ASK THE TAX PRO - NY NONRESIDENT TAX

I recently received a question about NY non-resident taxation via a comment to an older post.

“Hello,

I was wondering if I was to work from home 5 days a week for a company with a NYC address would I still be liable for NY taxes?

Thanks.”

As with any question involving taxes the answer is “it depends”.  It depends on the specific facts and circumstances of your situation.

You do not indicate whether or not you are an employee or the company with the NYC address or if you are an “independent contractor”.  I assume we are talking here about “telecommuting”. 

In May of 2006 the New York Department of Taxation and Finance addressed this issue for employees in TSB-M-06(5)I “New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others”.  If you are an employee I suggest you download and read in full this TSB Memo.

Nonresident employees of New York employers do not have to pay New York state income tax on days worked physically outside of New York State.  The allocation is made on Schedule A of Form IT-203-B (Allocation of Wage and Salary Income to New York State).  The instructions for this Schedule provide that (highlight is mine):

“Work days are days on which you were required to perform the usual duties of your job. Any allowance for days worked outside New York State must be based upon the performance of services which, because of necessity (not convenience) of the employer, obligate the employee to out-of-state duties in the service of his employer. Such duties are those which, by their very nature, cannot be performed at the employer’s place of business.

Applying the above principles to the allocation formula, normal work days spent at home are considered days worked in New York State.”

The TSB Memo notes (highlights are mine) -

“Under this rule, days worked at home are considered New York work days only if the employee’s assigned or primary work location is at an established office or other bona fide place of business of the employer (hereinafter, a bona fide employer office) in New York State.”

For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office.

A combination of several factors are taken into account to determine if a taxpayer’s home office is a “bona fide employer office”.  For example - 

·      If some of the core duties of employment are performed at the home office, then the home office will meet this factor. For example, the core duties of a stock broker include the purchase and sale of stock. Accordingly, if the stock broker executes stock purchases and sales from the home office, this would constitute performing some of the core duties at the home office. However, if the stock broker merely reads business publications on the weekend, this would not constitute performing any core duties at the home office.

·      If an important part of the employee’s duties include physically meeting with clients, patients or customers in the normal course of the employer’s trade or business, and those meetings are performed on a regular and continuous basis at the home office, then the home office will meet this factor.

·      If the employer requires the employee to work from his or her home office as a condition of employment, the home office will meet this factor. For example, if a written employment contract states the employee must work from home to perform specific duties for the employer, then the home office will meet this factor.

·      If the employer does not provide the employee with designated office space or other regular work accommodations at one of its regular places of business, then the home office will meet this factor.

If you are a “self-employed” independent contractor, and your main place of business is your home, which is not located in New York, and the NY-based company is one of your clients or customers, and you do the work for this client or customer exclusively at your home office I would say you do not have to pay NY state income tax on the fees paid by this company.

Does anyone disagree?

FYI - NJ residents who regularly work as an employee at an office in New York do not have to pay NY state income tax on regular working days when you attend a job-related conference, convention, seminar, or other training activity, or visit a client, in another state.  For example, you attend a training session in Connecticut, or spend two days at a client or customer’s office in New Jersey. 

By allocating your days outside of NY you will probably pay less net combined state income tax, because the tax rate is higher in NY than NJ on most levels.  You would allocate out these days on Schedule A of Form IT-203-B. 

TTFN