New York Court Says Telecommuters Must Pay NY Tax 810
hal9000(jr) writes "The Boston Globe is running this
story on an out-of-state programmer working for a New York company who had to pay state taxes. '"New York has the right to tax 100% of a nonresident employee's income derived from New York sources," according to
the 4-3 decision by Court of Appeals. The court relied on a fairness rule called the "convenience of the employer" under law that says a worker's income is taxable if he chooses to live outside the state, as opposed to if he or
she was transferred there.' The dissenting opinion: 'Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is ... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."'"
Bad idea (Score:5, Interesting)
I also think this is going to get appealed to the Federal courts. I live in Texas and work for a company that has an office here, but is headquartered in Massachussettes. I can't imagine paying MA income taxes, but it sounds like this court ruling says that I should (assuming the MA courts rule the same way).
Lets wait for the appeal (Score:3, Interesting)
Interesting issue though. It may be fair for NY to tax in some telecommuting cases. But I don't see why CA should be able to tax me on my income because I telecommute from Massachusetts. I have never worked in CA.
25% seems to low a fraction to claim the right to tax. NY is not providing any services to the employee and that is the basis on which taxation should be decided. If they want to recover the costs of providing services to the company they should tax the company.
Double taxation? (Score:5, Interesting)
This sounds as if you could end up paying full income tax in the state your company is in, plus full taxes in your own state - because your local state will consider you a full-time resident (since you do live there full time).
Not only that, but . . . how is New York offering him any representation for the taxes he pays there? He isn't a resident. He doesn't use their services. He doesn't commute. He doesn't have anything to do with anything there - other than it is where his employer is based.
For that matter, shouldn't companies overseas who contract with American companies to provide, say - tech support - have to pay American federal income taxes? I don't see how that would be any different from this scenerio whatsoever...
I'd sure hate to be stuck paying 56% in state income taxes, before even coming to my federal and county income taxes!
Fine... (Score:4, Interesting)
about those taxes... (Score:5, Interesting)
Re:Bad idea (Score:5, Interesting)
More likely, it'll convince them to stop offering employees the option to telecommute. I've noticed that telecommuting is fizzling out as control-freak managers feel powerless when they don't have their employees ten feet away from them in a dimly lit cubicle punching code and commuting for three hours a day.
Of course, upper-levels still seem to do a lot of telecommuting - but not so much for everyone else.
Re:Interesting (Score:2, Interesting)
Re:Flawed logic (Score:2, Interesting)
Yes. Yes it does. Dealing with the idiotic conflicts between states and federalism is the absolute worst thing. The feds refuse to step in issues where they should and refuse (over-zealous state taxing authorities) and refuse to yield their power to the states where they should (recently the whole Schiavo thing, but other things too). -Mike
New York Taxes suck. (Score:4, Interesting)
I was getting 150K yr, but found 68% of my income went to taxes!
The City tax was higher then my federal!
My take home after everything was $3500 a month. I couldn't make ends meet and all in all lost over $30K in the move there and move back + the operating at a loss the whole time I was there.
With this new tax rull people who commute from New Jersey would end up paying taxes to two states!
I am so glad to be in California...
Come and get me! (Score:3, Interesting)
The NY police don't have much juristiction in other states...
Authority? (Score:4, Interesting)
In a strong dissent, Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is
I live in California and just took a contract position with a company in New York. This ruling does not say anything about contractors vs. employees, but knowing New York's tax system, I would guess they want it to apply to me, too. I of course do not intend on paying NYS a single cent, since as far as I can tell they have no authority over me whatsoever, but IANAL.
Any tax lawyers care to comment on this?
Re:Interesting (Score:2, Interesting)
I'm not sure about Florida tax law, but chances are the income is taxable by both states.
Just be sure to fill out your NY IT-112-R [state.ny.us] and NY will give you a tax credit against the Florida taxes.
Re:USA tax is a mess (Score:5, Interesting)
One of the advantages of differing tax rates is I can use that as a basis for moving. This is one of the first arguments for libertarian's states should decide arguments.
Re:Flawed logic (Score:2, Interesting)
Don't get me wrong, I do think it's quite the show of force do so such a thing (and equally stupid)...but I'm guessing that something has to be done to make offshoring less economically attractive to companies who still only look at proverbial bottom line.
