Can It Get Worse?
I’m certain that most of us were disappointed with the Appellate Department’s decision last week in Prof. Zelensky’s continuing dispute with New York over its application of the notorious “convenience of the employer” test;[i] disappointed, but not entirely surprised.[ii]
One can still hope that the Courts will one day become less deferential toward the tax folks in Albany.
That being said, about one week earlier, the Division of Tax Appeals issued its opinion in response to a former New York resident’s challenge to the state’s application of the test to that portion of her tax year following the termination of her status as a resident taxpayer.[iii]
Good Bye, New York?
Taxpayer timely filed a New York nonresident and part-year resident income tax return[iv] for tax year 2021(the “Return”) with the Division of Taxation (the “Division”). The return listed a Southampton, New York address.[v]
Taxpayer’s Return reported: New York State (“NYS”) adjusted gross income (federal amount) of $556,618.00 and New York adjusted gross income (New York amount) of $179,383.00; total NYS and New York City (“NYC”) tax withholdings of $49,161.00; and total NYS tax due of $12,035.00. Taxpayer claimed a refund of $37,126.00.
The Audit
The Division audited Taxpayer’s Return, and sent Taxpayer a request for information letter (“RFI”) regarding her (i) residency and (ii) the allocation of her income. This included nonresident audit (“NA”) questionnaire and an income allocation (“IA”) questionnaire.
Residency
The RFI explained that the Division had to first verify Taxpayer’s residency status with respect to NYS:
“We need to verify your residency status. If you either: (A) are domiciled in New York State; OR (B) maintained a permanent place of abode AND spent 184 days or more in New York State, you must file a resident tax return, Form IT-201, regardless of the location where you may have been working or telecommuting from during the year.”
Income Allocation
Assuming the Division determined that Taxpayer had successfully changed her status vis-à-vis NYS to that of a nonresident, the Division next had to verify the amount of income Taxpayer allocated to NYS – i.e., NYS-source income – as reported in the NYS amount column of her nonresident return.[vi]
“If you are a nonresident or part-year resident whose assigned primary work location is in New York State, days you worked at a location outside New York State may be considered New York State work days. In particular, days you telecommuted from a location outside New York State are considered New York State work days unless your employer has established a bona fide employer office at your telecommuting location.”[vii]
Docs Requested
The RFI requested that Taxpayer complete both the NA and IA questionnaires, and provide documentation in support of her responses, including: copies of new and ending lease agreements or home sale/purchase agreements; moving receipts or other documents supporting a move; a copy of federal form W-2, wage and tax statement, (W-2) for each employer; a complete description of wage income; and, if Taxpayer was claiming that she did not work in NYS during the tax year, a letter from her employer confirming her NYS work days during the tax year.
Taxpayer submitted the following documentation for the Division’s review:
- the completed NA and IA questionnaires;
- a settlement statement for the purchase of real property in Tampa, Florida, listing Taxpayer as the buyer and a March 2021 settlement date;
- a closing statement for real property in Southampton, New York, identifying Taxpayer as the seller and a June 2021 closing date;
- a loan payoff statement for the Southampton property;
- a June 2021 bargain and sale deed conveying Taxpayer’s interest in the Southampton property;
- a June 2021 NYS real estate transfer tax return,[viii] identifying Taxpayer as the grantor of the Southampton real property;
- Taxpayer’s federal form W-2 from Standard & Poor’s Financial Service (“Employer”) for tax year 2021; and
- a March 2021, employment verification letter.
Taxpayer’s responses on the NA questionnaire indicated that she was employed by Employer and listed a NYC address as her employer’s address.
Her responses also indicated that, during 2021, she physically spent 90 working days,[ix] and 50 nonworking days, in NYS; in May 2021 she “[m]oved to Tampa Florida, this is a permanent move”; and she maintained living quarters in Southampton for the period January 1, 2021 through May 12, 2021.
Taxpayer’s responses on the IA questionnaire indicated that she was employed by Employer and her federal form W-2 compensation for 2021 was approximately $570,000.
