In Upholding the Current Tax Treatment of
Telecommuters, the Court of Appeals Demonstrates the Need for
Legislative Action
By: Meredith Bentley
Innovations in technology and communications have enabled
telecommuting to become a pervasive practice in the modern business
environment. Over the past decade, more and more employees
are being paid by their employers for work done at locations other
than the employer’s office. In light of the many benefits of
telecommuting for both employers and employees, this trend is only
expected to continue. Indeed, business not able to capitalize
on the benefits of telecommuting will be at a competitive
disadvantage. In March of 2005, however, the New York Court
of Appeals rendered a decision that will stifle telecommuting to
New York.
Of particular concern to the state governments is the tax
treatment of a telecommuter’s income when he or she is working in a
state other than where his or her employer is located. For
more than forty years, New York has applied its “convenience of the
employer” test. The test provides that all income earned by a
nonresident working for a New York employer is taxable by New York,
unless such income was earned by work performed out of New York
State for the necessity of the employer, rather than out of
convenience. In Huckaby v. New York State Division
of Tax Appeals, the New York Court of Appeals applied this
test to a nonresident telecommuter and concluded that 100 percent
of his income was taxable by New York, despite the fact that 75
percent of that income was earned while working in Tennessee.
This Recent Development examines the myriad of benefits that
telecommuting offers both employers and employees and analyzes New
York’s current tax treatment of telecommuters. It then
discusses the consequences of the Huckaby decision and
concludes that the legislature needs to amend the current New York
Tax Law to combat the unfavorable tax treatment of telecommuters,
thereby encouraging rather than discouraging telecommuting to New
York.