Court rules telecommuter must pay taxes

[SunDevil]

http://www.boston.com/news/nation/ar...ust_pay_taxes/

Court rules telecommuter must pay taxes

By Michael Gormley, Associated Press Writer | March 29, 2005

ALBANY, N.Y. --A telecommuter who lives out of state while working by computer for a New York employer must pay New York tax on his full income, the state's highest court ruled Tuesday in a case that could have wide implications in the growing practice.

The Court of Appeals said that computer programmer Thomas Huckaby who lives in Nashville, Tenn., owed New York income tax for his full salary, not just the time he spent working at his employer's New York offices.

Huckaby paid tax on about 25 percent of his income over two years for the time he spent working in New York state. But the court upheld a state tax department ruling that all his income should be taxed. That amounts to $4,387 plus interest. However, the ruling could lead to much greater income for the state as it is applied to the growing field of telecommuting.

The U.S. Census Bureau's latest statistics show that nearly 4.2 million people worked at home in 2000, up from 3.4 million in 1990. The bureau also reported that the International Telework Association and Council found that 8.8 million people telecommuted daily in 2003, and 12.4 million in 2004 -- a nearly 200 percent increase over the 2000 Census figure.

"The way the work force is evolving and that companies are evolving, you are going to see more people working for companies from different states even across the country," said Bob Smith of the International Telework Association and Council based in Silver Spring, Md.

Smith said the issue of which state gets their income tax is a growing debate.

"It can be a damper on telework," said Smith. "What's important in our country overall is to make sure laws keep up with technology developments and the needs of both the employee and the employer, because there are benefits for both."

In February, President Bush proposed several new tax changes, including one to encourage telecommuting.

"New York provides the job, New York provides the professional opportunity, and New York should be able to tax that income, even if the employee for his own convenience was working outside of New York state," said Marc Violette, spokesman for state Assistant Solicitor General Julie Mereson, who won the case.

The issue split the court, and the majority acknowledged the decision could discourage telecommuting.

"New York has the right to tax 100 percent 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.

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 ... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."

"To say a person's taxability depends on where his employer is wrong," said Huckaby's attorney, Peter Faber of New York City. "I think this is an issue of national significance."

[ISiddiqui]

The fact that the guy lives in Tennessee, probably to avoid paying any state income tax while making good cash from a NY company, makes me have no symphathy for him, but I'm not sure on my position on the ruling. I can see the majority's reasoning and I can see the other side's reasoning.

[Fritz]

so what about folks like sports figures that have to pay income tax on the state they earn the income in when on the road, like Cali?

[KWhit]

As a software consultant I have had to file multiple state returns per year, based upon where my project was. The worst year I had to file in 5 states.

[QuikSand]

This may well encourage a long list of absurd sheltering mechanisms -- this guy will, in no time, become a private contractor, or else he will suddenly be working for some subsidiary company that is coincidentally located in no-income-tax Tennessee.

I think the logic of this runs dry in pretty short order.

[ISiddiqui]

Originally Posted by Fritz

so what about folks like sports figures that have to pay income tax on the state they earn the income in when on the road, like Cali?

They only get paid from a company HQed in one state. They don't get a check from the California team, after all.

[Tekneek]

One more reason to not live in the state of New York. I fear a government that is this hungry for cash.

[CraigSca]

So....I live in Delaware but mostly telecommute to a Massachusetts company. Does that mean I owe Massachusetts taxes? Does that mean I get double-taxed?

[QuikSand]

Originally Posted by CraigSca

Does that mean I get double-taxed?

Probably not, even if MA got you like NY is trying to.

Most states have reciprocal agreements to offset one another's state income taxes. So, in all likelihood, if you pay $2,000 in state taxes to MA, you are empowered to claim that as a credit to offset $2,000 of taxes you would have owed in DE.

It's a specific function of your state and its laws, but these reciprocal agreements are very common. In most cases, they manage to avoid double state taxation.

[Fritz]

Originally Posted by ISiddiqui

They only get paid from a company HQed in one state. They don't get a check from the California team, after all.

Not sure how to read your reply.


From

http://www.taxfoundation.org/jocktax.html

July 9, 2004

"Jock Taxes" Continue Spreading to Non-Jock Professions


A new report from the Tax Foundation finds more and more state governments are using controversial “jock taxes” to extend state income taxes to residents of other states. So-called “jock taxes” require traveling professional athletes and other team employees to pay income taxes in every state where games are played.

“The jock tax began with California trying to get revenge on Michael Jordan and the Chicago Bulls for beating the Lakers in 1991,” said David Hoffman, adjunct scholar with the Tax Foundation and co-author of the new report. “Illinois fought back with a retaliatory tax the next year. Since then, many other states have joined in.”

Today, of the 24 states with pro teams, 20 have enacted jock taxes, as have a half dozen cities.

The report shows that states are expanding the jock tax concept to include other types of nonresident income from non-sports-related professions. For example, New Jersey has begun taxing visiting attorneys, and Cincinnati has levied a tax on touring skateboarders. Several jurisdictions have begun taxing traveling entertainers.

“First, it was just Michael Jordan and the Chicago Bulls, then all professional athletes, and now trainers, scouts, lawyers, and even amateur skateboarders are being taxed when they leave their home state,” said Hoffman.

The report is released to coincide with Major League Baseball’s All-Star Game in Houston, Texas. Texas is one of the few states with a professional sports team that does not have a jock tax, as it has no income tax. This increases the tax bite for Texas players, since they pay sales and use taxes at home as well as other states' income taxes on the road, with no offsetting deduction.

The study gives three major reasons the jock tax is ill-conceived:

• The tax is poorly targeted. Advertised as one that hits only ultra-rich athletes, the jock tax has quickly spread to many people with moderate incomes, such as trainers and scouts, and to other professions.

• The tax is arbitrary. Professionals in other occupations with comparable incomes over their working lives, such as doctors and corporate executives, are not penalized by a “doc tax” or “exec tax,” though that is changing. New Jersey has recently started taxing visiting lawyers.

• The tax imposes an unrealistic administrative burden on people who have to file more than a dozen state income tax returns.

View FULL REPORT in PDF
http://www.taxfoundation.org/sr130.pdf

[Tekneek]

The slippery slope of taxation...

These sorts of things are the REAL reason that income tax won't be abolished. All these governments will go broke if they can't keep dipping their hands into more and more pockets.