New York applies “convenience of the employer” rule in New Hampshire
Remember the “convenience of the employer” rule – New York State’s aggressive policy of taxing nonresident telecommuters employed by New York businesses on the income they earn at home? Well, on Feb. 24, New York struck again – this time demonstrating that the state isn’t just after telecommuters living in the border states, but far flung remote workers, too.
The February ruling, issued by New York’s Division of Tax Appeals, was called Matter of Gray. In this case, New York’s target, Arthur Gray Jr., was a resident of Haverhill, N.H.
Gray has worked as an investment counselor with a number of New York City firms since 1945. He has owned a home in Haverhill — about 300 miles away — since 1976. From 1976 through 1996, he worked in New York City and maintained an apartment there. At times during those 20 years, he commuted to New York every other week or stayed in New York during the week and returned to New Hampshire on weekends.
In 1996, Gray worked as managing director for Cowen & Co. in New York. Late in the year, Cowen required him to give up his private office and suggested he “open a Cowen office in New Hampshire.” His old office would be available to visiting managing directors (including Gray) when they came to New York.
Gray agreed. He sold the New York apartment and, soon after, began working from a barn on his Haverhill property. He also continued to work in New York; in 1997, he worked there 88 days, in 1998, 87 days.
The telework arrangement was clearly for the employer’s benefit, “part of a Cowen business strategy,” the judge said, to have managing directors “work out of their local addresses” instead of the New York office.
Cowen treated the New Hampshire office as a company site. Cowen registered Gray’s residence with the New York Stock Exchange (NYSE) and with the state of New Hampshire; Gray was named managing director of the office, and his son-in-law was named vice president; a NYSE certificate indicating Cowen’s membership in the Exchange was displayed in the office (per NYSE rules); the telephone directory listed the Haverhill office as a Cowen office; and Gray used Cowen letterhead listing both the New York and New Hampshire addresses and phone numbers.
But the judge ruled that just because a home office is “intended for an employer’s purposes” doesn’t make telework an employer “necessity.” And, under the convenience of the employer rule, a non-resident’s part-time telework arrangement must be an employer necessity for the telecommuter to avoid New York taxation. As New York sees it, telework is necessary only if the nature of the work is such that it cannot possibly be done in New York. Not surprisingly, Gray’s telework arrangement didn’t pass the necessity test.
In this Feb. 24 decision, the Division of Tax Appeals makes no mention of the fact that New York’s highest court is currently considering whether to uphold or reject the state’s taxation of Tennessee telecommuter Thomas Huckaby. Even though Huckaby lives 900 miles away and spent only a fraction of his time working in New York, the state taxed his entire income. Huckaby has challenged the constitutionality of the convenience rule as applied to him.
In addition to New Hampshire and Tennessee, New York has reached into Maine, North Carolina and Florida to apply the rule. It’s time for Congress to intervene – to let New York know that it cannot tax the citizens of other states simply because they use the Internet to commute to New York businesses.
Last September, during the 108th session of Congress, Sen. Chris Dodd (D-Conn.) and Rep. Christopher Shays (R-Con.) recognized the need to restrain New York, and introduced The Telecommuter Tax Fairness Act – a bill that would eliminate the convenience rule. The 109th Congress must put this legislation back on track: It must reintroduce and pass the bill now.
