New Hampshire v. Massachusetts
In a June 28 order, the Supreme Court denied certiorari in New Hampshire v. Massachusetts, declining to determine whether Massachusetts’s regulation taxing the salaries of telecommuters who worked in Massachusetts prior to the COVID-19 pandemic violates federal commerce and due process clauses. For a more detailed discussion of the issues surrounding this case, please see our prior Alert dated January 15, 2021.
New York Desk Audit Initiative
In a somewhat related matter, New York State has recently initiated an aggressive desk-audit initiative against 2020 nonresident filers who claimed a total number of days worked out of state that is higher than reported in prior years. The issue here is New York’s application of the oddly-named “convenience of employer” rule for 2020.
The State had previously advised that:
“If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.
There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.”
Taxpayers who claimed days worked at home as days worked outside New York during the pandemic can expect detailed audit notices questioning their work location for all days worked outside New York. It appears that no allowance will be given for any days worked at home, even in instances where the employer’s New York office was closed, and therefore unavailable for the employee to work there.
It should also be noted that New York is auditing taxpayers who claimed a change of residence to another state in 2020 to determine whether the move was temporary in nature, thereby allowing the state to continue to fully tax these individuals.
The refusal of the Supreme Court to hear the New Hampshire v. Massachusetts case will leave unresolved for now the issue of whether states can impose taxes on salaried nonresidents that are performing services outside their borders. Perhaps New York’s pursuit of cases that apply the convenience of employer rules during the pandemic will trigger a fresh appeal of these rules that will bring some resolution to this issue of state taxation.
Please contact your Mazars professional for additional information.