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Swine Flu, Telecommuting and New York’s Extraterritorial Taxation of Nonresidents’ Incomes

By Edward Zelinsky

The swine flu is back. Gerald Ford was president the last time Americans confronted the swine flu. In response to the current emergence of this disease, public health authorities advise us to take precautions including the avoidance of crowds and of unnecessary travel. For many Americans, the most significant exposure to the danger of communicable disease occurs at the workplace.

While this workplace-based exposure cannot be eliminated, it can be minimized. To combat swine flu, we should encourage employees to telecommute from their homes rather than travel to their employers’ offices with their attendant danger of communicable disease.

Modern technologies – the internet, email, cell phones, electronic data bases – enable many employees to work from their homes for at least part of the week. Telecommuting extends job opportunities to individuals for whom traditional commuting is difficult, for example, the disabled, parents of small children, persons who live far from major employment centers. Telecommuting is also good for the environment, reducing the carbon footprints of employees who spend some of their work days at home and need not physically commute to work on those days.

Now, telecommuting can achieve yet another important benefit by reducing individuals’ potential exposure to swine flu on the days they work at home rather than travel to their employers’ offices.

A major impediment to telecommuting is New York State’s extraterritorial taxation of nonresidents’ incomes. When a nonresident works at home for a New York employer, New York imposes income tax on the telecommuting nonresident for this out-of-state day even though the nonresident never sets foot in New York on that day and even though New York provides no public services to the nonresident telecommuter on his day working at his out-of-state home. The result of New York’s extraterritorial taxation is typically double income taxation of the nonresident for telecommuting from outside the Empire State, a classic confirmation that no good deed goes unpunished.

I am something of a poster boy for the irrationality of New York’s extraterritorial taxation of nonresident telecommuters. I am a law professor in Manhattan at the Benjamin N. Cardozo School of Law of Yeshiva University. I live in New Haven, Connecticut. When New York sought to impose its income tax on me for the days I wrote and researched at home in Connecticut, I challenged this extraterritorial tax on constitutional grounds. Virtually all independent legal commentators concluded that this challenge should have prevailed since the Due Process and Commerce Clauses of the U.S. Constitution prevent the states from taxing activity which occurs outside their respective borders.

Nevertheless, despite these constitutional principles, New York’s courts held that New York can tax me (and other telecommuters) on days worked at home outside the Empire State. New York’s Court of Appeals, that state’s highest court, specifically approved New York’s tax-based discouragement of nonresidents’ telecommuting from their out-of-state homes.

Enter the swine flu.

For the duration of swine flu problem, New York should encourage telecommuting or at least not impede it. In particular, New York Governor David Paterson should announce that, to stimulate telecommuting to combat potential exposure to the new swine flu, New York will suspend its extraterritorial income taxation of nonresidents for all days such nonresidents work at their out-of-state homes.

In any event, Congress should pass the Telecommuter Tax Fairness Act which, if enacted into law, would prevent states from taxing telecommuting nonresidents on the days they work at their out-of-state homes.

And who knows? After the swine flu danger is over, Governor Paterson and New York’s other policymakers may discover the long-term benefits to New York of reforming permanently New York’s extraterritorial (and unconstitutional) taxation of telecommuters like me.


Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America.

Recent Comments

  1. Nicole

    When I first became aware of this issue, I wondered why it was only the state of New York that had this law and realized it was because of the fact that so many people are like you and work in the state and live in another. I certainly see it as an unjust and a violation of federal statutes and the Constitution and have yet to understand how the case you made failed. I would love to see some specifics regarding that decision.

    Okay, but I also cannot help engage in a slippery slope argument…

    I worry that without quick adoption of the Telecommuter Fairness Act (will that thing ever see any action?!) other small, nearby states will get the same idea since there is a fair amount of commuting between states that goes on. Furthermore, what if states begin to see this as a simple way to increase tax revenue, especially as the number of remote workers begins to rise (which it certainly will)…

    Perhaps my concerns are unfounded but I feel that this argument, no matter how slippery that slope it’s resting on is, is yet one more solid reason to promote the Fairness Act NOW.

    Great article and great insights, thank you.

  2. [...] across state borders, particularly in NYC’s tristate area.  But New York State’s onerous tax laws discourage this: [...]

  3. [...] home for a New York employer, New York imposes income tax on the telecommuting nonresident for this [...] Tree.com net income rises | CharlotteObserver.com LendingTree's parent company reported [...]

  4. Nicole Belson Goluboff

    Among the long-term benefits of abolishing the penalty on interstate telework is that doing so will strengthen New York’s – and the nation’s – preparedness for future outbreaks and other emergencies.

