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1 Chris Atkins, Telecommuter Tax Fairness Act of 2005: Restoring Balance to State Taxation of Telecommuters 1 (2006)

handle is hein.taxfoundation/ffehxz0001 and id is 1 raw text is: FOUNDATION January 26, 2006 Telecommuter Tax Fairness Act of 2005: Restoring Balance to State Taxation of Telecommuters by Chris Atkins I. Introduction In 1994, Thomas Huckaby began telecommuting to his office in New York City from his home in Tennessee. Though he would make trips to his employer's office in New York, the vast majority of his work time was spent in Tennessee. Thus, when he filed nonresident tax returns in New York for tax years 1994 and 1995, he apportioned 25 percent of his income to New York. When his return was audited, New York tax officials claimed that he had to apportion 100 percent of his income to New York, based on their convenience of the employer rule on telecommuting.2 The New York Court of Appeals (the highest court in New York) eventually upheld the state's determination, and the U.S. Supreme Court declined to hear the case. Mr. Huckaby's dilemma is another example of the friction between the 21 st century economy and state tax systems which are largely based on a 20th century economy.3 While there are legitimate reasons for anti-abuse rules in the case of telecommuting, New York's rule violates many tenets of sound tax policy, including the principle that taxes should be levied in exchange for services received from the government, and will lead to widespread double taxation of telecommuters. The Telecommuter Tax Fairness Act of 2005, a bill originally introduced by Senators Dodd (D-CT) and Lieberman (D-CT) in the Senate (S. 1097) and Representative Christopher Shays (R-CT) in the House (H.R. 2558), seeks to restore the correct balance to state taxation of telecommuters. II. New York's Convenience of Employer Rule New York law allows taxpayers to apportion their income between New York and other states if they perform services in other states.4 To secure such treatment, however, New York requires that services performed outside the state be done out of necessity as opposed to convenience.5 Thus, since telecommuters usually work out of their homes for convenience, New York consistently requires telecommuters located in other states (like Mr. Huckaby) to pay tax on 100 percent of their income in New York.6

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