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By Edward Zelinsky

Telecommuting benefits employers, employees, and society at large. Telecommuting expands work opportunities for the disabled, for those who live far from major metropolitan areas, and for the parents of young children who value the ability to work at home. Telecommuting also removes cars from our crowded highways and enables employers to hire from a wider and more diverse pool of potential employees.

It is thus anomalous that New York State’s personal income tax discourages interstate telecommuting by taxing the compensation non-resident telecommuters earn on the days such telecommuters work at their out-of-state homes. Under the misleading label “convenience of the employer,” New York subjects telecommuters to double income taxation by their state of residence as well as by New York – even though New York provides non-resident telecommuters with no public services on the days such interstate telecommuters work at their out-of-state homes outside of New York’s borders.

Some of New York’s elected officials profess interest in making New York tax policy more rational and family-friendly. These officials, however, have shown no willingness to repeal the “convenience of the employer” rule to stop New York’s double state income taxation. Taxing non-resident, non-voters for public services they do not use is just too politically tempting for Albany to resist.

Fortunately, federal officials have begun to recognize the unfairness and irrationality of the double state income taxation inflicted on non-residents by New York’s “convenience of the employer” rule. Most recently, US Representative Jim Himes, joined by his House colleagues Elizabeth Esty and Rosa DeLauro, introduced H.R. 4085, The Multi-State Worker Tax Fairness Act of 2014.

Representative Himes, and his colleagues, are to be commended for introducing this much needed legislation. If enacted into law, H.R. 4085 would make the tax system safe for interstate telecommuting.

In previous incarnations, legislation along these lines was denominated as The Telecommuter Tax Fairness Act. The legislation’s goal remains the same. For Congress, using its authority under the commerce clause of the US Constitution, to forbid New York and other states from double taxing no-nresidents’ incomes on the days such non-residents work at their out-of-state homes.

Consider in this context the spate of service stoppages experienced by MetroNorth railroad commuters this winter. During these stoppages, public officials quite sensibly urged MetroNorth commuters to work from home rather than clog the already crowded highways to reach Manhattan. However, no public official spoke candidly about the tax penalty such commuters triggered by working at their Connecticut homes.

New York’s double taxation of non-resident telecommuters is not limited to those who live and work at home in the northeast. Under the banner of employer convenience, New York projects its taxing authority throughout the nation. In widely reported cases, New York imposed its personal income tax on Thomas L. Huckaby for days he worked at his home in Tennessee, on Manohar Kakar for days he worked at his home in Arizona, and on R. Michael Holt for days he worked at his home in Florida.

Nor is the threat of double taxation limited to New York’s personal income taxes imposed on non-resident telecommuters. Fortunately, many states recognize that double taxing non-resident telecommuters is ultimately self-destructive, driving telecommuters and the firms which employ them to states with more welcoming tax policies. However, other states emulate the Empire State’s tax hostility to interstate telecommuting. For example, Delaware taxed Dorothy A. 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.

The unfairness and inefficiency of the double state income taxation of interstate telecommuters has led a broad national coalition to favor federal legislation like H.R. 4085. Among those supporting such legislation are the American Legion, the Christopher and Dana Reeve Foundation, the National Taxpayers Union, The Small Business & Entrepreneurship Council, the Association for Commuter Transportation, The Military Spouse JD Network, and the Telework Coalition.

Representative Himes, along with Representatives Esty and DeLauro, are to be commended for introducing H.R. 4085. If enacted into law, this much needed legislation would make the tax system safe for interstate telecommuting by forbidding double state income taxation of non-resident telecommuters.

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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Image credit: Metro-North EMD FL9 leaving Stamford, CT. Public domain via Wikimedia Commons.

The post Make the tax system safe for interstate telecommuting: pass H.R. 4085 appeared first on OUPblog.

        

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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.