it. The federal legislation would require a worker to be physically present and performing work in New York before it could require the worker to pay income tax to New York for the days worked.

New York’s new rule does not adopt the physical presence approach of the federal bill, but it does say that telecommuters will not be treated as working in New York if their home office is a “bona fide employer office.” While it remains to be seen how New York will define this term, it appears as if it will be more telecommuter-friendly than the “convenience of the employer” rule.

We’ve written on this issue before, arguing that a physical presence approach is best in order to reduce double taxation and tax complexity. The federal legislation will still be an issue, because New York is not the only state to adopt a “convenience of the employer” rule, though it does seem to be the most aggressive in applying it.

In the larger scheme of things, this issue is just another example of the disconnect between the 21st century economy and state tax systems largely based on the 20th century economy.