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New York Court Says Telecommuters Must Pay NY Tax
hal9000(jr) writes "The Boston Globe is running this
story on an out-of-state programmer working for a New York company who had to pay state taxes. '"New York has the right to tax 100% of a nonresident employee's income derived from New York sources," according to
the 4-3 decision by Court of Appeals. The court relied on a fairness rule called the "convenience of the employer" under law that says a worker's income is taxable if he chooses to live outside the state, as opposed to if he or
she was transferred there.' The dissenting opinion: 'Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is ... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."'"
I also think this is going to get appealed to the Federal courts. I live in Texas and work for a company that has an office here, but is headquartered in Massachussettes. I can't imagine paying MA income taxes, but it sounds like this court ruling says that I should (assuming the MA courts rule the same way).
And the men who hold high places must be the ones who start
To mold a new reality... closer to the heart
Typically you pay a portion of taxes for the time you spent in each state. If you spend 50% of your time in each of two states, they usually have you pay 50% of your taxes in each. But that's if you are PHYSICALLY there.
This sounds as if you could end up paying full income tax in the state your company is in, plus full taxes in your own state - because your local state will consider you a full-time resident (since you do live there full time).
Not only that, but . . . how is New York offering him any representation for the taxes he pays there? He isn't a resident. He doesn't use their services. He doesn't commute. He doesn't have anything to do with anything there - other than it is where his employer is based.
For that matter, shouldn't companies overseas who contract with American companies to provide, say - tech support - have to pay American federal income taxes? I don't see how that would be any different from this scenerio whatsoever...
I'd sure hate to be stuck paying 56% in state income taxes, before even coming to my federal and county income taxes!
As long as I am only taxed in one state. Last year I was taxed in 2 states because my residence was listed in one and I worked in the other. But now that I want to file a refund to get that money back in one or the other, neither will want to give me anything back.
My wife telecommutes from OH to CA. We lived in CO for half the year, and she pays state tax in all three. Yeah, her company isn't too happy about it either. States are like sharks these days with your paycheck...but that is for another topic!
I moved out there from the Bay area 10 years ago.
I was getting 150K yr, but found 68% of my income went to taxes!
The City tax was higher then my federal!
My take home after everything was $3500 a month. I couldn't make ends meet and all in all lost over $30K in the move there and move back + the operating at a loss the whole time I was there.
With this new tax rull people who commute from New Jersey would end up paying taxes to two states!
I am so glad to be in California...
I am always doing that which I can not do, in order that I may learn how to do it. - Pablo Picasso
I think the dissenting judge's opinion in the matter is interesting:
... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."
In a strong dissent, Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is
I live in California and just took a contract position with a company in New York. This ruling does not say anything about contractors vs. employees, but knowing New York's tax system, I would guess they want it to apply to me, too. I of course do not intend on paying NYS a single cent, since as far as I can tell they have no authority over me whatsoever, but IANAL.
Any tax lawyers care to comment on this?
One of the advantages of differing tax rates is I can use that as a basis for moving. This is one of the first arguments for libertarian's states should decide arguments.
That all those Chinese and Indian programmers that the jobs have been outsourced to will have to pay NY taxes on their Chinese/Indian pay?
Portland Oregon is a 1 million person metro area mostly in a state with no sales tax. About one quarter of the metro area is in Washington State with a 5% (I believe) sales tax and much lower state income tax.
Most people try to take advantage of this situation by residing in Washington and working in Washington State (if possible). Then they shop for durables in Oregon. Oregon's state income tax is quite high, much more so than WA. If you live in WA and work in OR, OR state makes you pay their income tax.
In a dual tax situation like this, the various governments watch everyone's financial situation closely to maximize their revenue. Everyone pays different amounts of tax. People who live in the no-sales-tax state are not required to pay sales tax on purchases of big-ticket items like cars that are bought in the sales tax state. One state has $15/yr car registration and the other has registration fees about ten times higher. There are also arrangements for college students not having to pay out-of-state tution to attend schools in the metro area that are technically out-of-state.
There aren't many metro areas that have state borders in the center of them. Kansas City, New York City, St. Louis, DC, Philly, Omaha, Cincinati. There are only two major metro areas with international borders cutting through them: El Paso and Detroit. Miami is one of the most important cities of Latin America even though it isn't actually in Latin America. It's a special case; everybody's neutral ground.
This tax situation is just going to get worse as the ultra-rich continue to pay a smaller percentage of their income to taxes through off-shore tax shelters and bribing state legislators to put specific loopholes for near individual situations into general laws. This is where someone introduces a law that no one would vote against (like making it illegal to expose your penis within 50 feet of an elementary school), and then puts a clause in the bill that would apply specifically to an individual large campaign contributor. The result of all this is that the tax burden gets shifted more each year from the rich to the middle-class.
The smarter elements of the middle class will use the internet to increasingly take advantage of offshore tax shelters on a much smaller scale. A company needs a network analyst. In the past they would hire someone to do this as an employee. In the future someone agrees to set up and maintain a network for $1500. The person sells an old Dell PC to the company for $1500. A bank in Luxembourg transfers $1500 to the network administrator's PayPal account. The network administrator uses her PayPal debit card to buy groceries and get cash-back after a day's work at the network site. The old Dell stays in the closet. No one pays tax.
This kind of thing is pretty transparent to a good government tax investigator. But when it becomes so common of a way of employment compensation that there are 100,000 cases a year for each government tax investigator, then there won't be much that the tax man can do to control it. There will always be some poor schmuck that gets slammed hard to set an example, just like the 12-year-old who gets slammed with a $150,000 fine for downloading a teen-idol pop song, but it will just be bad luck and its publicity will only increase the resolve of middle-class people to come up with new ways to not pay taxes.
Eventually all these huge budget-busting but mostly symbolic government projects like the Space Station, the BigDig, and Endless_Permanent_Middle-East_War will just be abandoned in mid-process due to lack of funds from decreasing tax revenues and the unwillingness of wealthy outsiders to lend money for some politician's wet-dream fantasy.