Counting Days
Taxpayer completed the day count table on the IA questionnaire as follows: total number of days in the 2021 employment period: 365; total number of non-working days: 141; total number of working days: 224; total number of days worked at home: 224.
Taxpayer completed the “location of working days” section of the questionnaire as follows: 134 days worked from home in Tampa, Florida, and 90 days worked from home in Southampton, New York.[x]
Taxpayer’s employment verification letter provided, in relevant part, as follows:
“Please accept this memo as confirmation of [Taxpayer’s] employment as a Full Time Employee (FTE) with [Employer] beginning [2018] to present day, completing 2.62 [y]ears of [s]ervice. [Taxpayer] is [a] ‘Managing Director, Regional Head of Market Outreach (Americas)’, and she is currently based out of our New York office, located at 55 Water Street.
“We are aware of [Taxpayer’s] plan to relocate to the state of Florida, for all or part of the year. [Taxpayer’s] relocation will not affect her ability to continue her current ‘Work From Home’ status in either New York or Florida, as an employee of [Employer]. As part of [Employer’s] ongoing response to the outbreak of COVID-19, our employees are required to Work-From-Home [sic] until further notice.”[xi]
Division’s Response
After reviewing Taxpayer’s submissions, the Division issued an account adjustment notice (the “Notice”). The Notice stated, in relevant part, as follows:
“We adjusted the amounts reported on your tax return. *** Your information does not establish your assigned primary work location outside of NY State or show you have met the factors to prove your employer had established a bona fide employer office at your telecommuting location. Therefore, you owe NY State income tax on income earned while telecommuting.”[xii]
The Notice indicated that the Division recomputed Taxpayer’s 2021 return by treating all of Taxpayer’s federal form W-2 wages as NYS-source earnings, which resulted in total NYS tax due of $37,340.00.
The Division credited Taxpayer’s NYS and NYC tax withholdings of $49,161.00, resulting in an adjusted refund amount of $11,873.28.
The DTA Hearing
Taxpayer timely filed a petition with the Division of Tax Appeals[xiii] protesting the Notice and asking for a redetermination of the reduced refund of personal income taxes for 2021.[xiv]
According to the audit file, which the Division submitted into the record in support of its position, “[Taxpayer] supported [a] move from NY to FL” – yippee – but “did not support [a] change in primary work location.”[xv]
Taxpayer’s Testimony
Taxpayer testified at the hearing before the ALJ that, in 2020, in response to COVID-19, Employer “mandated that we work remotely” and that all employees did so until 2022, when Employer did a “soft” reopening.
Taxpayer also testified that, after she moved to Florida in May 2021, Employer continued to withhold and pay New York taxes from her wages because of a “payroll error.”
She explained that when Employer “shut down our offices . . . they helped us set up a home office.” Specifically, employees took their computers from the office, and they were “given an allowance to buy cables, a secondary monitor, headphones, [and] an ergonomic chair.” According to Taxpayer, Employer provided its employees with a dedicated cell phone, to which her work phone was forwarded. Employer did not maintain separate telephone lines and listings for remote offices.
Taxpayer stated that “we can do work anywhere with our computer.” She testified that all business was done remotely, primarily by Zoom meetings and email, and that she was able to perform all her “core duties” remotely.
She further testified that prior to working remotely, she would meet with clients in the office, but she did not meet with clients in her home. She testified that her business card included her office number, her cell phone number, and the NYC business address.[xvi]
Taxpayer also stated that Employer did not reimburse expenses for her home office, such as real estate taxes, insurance or utilities, and did not provide a business insurance policy or a business insurance rider for her home office. Taxpayer explained that she maintained a designated office space in her home for conducting her Zoom calls and performing the research that was one of her core duties, though she did not claim a tax deduction for her home office expenses because the deduction would have been minimal.
Finally, Taxpayer testified that Employer did not pay fair rental value for the home office or provide her with supplies, nor did Employer store any inventory or records at her home office, or provide signage or engage in advertising for her home office.[xvii]
Based upon the foregoing, Taxpayer argued that the convenience of the employer test did not apply to her situation because she had no access to her NYS office and no choice but to work from her home in Florida.[xviii]
Thus, Taxpayer concluded, the days that she telecommuted from Florida were not NYS work days because her employer established a bona fide office at her telecommuting location.[xix]
In response to Taxpayer’s claims, the Division argued that, notwithstanding the “unprecedented effects” of the pandemic in 2021, the convenience of the employer test remained the same.