    The threat of double taxation is a powerful reason for workers to dismiss the idea of telecommuting. As a result, the penalty thwarts businesses and government agencies trying to plan for a crisis by growing a staff of seasoned teleworkers – employees fully trained and equipped to sustain operations from a distance when on-site work is unsafe. By impeding contingency planning, New York’s telework tax policy puts employers, as well as employees, at risk.

    In response to the swine flu outbreak, Washington has been encouraging both public and private sector employers to increase their reliance on telework specifically to assure business continuity. New York’s choice to punish telecommuters flies in the face of this federal effort.

    Because telework can help contain the H1N1 virus we currently face and help both employers and workers prepare for future threats, the penalty for telecommuting must be banned – now, and for good. The Telecommuter Tax Fairness Act is the right solution.

  5. Chuck Wilsker

    I appreciate everyone who recognizes that the situation in which New York State taxes interstate telecommuters is not in the greater good, and hope others will come to this realization sooner rather than later.
    Telecommuting and telework have been proven to have a positive effect on the economy, energy use, the environment, and are beneficial to both employers and employees in many ways.
    The current N1H1 flu outbreak is an example of how we all need to be prepared to work from home when similar situations occur, as well as other emergencies such as acts of terrorism, weather related problems, transit strikes, bridge collapses, etc.
    New York States greed is impeding the progress we all can make in enjoying the benefits of the virtual workforce.

  6. John

    And how about California? Cali will reach the tentacles of its taxing authority to property that has never been owned by a Californian, never would be given to a Californian, but maybe one person who is a Californian has a smidgen of administrative power over it (i.e. a trustee). Yikes. Perhaps this is the new golden age of long-arm taxation – Obama’s new international tax proposals are stretching that concept as well. Shucks.

  7. Concerned Citizen

    This posting conveniently omits the fact that Connecticut offers a generous tax credit for income taxes paid to other qualified jurisdictions, including New York. So, it is not the case that the taxes paid to New York are “double income taxation of the nonresident.”

    At the end of the day, New York’s economy is providing Prof. Zelinsky’s job (it’s certainly a lot easier for Cardozo to garner students in NYC than Connecticut), and it doesn’t seem unfair to me that New York taxes his income. Sure, it’d be nice if Mr. Zelinsky only had to pay Connecticut’s 5.0% rate on days where he works from home, especially now that New York’s top rate has increased to 8.97%. But for jobs that are clearly New York-based, it seems that this sort of arrangement could lead to shrewd gaming of the system, particularly by high-income “knowledge-based” workers with the ability to shift their income across state borders.

  8. American Overseas

    Professor,

    So what you are saying is that you have strong ties to two or more jurisdictions, and that one of these jurisdictions is overreaching in its attempts to tax your income, resulting in double taxation to you. Correct?

    I am glad you think this is an issue. I would agree. As a long-term American expat, I and 5 million others have had to pay taxes in the foreign country I resided in AND to the US, resulting in a double taxation that no amount of tax code tinkering can entirely eliminate.

    The next time Congress raises taxes on Americans overseas on the theory that they are getting some sort of “break”, perhaps we can call on you to explain the reality of tax overreach to them?

    Good luck, and thank you for giving me a new perspective on my issue.

  9. [...] May 8, 2009 Edward Zalinsky, a Tax professor at Cardozo Law School (Yeshiva University’s law school in New York City), wrote an interesting article at the Oxford University Press Blog. [...]

  10. [...] Swine Flu, Telecommuting and New York's Extraterritorial Taxation … [...]

  11. [...] :The Daily Star: Internet EditionFor the duration of swine flu problem, New York should encourage telecommuting or at least not impede it. In particular, New York Governor David Paterson should announce that, to stimulate telecommuting to combat potential exposure to … Read more [...]

  12. Jack Jones

    Concerned Citizen doesn’t have all of the facts and got it wrong on two points.

    First, there is no offsetting credit in CT for taxes levied by NY (unconsitutionally, as the Professor argues) for those days that a telecommuter who resides in CT and whose employer is located in NY works from home in CT. As a CT resident, days physically present in CT while earning income are taxable by CT, as would be the case in approximately 48 other states, except NY and one or two other states with a “unique” (and again, unconstitutional) perspective. So, on the days a CT resident works from his home in CT, CT imposes a 5% income tax and NY claims an 8.79% tax for a whopping 13.79%. Hence, the double taxation.

    Second, its specious to argue that CT’s tax rate, at 5%, is far less than NY’s at 8.79%. That’s like comparing apples to oranges. CT has virtually no deductions or credits and the 5% applies to almost all income, unlike NY’s political tax code which permits a myriad of deductions and credits, including substantial property tax decutions. The net effect is that income taxes in a great many cases are higher in CT than if that same income were earned in NY.

    Jack Jones

  13. [...] First Tweet May 4, 2009 oupblog Rebecca Highly Influential On Swine Flu, taxation and telecommuting: http://blog.oup.com/2009/05/swine-flu/ view retweet [...]

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