NY vs. NJ

[Snaggletoof]

It has been awhile, but some time ago, I followed with great interest a thread that was telling the story of a telecommuter.

Guy had a job in NY but lived in NJ. When gas began to increase, the company invested in remote software and several of their people began working from home. How the company could make sure these folks actually worked 8 hrs per day is a different question with which we should not be concerned.

Company had nexus in both states, and so it was convenient for them to withhold NJ taxes and issue W-2 with NJ wages.

New York then squawked. Claimed that the source of the work was actually in NY, and guys were operating from a NY database server. Situation resulted in both states claiming the source of income.

Can anyone update us as to how this was ever resolved (or maybe it hasn't been)??

[Uncle Sam]

NY vs NJ

Taxpayer's employer is required to report 100% of W-2 income being attributable to NY source income.
It's incumbent then for the employee to ALLOCATE the income (forget which schedule it is that gets attached to the NYS tax return IT-203. based on days actually physically IN NYS.
The employer cannot allocate for the employee.

[joanmcq]

NY decided all remote work was 100% taxable to NY. There is currently legislation pending to prevent states from declaring telecommuters were taxable anywhere but where they were physically present.

[Snaggletooth]

Of Course They Did

yes... of course NY wants it all. So does NJ. And that's the central issue - without the legislation of which you speak, both states can ignore tax law in other states. Going to court in NY means NY tax law will prevail, and NJ is not required to honor NY courts, especially if it means giving up some of their own revenue.

The situation is less onerous if the state of residency allows "credit paid to other states" as a refundable credit, but even this safeguard doesn't prevent taxation at the highest rate. Joanmcq, if you know of the legislation, please share with me so I can track its progress. And it goes without saying that if it is state legislation instead of federal, passage will not settle the war, as other states would not be required to observe it.

And I do have a dog in the hunt. I do substantial work at my home in TN, but often access a database server in AL and transfer large data files to my home computer. I seldom travel to AL and according to Uncle Sam's allocation (see post above), I would not allocate enough income to AL to meet their filing requirements. I bill this customer some $30K per year.

Under the NY mentality, Alabama would claim that all $30K would be "source" income and would thus attempt to extend their nexus to my home computer. What makes this very significant is that TN has no income tax, and therefore there is no "credit for taxes paid to other states" for me.

[erchess]

Puzzled

I don't see why an internet connection into the state creates taxable income UNLESS committing the involved information to print or CD/DVD media and sending to you in some fashion would also create taxable income.

I know nothing of the specific legislation joann spoke of but I think that there should somehow be standardization of what monies get taxed by states in particular circumstances. It seems ok for States to tax at different rates and thresholds. But the rules for when a dollar is taxable to a given State need to be uniform in order to smooth interstate commerce if for no other reason.

[Corduroy Frog]

That would be too good

Erchess, that would be fair and just, but virtually no state is interested in that. Their primary impetus is to collect revenue, and no state wants their revenue to be shackled by laws and rulings passed in a different state.

There ARE certain things that states agree to, such as multistate compacts, where the signatory states agree to abide by certain maxims. However, they are overwhelmingly designed to HELP the states with revenue or ease their administrative burdens.

For example, a popular multistate compact might be for each state to waive filing fees and waiting periods in state courts where collecting revenue is concerned. One such compact not related to taxes is quite well-known - where 49 states have agreed to enforce the collection of traffic violations issued in each others' states. Only Michigan refused to join.

[Lion]

Keep Us Posted

I'm in CT with a lot of NY commuter clients. So, a potential for telecommuters residing in CT being taxed by both NY and CT. I need to follow this also. Thanks for the reminder.

[Zee]

Darn! I remember the case, and I thought the state won but I don't have a reference.

Also, it used to be even worse...

For more than 30 years the New York City "Commuter Tax" was imposed on individuals who worked in New York City but lived elsewhere. On April 4, 2000, New York's highest court unanimously ruled that the State's attempt to collect an additional income tax from nonresident commuters, while exempting New York resident commuters from that same tax, was unconstitutional. I know there was a movement to reinstate this tax after 911, but don't know whether it was successful, or not.