Key Phrase... (Score:3, Interesting)
Each employer distributes their own W2. This ruling states that 100% of the income earned from a New York based employer is subject to tax. A person who telecommuntes to New York 50% of their time and San Francisco the other 50% of their time can only be taxed by New York on the income generated from the New York Employer.
Living in New York State, this is good! (Score:2, Interesting)
As someone who lives in the state of New York, but telecommutes to a company based in California via servers in Bangalor, I look forward to no longer paying NYS taxes, since I'm there out of convenience...
Re:So does this mean .. (Score:1, Interesting)
Re:I, for one, welcome our NY tax refugees! (Score:2, Interesting)
Re:judicial activism? (Score:3, Interesting)
but somehow they want activist judges, by your definition, to rule in favor of terri.
Re:So does this mean .. (Score:3, Interesting)
Re:judicial activism? (Score:3, Interesting)
Listen, too many people on Slashdot already pretend like they know Conservatives, there's no need to add to the ignorance. Remember, Congress != Conservatives. Just read the recent Wall Street Journal editorial trashing Tom Delay.
Re:I, for one, welcome our NY tax refugees! (Score:2, Interesting)
And more babes. I'm sure the guys are cute too, but that's not my thang...
Re:I'd also want use of their services (Score:2, Interesting)
This is a strained example, or course, but it would not take a lot to through a pair of states out of balence (they mostly run close to or over the edge of debt anyway). It could have a measurable impact in the future.
Re:Screw New York (Score:1, Interesting)
Re:about those taxes... (Score:1, Interesting)
I think you wife's employer is merely seeking punishment. Of course if your wife's employer asks the Franchise Tax Board in Sacramento what to do, the FTB will say tax, tax, tax. Your wife's employeer should have gotten an Ohio state tax payers ID, and treated her as an Ohio employee as it would have any of its employees in an Ohio branch office. Your wife *is* the Ohio branch.
I've worked out my home office for several companies for the past ten years, two of which were head quartered in CA, but had offices other than my home office in my state of residence. I've always taken the position that my situation was no different than if I had an office in the local site office. Never paid CA tax while in that situation. One employer even insisted that I declare in writing the local sales office as my office of record, no doubt so that that they didn't have to deal with CA tax authority. A couple times the payroll department made the mistake of deducting CA taxes on a paycheck. I pointed out the issue, and the problem was immediately corrected. W2s were clean of CA tax.
One interesting thing about CA non-resident taxes. If you have to file a CA NR return, your income is taxed based on the number of days spent in CA, whether for work or for vacation. So don't spend vacations in CA if you have a NR tax return to file in CA.
Re:judicial activism? (Score:3, Interesting)
Not a huge deal.... (Score:3, Interesting)
They do not get to vote in NY, but they pay taxes because that's where they make the money. Everyone is OK with that.
If someone lived in NJ and only came into the office 1 day a weekm they still have to pay same NY taxes, because the fact that their employer kindly let them work from home doesn't change the fact that they work in NY. They don't pay 1/5th of NY's tax.
Instead of coming in once a week, this guy doesn't come in at all. But it's not so different than the guy who only comes in once a week. The employer lets him work from home, but he's an employer of a NY office. He works in NY.
Some mentioned the reasons why this must be the case. NYC makes ample investment to attract employers, and it's meant to make that money back in income taxes. The company this guy works for benefits from these advantages. If he's really offended at having to pay the tax in a state where he works (even if he doesn't show up) then he should find a job in-state so that he'll only have to pay one tax.
The fact that he doesn't use NY's resources is a non-issue. The fact that you don't use some service doesn't entitle you to a refund, and he's no different.
Re:Really time for a revolution... (Score:2, Interesting)
Re:Do you get to vote? (Score:1, Interesting)
I am going to enroll my kids in NY schools next year. I wonder how they're going to feel about sending a bus down to DE (200 miles) to pick them up every morning.
Seriously though, this ruling will cost me ~$1000 this year and put my last 3 years' tax returns at risk of penalty.
