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New York Issues Much-Anticipated Guidance on Taxation of Telecommuting Employees

Since the outset of the COVID-19 pandemic and work-from-home mandates, New York employers and their nonresident employees have been waiting for the Department of Taxation and Finance to address the million-dollar question: Do wages earned by a nonresident who typically works in a New York office but is now telecommuting from another state due to the pandemic constitute New York source income? New York has historical guidance concerning the application of its “convenience of the employee/necessity of the employer” test, the test used to determine whether a telecommuting nonresident’s wages are sourced to New York, but until recently the Department had been silent as to whether or how such rule applied under the unprecedented circumstances of the COVID-19 pandemic.

As many expected, in a recent update to the residency FAQs, the Department clearly stated its position that a nonresident whose primary office is in New York State is considered to be working in New York State on days that he or she telecommutes from outside the state during the pandemic unless the employer has “established a bona fide employer office at [the] telecommuting location.” The Department adopted the “bona fide employer office” test in 2006 as its way of applying the convenience of the employee rule to employees that work from home. The bona fide employer office test is a factor-based test and, for the most part, a home office will not qualify as a bona fide employer office unless the employer takes specific actions to establish the location as a company office. (See: TSB-M-06(5)I, New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others.) As is apparent in the FAQ, the Department is mechanically applying this test to employees working from home as a result of the pandemic and is not providing any special rules or accommodations for employees that have been required or encouraged by New York State and local governments to telecommute.

Interestingly, the Massachusetts Department of Revenue took a similar approach to New York’s by promulgating a regulation requiring nonresidents that typically work in Massachusetts but are telecommuting from outside the state to pay tax on their wages. On October 19, 2020, New Hampshire filed a Motion for Leave to File Bill of Complaint with the United States Supreme Court challenging the constitutionality of Massachusetts’ regulation. We understand that New Jersey is considering joining New Hampshire in this lawsuit based on New York’s recent guidance, which would require many New Jersey residents to pay New York income tax even though they are no longer working in New York. The US Supreme Court has twice declined to rule on the constitutionality of the convenience-of-the-employee test, so stay tuned on this important development.




DC and New Jersey Join Mississippi in Disregarding Coronavirus-Caused Remote Work for Tax Purposes

As part of our open letter to state tax administrators urging relief of undue tax administration burdens in light of COVID-19, we urged the disregarding of remote work for tax purposes. The public health necessity for businesses to close central operations and direct employees to work from home should not be used as an “opportunity” to create nexus for affected businesses.

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Tax Commissioners: Please Drop Unnecessary or Dangerous Tax Administration Requirements

This week we wrote a letter to state tax administrators, sharing five key suggestions for relieving undue tax administration burdens in the wake of this difficult COVID-19 situation. As explained, “at a time when many people are working from home and should not or cannot go to post offices or banks, a business-as-usual attitude for tax administration would be inexcusable.” The five suggestions:

  1. Postpone deadlines for tax filing and payment. The federal government and many states have already taken this needed step. When many Americans, including business tax professionals and tax administrators and their staffs, are fearing for their own health and unable, prohibited or unadvised to leave their own house, this is not the time for pulling records and preparing tax filings.
  1. Waive requirements to file hard copy, notarized, and/or wet-signature documents. Waive requirements to mail documents by certified mail. Allow automated-clearing-house (ACH) electronic transfers of funds instead of requiring hard checks. In a time of social distancing and shelter-in-place orders, it is dangerous to require that business representatives go outside to banks or Post Offices, stand in line, and purchase services from one particular provider. While the US Postal Service (USPS) has valiantly endeavored to keep all post offices operating and mail delivery uninterrupted, new reports on the enormous financial difficulties of the USPS and the growing impact of the virus on the USPS’s public-facing workforce surely give all of us pause. Digital signatures and electronic document delivery, and electronic forms of payment, are widely adopted, affordable, secure, and instantaneous. It is time for tax authorities to dispense with – or suspend – the requirements of physical copies, wet signatures, notarization, physical checks and mailing. Furthermore, tax agencies and hearing tribunals should adopt temporary procedures to either automatically acknowledge receipt of electronic documents or waive stringent proof of delivery in situations in which missing a deadline would preclude a taxpayer from obtaining further review of agency action.

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