By Edward Zelinsky
The Multi-State Worker Act (the current version of the Telecommuter Tax Fairness Act) would, if enacted into law, prevent states from taxing non-resident telecommuters (like me) on the days they work at their out-of-state homes. Can someone who values the states and their autonomy (also like me) favor the Act?
The answer is “yes.” The Multi-State Worker Act would advance federalist concerns by protecting the states whose residents are currently subject to intrusive and unconstitutional taxation by New York under New York’s so-called “convenience of the employer” doctrine.
For over a decade, supporters of telecommuting have criticized New York’s convenience of the employer doctrine as unwise and unconstitutional. Under the banner of employer convenience, New York imposes income taxes on non-residents on the days they work at their homes outside the Empire State. In my case, New York imposes income taxes on me for the days when I write, grade, and research at my home in New Haven, Connecticut — even though, on these work-at-home days, I spend no time in New York and receive all of my public services on that day from the Nutmeg State and its municipalities.
New York’s taxation of work performed in other states was once dismissed as a rare and regional phenomenon, restricted to New York’s occasional income taxation of individuals on their days working at their homes in Connecticut and New Jersey. However, as cases like Mr. Huckaby’s and Mr. Kakar’s indicate, New York today routinely sends income tax bills to individuals who work at home throughout the nation. New York taxed Mr. Huckaby’s income on the days he worked in Tennessee and taxed Mr. Kakar’s income on the days he worked at home in Arizona. It is particularly ironic for New York to tax Mr. Huckaby’s income for a day worked at his Nashville home when the Tennessee legislature levies no personal income tax on that income earned in Tennessee.
Other states, seeing New York tax outside its borders with impunity, are starting to emulate the Empire State. Thus, Delaware taxed Dorothy Flynn’s income for the days she worked at her Pennsylvania home, even though Ms. Flynn did not set foot in Delaware on these work-at-home days.
Over the years, telecommuting has become more common and New York’s projection of its taxing authority throughout the nation has become more blatant and more troublesome. Within the Empire State, some recognize that the employer convenience doctrine is bad for New York, one more tax-related reason for employers and investors to avoid New York. To date, however, for New York’s policymakers, the temptation to tax nonvoting, non-residents on days they work at their out-of-state homes has proved politically attractive, despite the long-term damage such overreaching income taxation causes to New York’s economy. And, as Ms. Flynn’s case demonstrates, other states are likely to follow New York by taxing non-voting non-residents on the days they work at their out-of-state homes.
It has thus become clear that Congress, acting under the Commerce Clause of the US Constitution, must legislate to end New York’s taxation of telecommuters who work outside New York’s boundaries. Such legislation has in the past been introduced in Congress on a bi-partisan basis and is supported by a wide array of groups including the Small Business & Entrepreneurship Council, and Iraq and Afghanistan Veterans of America. Veterans groups are particularly sensitive to the benefits of telecommuting for veterans re-entering the workforce and the harm of New York’s tax policies on such telecommuting.
As national legislation has emerged as the right response to the problem of New York’s unconstitutional income taxation of non-resident telecommuters on the days such telecommuters work at their out-of-state homes, the question has increasingly been posed: How can such national legislation be reconciled with federalist concerns, that is, respect for the authority of the states?
This shift in the debate is encouraging. No one any longer doubts that New York brazenly sends income tax bills throughout the nation for work performed outside the boundaries of the Empire State. No one doubts the growing importance of telework performed at home or the unfair and inefficient burden New York imposes on such work. The danger that other states will emulate New York is, as Ms. Flynn can testify, now equally apparent.
The threat to federalist values stems, not from the Multi-State Worker Act, but from New York’s overreaching. Central to the federalist enterprise is the ability of each state to tax and govern within its own borders. National legislation outlawing New York’s (and other states’) taxation of out-of-state telecommuters would enhance federalist values by protecting the states in which non-resident telecommuters live and work. When New York sends a tax bill to me in Connecticut, to Mr. Huckaby in Tennessee, or Mr. Kakar in Arizona, New York illegitimately intrudes into the jurisdiction of those three states. Acting under the Commerce Clause, Congress has the authority to protect states and their citizens from New York’s unconstitutional and unfair intrusion of its taxing authority into those states.
The Act would thus protect the other states and their residents from New York’s intrusive taxation outside its borders. In federalist terms, the Multi-State Worker Act would protect the states into which New York (and other states) intrude under New York’s convenience of the employer doctrine. Passage of the Act is long overdue.
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. His monthly column appears on the OUPblog.
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