Re:Flawed logic (Score:2, Interesting)
On the flip side, the federal government sometimes seems reluctant to rein in rogue states that infringe on other states sovereignty. I don't feel like looking for it (although I'm sure googel can help you out) but I know of instances where California has sent STATE POLICE into Nevada to arrest people who had moved there legally and tried to make them pay CA taxes. You also have the ongoing internet/mail order sales tax debates that congress seems reluctant to take up.
So am I an idiot who doesn't know what federalism is? Maybe. Do I care? No.
-Mike
Portland Metro sales tax (Score:5, Interesting)
Most people try to take advantage of this situation by residing in Washington and working in Washington State (if possible). Then they shop for durables in Oregon. Oregon's state income tax is quite high, much more so than WA. If you live in WA and work in OR, OR state makes you pay their income tax.
In a dual tax situation like this, the various governments watch everyone's financial situation closely to maximize their revenue. Everyone pays different amounts of tax. People who live in the no-sales-tax state are not required to pay sales tax on purchases of big-ticket items like cars that are bought in the sales tax state. One state has $15/yr car registration and the other has registration fees about ten times higher. There are also arrangements for college students not having to pay out-of-state tution to attend schools in the metro area that are technically out-of-state.
There aren't many metro areas that have state borders in the center of them. Kansas City, New York City, St. Louis, DC, Philly, Omaha, Cincinati. There are only two major metro areas with international borders cutting through them: El Paso and Detroit. Miami is one of the most important cities of Latin America even though it isn't actually in Latin America. It's a special case; everybody's neutral ground.
This tax situation is just going to get worse as the ultra-rich continue to pay a smaller percentage of their income to taxes through off-shore tax shelters and bribing state legislators to put specific loopholes for near individual situations into general laws. This is where someone introduces a law that no one would vote against (like making it illegal to expose your penis within 50 feet of an elementary school), and then puts a clause in the bill that would apply specifically to an individual large campaign contributor. The result of all this is that the tax burden gets shifted more each year from the rich to the middle-class.
The smarter elements of the middle class will use the internet to increasingly take advantage of offshore tax shelters on a much smaller scale. A company needs a network analyst. In the past they would hire someone to do this as an employee. In the future someone agrees to set up and maintain a network for $1500. The person sells an old Dell PC to the company for $1500. A bank in Luxembourg transfers $1500 to the network administrator's PayPal account. The network administrator uses her PayPal debit card to buy groceries and get cash-back after a day's work at the network site. The old Dell stays in the closet. No one pays tax.
This kind of thing is pretty transparent to a good government tax investigator. But when it becomes so common of a way of employment compensation that there are 100,000 cases a year for each government tax investigator, then there won't be much that the tax man can do to control it. There will always be some poor schmuck that gets slammed hard to set an example, just like the 12-year-old who gets slammed with a $150,000 fine for downloading a teen-idol pop song, but it will just be bad luck and its publicity will only increase the resolve of middle-class people to come up with new ways to not pay taxes.
Eventually all these huge budget-busting but mostly symbolic government projects like the Space Station, the BigDig, and Endless_Permanent_Middle-East_War will just be abandoned in mid-process due to lack of funds from decreasing tax revenues and the unwillingness of wealthy outsiders to lend money for some politician's wet-dream fantasy.
Re:For fairness and consistency.. (Score:3, Interesting)
This would encourage a more liquid & distributed economy (preventing stagnant accumulation of wealth - assuming there is a system in place to channel the collected resources to stimulate the economy from the bottom up, of course), and prevent the extremely well-to-do from "hiding" their income in trusts/holding companies/tax shelters/etc - since any such legal entity capable of "owning" property would be taxed at the full percentage rate. Basically, to claim ownership of property would automatically indicate who would have to pay taxes on that property.
Just another proposal to throw into the ring of memes...
Re:I'd also want use of their services (Score:3, Interesting)
I would pick a nit with this. Some states like CA and NY pay out more in federal taxes then they get back. Other states like MT and WY get more in federal money then they pay out. They are truly the "welfare states".
I know we are talking about state taxes here and I definately agree with you but if you added all the money Arizona took from it's own taxpayers it may not be sufficient to maintain a vast, mostly empty, rural state like AZ. Chances are very good that the kind people in NY and other more densely populated and more presporous states are indeed paying for your police or fire dept not to mention your highways.