With that, the Division maintained that Taxpayer failed to establish that she worked from her home in Florida for the convenience of Employer.
ALJ’s Decision
The issue before the ALJ was whether Taxpayer established that the Division had improperly allocated all of her wages from Employer to NYS for tax year 2021 pursuant to the convenience of the employer test.[xx]
The ALJ explained that New York may tax a nonresident individual only on income which is derived from or connected with NYS sources.[xxi]
New York-source income, the ALJ continued, includes income that is attributable to a business, trade, profession or occupation carried on in the state.[xxii]
When a nonresident works partly in NYS and partly in another state, the Tax Law[xxiii] provides that the nonresident’s NYS-source income must be determined by apportionment and by allocation according to the state’s regulations, which provide as follows:
“The New York adjusted gross income of a nonresident individual rendering personal services as an employee includes the compensation for personal services entering into his [f]ederal adjusted gross income, but only if, and to the extent that, his services were rendered within New York State . . . 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.”[xxiv]
These regulations go on to explain:
“If a nonresident employee (including corporate officers . . .) performs services for his employer both within and without New York State, his income derived from New York State sources includes that proportion of his total compensation for services rendered as an employee which the total number of working days employed within New York State bears to the total number of working days employed both within and without New York State . . . However, any allowance claimed for days worked outside of New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of the employer.”[xxv]
This “convenience of the employer test,” the ALJ continued, would “more aptly be called the ‘necessity of the employer’ test.”[xxvi] This regulation, the ALJ stated, provides that any allowance claimed for days worked outside NYS must be based on the performance of services that necessarily obligate the employee to out-of-state duties in the service of his employer. “The necessity aspect is focused on whether the New York employer requires the employee to actually perform their services in a location other than New York because some unique aspect of the employment requires it.”
The ALJ pointed out that the Tax Appeals Tribunal had “rejected the taxpayer’s assertion that the complete shutdown of their New York employer’s premises due to the [pandemic] and an executive order of the governor of New York State necessitated working from home.”[xxvii]
Instead, the ALJ explained, the Tribunal held that an employer’s permitting its employees to work from home, “does not constitute a necessity to have those job functions performed in those places.”
Thus, the ALJ concluded, a nonresident who is employed in NYS, but who works out-of-state when not required to do so by their employer, must treat those days as if they had been present in NYS, thus resulting in New York-source income.[xxviii]
Taxpayer maintained that the convenience of the employer test did not apply because her NYS office was closed and she had to work from her home in Florida.
The ALJ disagreed, stating that “the convenience of the employer test does apply where, as here, a nonresident employee performs services for a New York employer both within and without New York.”[xxix] In such a case, the ALJ continued, any allowance claimed by Taxpayer for days worked outside NYS,
“must be based on services performed for the employer’s necessity – not [Taxpayer’s] necessity. Taxpayer was employed by a New York employer, assigned to a primary work location in New York and performed work for her employer in New York in 2021, until she relocated to Florida.”[xxx]
According to the ALJ, there was no evidence that Taxpayer was required by Employer to work from her home in Florida. To the contrary, the ALJ stated, it did not seem to matter to Taxpayer’s NYS employer where she was working during 2021.
Taxpayer was assigned to a primary work location in NYS and worked in NYS until she chose to move to Florida in May 2021. She could have worked in NYS or in Florida or both.
Accordingly, the ALJ determined that the convenience of the employer test applied.[xxxi]
What About the TSB-M?
The ALJ then considered Taxpayer’s alternative argument that she satisfied the test because she met the requisite number of factors set forth by the Division in the 2006 TSB-M to establish that her home office was a bona fide employer office.[xxxii]
The TSB-M provides guidance to nonresident and part-year resident employees who are assigned to a primary work location in NYS and who work within and without NYS. According to the TSB-M, normal work days – i.e., days spent performing the usual duties of the job – spent at a home office outside NYS will be treated as days worked outside NYS if the employee’s home office is a bona fide employer office based on the factors set forth in the TSB-M.
