Discussion:NC Resident earning income in NY

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Basic Tax Questions --> NC Resident earning income in NY


Discussion Forum Index --> Tax Questions --> NC Resident earning income in NY

TimCPA (talk|edits) said:

2 February 2011
My client currently resides here in North Carolina. She has been a legal resident of the State of NC since late 2009. She works from her home for a company in New York. She has received a W-2 with NY State and NYC tax withholding, however, she has not withheld any NC tax. I would like to ask for clarification on where her income would be taxable.....in NC or NY? Obviously, when I call NC and NY taxing agencies, they state that the income is taxable in their state. My understanding seems to be that she should withhold taxes here in NC (since this is her legal residence) and not in NY. Any advice is greatly appreciated. Thank you.

Fsteincpa (talk|edits) said:

2 February 2011
She'll be taxed in both states. As a NY non-resident and as a NC resident.

The tricky part in this one is that she is telecommuting. That's where the tricky part comes in. Is she really working in NY or not? If she is deemed to be working in NY, then you pay taxes here.

I had a similar question with a NY employee that moved to Colorado. I will locate that one and link it here, it had some good information that should help. I believe the result was that she will be taxed in NY, but NC will give a credit for these taxes.

Fsteincpa (talk|edits) said:

2 February 2011
Discussion:Multi-state_Payroll?_Or_Not?

Here's the link. Hope it helps.

TimCPA (talk|edits) said:

2 February 2011
Thanks Fstein!

Death&Taxes (talk|edits) said:

2 February 2011
Tim: be sure to read Katie's comment linked by the word Huckaby:

"Huckaby_ is based on a NY regulation (NYCRR 132.18) that has been on the books for many years and was first approved by the NY Court of Appeals (the high court in NY) in the mid-1970's. SCOTUS denied cert. then and denied it again in _Huckaby_ in 2005 or 06, I forget exactly. AFAIK New York is the only state that has this screwy rule. In general, a nonresident is taxable only on income from services actually performed in the state. In fact, income from personal services is generally considered to have its source in the state where the services are performed. The NY rule says that if a nonresident works for a NY employer and spends ANY time at the NY employer's office, ALL of his earnings are subject to NY tax unless the work outside the state is performed there out of necessity and not for the convenience of either the employee or the employer.

New York has eased up on this a tad, effective for years beginning in 2007. After 2006, if the employee's home office is a "bona fide office of the employer," any normal work day spent at the home office will be considered a day worked outside of New York. New York Technical Service Bureau Memorandum TSB-M-06(5)I, 05/11/2006."

No matter Huckaby, your client is certainly not liable for the NYC tax since she is a non-resident of NYC

Fsteincpa (talk|edits) said:

2 February 2011
But maybe, her telecommuting flows through NYC towers?

Death&Taxes (talk|edits) said:

2 February 2011
Won't matter Fred. Non-residents of NYC do not pay New York City tax, even New York State residents.

Fsteincpa (talk|edits) said:

2 February 2011
I was using patter.

Since NY likes to take the view that all should be taxed here, then I was insinuating that NYC might stretch the fact that her internet airwaves flowed over/thru their fine airspace.

Death&Taxes (talk|edits) said:

2 February 2011
They would try to say she was virtually living in the City!

KatieJ (talk|edits) said:

2 February 2011
Tim, New York State can't touch your client UNLESS she spent SOME time working for her employer in New York. If she never set foot in New York, she has NO NY source income. See 20 NYCRR Sec. 132.4(b):

"Compensation for personal services rendered by a nonresident individual wholly without New York State is not included in his New York adjusted gross income, regardless of the fact that payment may be made from a point within New York State or that the employer is a resident individual, partnership or corporation. Where the personal services are performed within and without New York State, the portion of the compensation attributable to the services performed within New York State must be determined in accordance with sections 132.16 through 132.18 of this Part."

That reference is to the "convenience of the employer" rule, but it does not come into play unless the nonresident performs some of his or her services in New York.

Dennis (talk|edits) said:

2 February 2011
I dunno, Katie. Company did issue a w-2. Is the NYC withholding enough evidence that they don't know what they are doing?

