Supreme Court Declines to Hear Challenge to New York ‘Convenience’ Test

by Karen Setze

State Tax Notes, Nov. 7, 2005, p. 502.

The U.S. Supreme Court declined on October 31 to hear the case of a Tennessee resident who had challenged the constitutionality of New York’s “convenience of the employer” test under which it taxed income he earned as a telecommuting employee of a New York entity.

Date: Nov. 1, 2005

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The U.S. Supreme Court declined on October 31 to hear the case of a Tennessee resident who had challenged the constitutionality of New York’s taxation of income earned as a telecommuting employee of a New York entity.

The Court denied a petition of certiorari in the case of Matter of Thomas J. Huckaby v. New York Division of Tax Appeals et al., and let stand the March 29 decision of the New York Court of Appeals. That 4-3 ruling upheld the state’s “convenience of the employer” test under which New York taxed 100 percent of Huckaby’s salary from an in-state employer, even though he spent only 25 percent of his working days in New York.

The New York court’s majority opinion acknowledged that as upheld, the convenience of the employer rule might discourage telecommuting: “We do not view it as our role, however, to upset the Legislature’s and the commissioner’s considered judgments so long as the convenience test has been constitutionally applied in this case.” (For the New York opinion in of Matter of Thomas J. Huckaby v. Division of Tax Appeals et al., No. 8 (Mar. 29, 2005), see Doc 2005-6487 [PDF] or 2005 STT 62-21 Database ‘State Tax Today’, View ‘(Number’.)

“Of course we’re disappointed,” but not surprised, said Huckaby’s attorney, Peter Faber of McDermott Will & Emery LLP, New York. The Supreme Court “takes very few state tax cases.”

The issue is not dead, Faber said. “Telecommuters have lost the battle, but not the war.” He noted that U.S. Sen. Christopher J. Dodd, D-Conn., and U.S. Rep. Christopher Shays, R-Conn., introduced legislation to prohibit states from taxing nonresident telecommuters on income earned while not physically present in the state.

Dodd and Shays originally introduced the Telecommuter Tax Fairness Act in September 2004. The measure was reintroduced in 2005 as S. 1097 and H.R. 2588.

The Supreme Court’s decision not to hear Huckaby’s appeal may ultimately increase interest in the Dodd-Shays bill, Faber said.

Chuck Wilsker, spokesman for the Telework Coalition, a Washington-based telecommuting advocacy group that is actively supporting the Dodd-Shays bill, said the Court’s denial of certiorari, while “disappointing,” was not surprising. In a similar case the Court declined to hear in 2004 (Zelinsky v. Tax Appeals Tribunal of New York), the justices “said they felt [the issue] should be handled by legislation,” Wilsker said.

Notwithstanding such actions, Wilsker said the Supreme Court’s decision in Huckaby ultimately “is going to cause [the Telecommuter Tax Fairness Act] to be pushed forward.”

Nicole Goluboff, a lawyer specializing in the legal implications of telecommuting and a member of the Telework Coalition’s advisory board, said the Court’s decision has implicitly given New York authority to apply its convenience rule very aggressively.

“New York has shown it is willing to go halfway across the country to find a telecommuter to tax,” Goluboff said.

At a time when the federal government is asking residents to conserve fuel, and has mandated that telecommuting options be made available to federal employees, Goluboff said, New York’s “aggressive” enforcement of its convenience rules creates a disincentive for telecommuting. Federal legislation is needed to stop New York’s efforts “to interfere with peoples’ ability to work across state lines,” she added.

Other than saying that the state was “pleased to see that cert was denied,” New York Solicitor General Caitlin Halligan declined further comment on the case. “We do our talking in court,” she said.