The ALJ agreed with the Division’s determination that Taxpayer failed to establish that her home office was a bona fide employer office.
According to the ALJ, Taxpayer’s testimony demonstrated that: she was temporarily without office space in NYS because her employer had temporarily closed its office in response to the pandemic; she performed most of her core duties at her home office; her duties did not include sales of Employer’s products; she allocated designated work space for her home office, but she did not take the home office deduction; and she was not an officer.
Notably, the ALJ added, Taxpayer did not assert that her home office was near specialized facilities or that Employer had some other bona fide business purpose to establish an office at Taxpayer’s home in Florida.[xxxiii]
Instead, Taxpayer could have worked anywhere with her computer, she did not establish that working from her home in Florida was a condition of her employment from her employer’s perspective, and she did not meet with clients at her home office.
What’s more, Employer did not reimburse the expenses for her home office, pay fair rental value for “its use” of the home office, provide supplies, maintain a separate telephone line and listing for the home office, list Taxpayer’s home office address on business cards, store inventory or records at her home office, provide signage or engage in advertising for her home office, or provide a business insurance policy or a business insurance rider for her home office.
Accordingly, Taxpayer did not establish that her home office in Florida was a bona fide employer office. Employer’s decision to temporarily close its NYS office due to the unprecedented circumstances created by the pandemic may have created a need for Taxpayer to work outside that office but it did not, itself, create in Employer a need for a bona fide employer office in Taxpayer’s home in Florida.
Thus, Taxpayer failed to meet her burden to prove that, in 2021, she worked from her home in Florida for the convenience of her employer.
Which Leaves Us Where?
The purpose of the convenience rule is to determine the number of days that a nonresident employee worked outside NYS. By its terms, and as interpreted by the Division, the rule should apply to the situation where (i) a nonresident employee’s assigned or primary work location for the tax year is in NYS, (ii) but such employee performs services for their employer both at that NYS location and at the employee’s home office outside of NYS.
Although still questionable, the application of the rule is more supportable in the case of a non-resident employee who is assigned to the employee’s NYS office, which is within “commuting distance” of the employee’s residence.
If the non-resident employee is truly a remote-working employee, who never visits the NYS office or otherwise performs services in the state, should it matter for purposes of applying the convenience rule that the employee, for some internal administrative reason, is “assigned” to the employer’s NYS office? Should this “form” determine the outcome of the employee’s status vis-à-vis NYS? Of course not.
Would the non-resident employee’s position be stronger if, as the ALJ discussed above, the NYS employer reimbursed the expenses for the employee’s home office, provided necessary supplies, maintained a separate telephone line and listing for the home office, or provided a business insurance policy or a business insurance rider for her home office?
Is Taxpayer’s case much different? She successfully abandoned NYS and established a new domicile in Florida.
“Unfortunately” for her, she continued to work for the same NYS-based employer, and she made the change mid-year, meaning she worked in NYS during the first part of the year, which brought her literally within the purview of the convenience rule; i.e., she performed services for her employer both within and without NYS during the tax year in question. Moreover, her employer also “assigned” her (nonsensically, if you ask me) to its NYS office after she moved to Florida, though it appears she did not provide any services in NYS following the move.
Would the result have been different if Taxpayer had switched to a different NYS-based employer, one for which she did not perform in-state services before her move to Florida? How does that make sense?
There is still a way to go before NYS comes to its senses. Stay tuned.
The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.
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[i] Zelinsky v. Tax’n & Fin. Comm’r , N.Y. App. Div., 3d Dep’t, No. CV-25-1156, 7/2/26.
[ii] Bloomberg reported that, during oral argument last month, the Court “indicated it was open to overturning the state’s strict tax rules for remote work performed during the pandemic, by questioning the state’s assertion that such telework arrangements were done out of convenience.” https://go.bloombergtax.com/product/tax/bloombergtaxnews/daily-tax-report-state/BNA%200000019e8477debfa7dec47736170001?bna_news_filter=daily-tax-report-state .
