Did New York Really Change its Tax Treatment of Telecommuters?

June 12, 2006

Two weeks ago, we blogged about changes made to New York’s regulations on the taxation of telecommuters. Relying on a Wall Street Journal story, we said that the new rules appeared to make more sense from an economic perspective, with the caveat that much depended on how New York defined the terms of the new rules.

After a careful evaluation of the definitions, it turns out that not much has changed. The new rules say that New York no longer taxes income earned by an employee working out of state in a “bona fide employer office.” New York’s definition of that term, however, is so restrictive that normal telecommuters will still face double taxation in New York.

For example, New York defines “bona fide employer office” as a place that has or is close to “specialized” equipment that cannot be set up at the employer’s office. Most telecommuters, however, utilize the same equipment (i.e. a desk, personal computer, phone and Internet connection) at home that they do in the office.

Other factors required to meet the “bona fide employer office” definition include separate phone lines, exclusive use of part of the home for business purposes, and a home office as a condition of employment (i.e. part of a written employment contract).

One can see that most telecommuters will not benefit from New York’s revision of its tax regulations, leaving them exposed to double taxation. This means that federal legislation is still necessary to protect telecommuters from unfair and inefficient tax treatment.

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