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 Ownership Society: How the Defined Contribution Paradigm Changed America which looks at how defined contributions (IRAs, 401(k) accounts, 529 programs, FSAs, HRAs, HSAs…) have transformed tax and social policy in fundamental ways. In the article below he questions why Derek Jeter’s New York tax settlement has not been made public.
Published reports indicate that Derek Jeter and the New York Department of Taxation and Finance have entered into a settlement concerning the Department’s claim that Mr. Jeter, domiciled in Florida, owed New York income taxes as a resident for the years 2001 through 2003. Neither Mr. Jeter’s lawyer nor the Department will disclose the terms of this settlement.
Derek Jeter is one of my favorite Yankees, not least because his name goes unmentioned in Senator Mitchell’s report about steroid abuse in Major League Baseball. I am accordingly pleased for him that his problems with the New York tax collector are behind him.
I am nevertheless troubled by the possibility that the Department may be implementing a double standard favoring this millionaire celebrity-athlete. The Department takes a persistently hard line toward nonresidents, like me, who are not celebrities. Most notably, New York, under its so-called “convenience of the employer” rule, routinely imposes its state income tax on nonresidents for days when such nonresidents work at their out-of-state homes. While we do not know the terms of Mr. Jeter’s settlement with the New York Department of Taxation and Finance, it seems possible, perhaps likely, that the final tax treatment he negotiated is more favorable than the treatment we less famous nonresidents routinely receive from the New York tax collector. The mere fact of this settlement suggests the possibility that Mr. Jeter received more reasonable treatment from New York’s tax commissioner than the harsh treatment the New York commissioner routinely dispenses to other nonresidents.
New York’s “convenience of the employer” rule has been widely condemned by legal commentators as unconstitutional. When I challenged this rule, New York’s highest court, the Court of Appeals, rejected my constitutional arguments. The court held unanimously that it violates neither the Commerce Clause nor the Due Process Clause for New York to tax me on the salary I earn on the days when I write and research for my New York employer – the Cardozo Law School – at my home in New Haven, Connecticut.
A little over a year later, the New York court confronted the constitutionality of the employer convenience rule a second time in the case of Thomas Huckaby. Mr. Huckaby is a computer programmer who worked the bulk of his days for his New York employer at Mr. Huckaby’s home in Nashville, Tennessee. This time, the court sustained by a 4-3 vote New York’s taxation of nonresidents on days they work at their out-of-state homes. Dissenting in Huckaby, Judge Robert S. Smith of the Court of Appeals condemned New York’s employer convenience doctrine as “unsupported by any precedent” and “a radical departure from long-accepted limits on the powers of states to tax nonresidents.”
Neither Mr. Huckaby nor I could get the U.S. Supreme Court to hear our respective cases.
New York’s tax department evidently views its victories in my case and in the Huckaby litigation as green lights to tax nonresidents throughout the nation. In the subsequent case of Manohar Kakar, for example, New York taxed Mr. Kakar on the days he worked for his New York employer at his home in Arizona. In another recently disclosed incident, New York deployed its employer convenience rule to tax a Mississippi resident on the days this resident worked at home in that state.
In short, the New York tax commissioner, emboldened by the support of a bare majority of his state’s highest court, apparently believes that his writ runs throughout the nation.
Against this background, the undisclosed settlement between Mr. Jeter and the New York tax commissioner is a legitimate matter of interest to the many nonresidents who are subject to New York’s constitutionally infirm tax policies but who, unlike Mr. Jeter, feel the full brunt of the commissioner’s desire to export New York’s tax burden to nonvoting nonresidents. Perhaps the disclosure of the settlement between Derek Jeter and the New York tax commissioner will allay any concerns about a possible double standard favoring a nonresident who is a celebrity-athlete. Or perhaps not. Either way, the terms of this settlement should be disclosed to the public.