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.