Death&Taxes (talk|edits) said:

2 February 2011
Katie: Could that time be in another year? I note she moved to NC in 2009, from ??????? If that state were NY and the job were the same, would it make a difference?

Fsteincpa (talk|edits) said:

2 February 2011
Katie,

Ok, I am now confused. I have some questions regarding the "convenience of the employer" rule and how it translated to my situation linked above.

If an employee never sets foot within NY to perform work within NY, then NY has no claim whatsoever from a taxation standpoint?

"convenience of the employer" rule only applies if some time is spent within NY?

Does telecommuting then change things, creating a de facto "time spent in NY' so to say?

KatieJ (talk|edits) said:

2 February 2011
The "convenience of the employer" rule does not come into play unless the employee spends some time performing services for the employer in New York, under the regulation quoted above. As far as I know this is on a year by year basis. In other words, the fact that the employee worked in New York in 2009, moved out of NY in 2009 and continued to work from home as a nonresident, would not bring the rule into play for 2010 as long as the employee did not work in NY at all in 2010.

The employer's withholding NY (and even NYC!) tax doesn't determine anything except that the employer (a) doesn't want to establish taxability in NC (although it clearly does have a physical presence there in the person of its employee) and (b) figures it has to withhold for NY because it isn't withholding for any other state. Doesn't make it right. Employers withhold for the wrong state all the time. The employee will, unfortunately, be required to file a NY (and NYC) return to get the withholding back.

The NYC individual income tax has not applied to a nonresident since the nonresident earnings tax was held unconstitutional in 1999. A nonresident sole proprietor, partner, LLC member, etc. with NY source income is subject to the NYC unincorporated business tax, but that tax does not apply to an employee.

KatieJ (talk|edits) said:

2 February 2011
P.S. If the employee did spend some time in New York, you should look at the TSB-M cited above to see if the employee's home office could qualify as a "bona fide office" of the employer.

TimCPA (talk|edits) said:

2 February 2011
Thank you everyone for your input! Having my question clarified by much more knowledgeable peers is very rewarding!

Fsteincpa (talk|edits) said:

2 February 2011
Thanks Katie.

In the Colorado issue from my post <linked above> the move to Colorado was purely for personal reasons. She just happens to be in a profession, and had an employer, that allows her to do the work from anywhere she chooses.

Now, looking at 2011, as long as she doesn't come to NY for "business" purposes, she does not pay NY taxes?

Ckenefick (talk|edits) said:

3 February 2011
The February, 2010 issue of the Tax Adviser has a great article on Telecommuting and goes into great deal on NY's (unconstitutional) Telecommuting laws.

KatieJ (talk|edits) said:

4 February 2011
I agree that the NY rule is unconstitutional (and so does Peter Faber!), but alas, the US Supreme Court has at least twice denied certiorari in cases challenging it (see Zelinsky, Huckaby, and I think Speno back in the 1970s).

Fred, as far as I know that's right. I don't see how New York could argue that the fact that the employee worked in NY in the past gave the state jurisdiction to tax him or her in a later year when there was no presence in the state. However, if she does spend some time in New York, it needs to be clearly documented that she did not perform any services for her employer while there. No work days.

Fsteincpa (talk|edits) said:

4 February 2011
I would imagine that NY would try arguing that ANY time spent there would give them jurisdiction.

Thanks again Katie.

KatieJ (talk|edits) said:

2 March 2011
An update: I just became aware of a fairly recent NY Administrative Law Judge decision holding that a New Jersey resident employee, working out of his NJ home, who spent no time in his employer's New York office had no NY source income arising from his employment. He had worked in the NY office "temporarily" before the year at issue, but spent no time there during that year. Petition of Manish Kumar, DTA NO. 822747, May 2010.

The fact that the Department proposed an assessment under the facts of this case certainly illustrates how aggressive they are on this issue.

Death&Taxes (talk|edits) said:

3 March 2011
Here is some decent reading on the reach of the Empire State

http://www.irsmedic.com/2011/02/11/new-yorks-non-resident-residency-tax/

http://www.hodgsonruss.com/Home/Practice_Areas/Alphabetical_Listing/State_Local_Tax/NoonansNotes/TheInsandOutsofNewYorkNonresidentAllocationIssues

To join in on this discussion, you must first log in.
Personal tools