Here's a link that might help explain the current taxation procedure for non-residents by NY state. I haven't had an opportunity to read it thoroughly. Maybe it will help.

http://www.telcoa.org/HTMLobj-1146/Explaination_of_the_N.Y.Tax_Department_s_revised_position.pdf

Here's another link that explains how NY telecommuters are taxed a little more clearly, and includes two more current cases. I hope folks here don't mind the links, they explain it better than I can. In summary, the earnings are taxable unless the home office meets a "primary factor" test or other exceptions.

http://www.journalofaccountancy.com/Issues/2009/Jun/20091371.htm?action

[Uncle Sam]

NY vs NJ

The idea of reinstating some form of NYC nonresident tax comes up every time NYC has a financial crisis.
Mayor Mike Bloomberg made mention of it a number of months ago to raise more money for NYC - but so far it hasn't gotten anywhere

[Lion]

Thanks

Thanks for the links, Zee.

I remember that tax season when NYC stopped commuter taxes for NYS resident commuters but not for out-of-state commuters. CT's AG Blumenthal got NJ's AG and went after NY. As Zee said, it was during tax season when the change came about. Dealing with separate NYS and NYC credits for taxes paid on the CT return was a pain. And, then the amendments when the law was thrown out as unconstitutional, more fun! I really don't like being next door to NY.

[Uncle Sam]

Ct

Interesting Lion - when Connecticut came out with the sales tax - originally it wanted to tax tax preparation services to out of staters who never set foot in CT but prepared CT non-resident returns.
When that took place - I refused to preparer sign those returns.
Then fortunately - CT reversed its position.

[joanmcq]

Most states doe not tax unless you have a physical presence in the state. for example, the MA code specifically states telecommuters to a MA company do not pay tax to MA as long as their physical presence in the state is de minimus, such as two weeks a year for business meetings.

The most recent NY case concerned someone who lived in TN, but telecommuted to NY. TN does not tax wages. NY ruled that telecommuters to NY have to pay NY tax as though they are physically working in the state. So your CT telecommuters are SOL. I believe the recent proposed legislation disallowing this type of reach for taxation is in response to this case. I think I saw a reference to the proposed laws on a CCH news bulletin within the last month, but have heard nothing since. 'Presence' is being litigated by states for sales tax reasons (Amazon is one in particular), so the definition of presence could be redefined either way. NY is the only state I know of that is trying to reach this far to collect income tax. A lot of them are trying to collect sales tax on the premise.

[Lion]

Ny

Had a client working for Xerox in CT. They alternated annual staff training meetings between NY (Rochester?) and Stamford, CT. Then, NY announced they were taxing the CT employees for the number of days they spent in NY for meetings, even the brief train into NYC for an hour and back to the CT office for the rest of the workday. Well, Xerox is now holding ALL of it's multi-state meetings in CT instead of in NY. NY loses lots of revenue catering those meetings, hotels, equipment rentals, family trips, etc. My client has done no traveling in the last few years.

[Snaggletooth]

Kudos to Xerox

This should be the price to be paid for greed. All taxing authorities want money, but the degree to which NY taxes people just for riding into the state for a meeting is an example of the avaricious state they are. Absurd extensions of imaginative thought is not limited to NY. All of the Northeast states are bad, as far as my knowledge can tell, as well as CA and some others. MN ran off many of their corporations in the early '70s, but made changes to stop the bleeding.

I'm wondering if there is a study to measure the growth rate of the Gross Economic Product in the states that don't have income taxes, and compare it to the states that do. States like TX, FL, WA, etc. versus other states. However, the total tax environment, including property, sales, and corporate tax, and not just the personal income tax should be measured.

[DTS]

CA today

Schwarzenegger proposed a 15% flat rate tax for all in CA. This is not only greed, but incompetence, as well.