[iii] In the Matter of Snyder, Division of Tax Appeals DTA NO. 831118.
[iv] On form IT-203.
[v] What? After her change of domicile?
[vi] On Page 2 of the 2021 IT-203.
[vii] Emph. added.
[viii] Form TP-584, Combined Real Estate Transfer Tax Return, Credit Line Mortgage Certificate, and Certification of Exemption from the Payment of Estimated Personal Income Tax.
[ix] In Southampton, NY.
[x] She described the nature of her duties as “Zoom calls.” Clearly, she prepared this on her own.
[xi] Taxpayer testified that the employment verification letter was intended to assure her mortgage company that she would be able to relocate to and work from Florida, and that doing so “wouldn’t impact [her] ability to work.”
[xii] Yes, I’m emphasizing this too. Too much?
[xiii] https://www.dta.ny.gov/about/.
[xiv] You can’t make this up. Interestingly, Taxpayer identified her address on the petition as an apartment address in New York City. You can’t make this up.
[xv] Can you say Pyrrhic Victory? That may be too harsh an assessment. As a nonresident, she did escape the clutches of NYC; not bad. If she died, she wouldn’t be subject to NY estate tax; small comfort, that.
[xvi] Her “assigned” location.
[xvii] Taxpayer provided other documents in support of her position, particularly including: a December 9, 2020, email from “SPGlobalUpdates@spglobal.com” regarding “[e]nhancing the WFH experience for our people” indicating that in 2021 existing employees would receive a “WFH [s]etup [o]ne-time [p]ayment (for non-IT equipment such as a desk or chair)” in the amount of $250.00 ($500.00 for new hires); and a March 25, 2022, email from petitioner’s manager, Jonathan Manley, regarding “virtual office in Florida” confirming that he “was unaware that there was a requirement on the manager to amend the location records” when Taxpayer moved from New York to Florida.
[xviii] Sounds like the Professor.
[xix] Taxpayer claimed she satisfied the factors set forth by the Division in TSB-M-06(5)I, New York Tax Treatment of Nonresidents and Part-Year Residents, Application of the Convenience of the Employer Test to Telecommuters and Others, dated May 15, 2006 (the “TSB-M”).
[xx] The ALJ reminded us that a “presumption of correctness attaches to a notice of deficiency issued by the Division and the burden rests on the taxpayer to demonstrate by clear and convincing evidence that the Division’s determinations are erroneous.” Amen.
[xxi] NY Tax Law (the “Tax Law”) Sec. 601 [e] [1]; Sec. 631 [a] [1]; Matter of Zelinsky v Tax Appeals Trib., 1 NY3d 85, 89-90 [2003], cert denied 541 US 1009 [2004].
[xxii] NY Tax Law § 631 [b] [1] [B].
[xxiii] NY Tax Law § 631 [c].
[xxiv] 20 NYCRR 132.4 [b]).
[xxv] 20 NYCRR 132.18 [a].
[xxvi] Quoting Zelinsky v Tax Appeals Trib., 1 NY3d at 90. “The policy justification for the ‘convenience of the employer’ test lies in the fact that since a New York resident would not be entitled to special tax benefits for work done at home, neither should a nonresident who performs services or maintains an office in New York State.”
Seems like a specious argument to me. The nonresident doesn’t enjoy anything like the “benefits” that NYS bestows upon its residents.
[xxvii] Matter of Zelinsky, Tax Appeals Tribunal, May 15, 2025.
[xxviii] Zelinsky v Tax Appeals Trib., 1 NY3d at 92.
[xxix] Emph. added.
[xxx] Taxpayer did not argue or establish that Employer was under a legal mandate to close its NYS office during the pandemic. Taxpayer testified only generally that Employer mandated that all employees work remotely commencing in 2020 and continuing through 2021, culminating in a “soft reopening” in 2022. As such, while it may have been necessary for Taxpayer to temporarily make alternative working arrangements, the record was devoid of any evidence regarding Employer’s necessity to temporarily close its offices, let alone its necessity that Taxpayer work from her home in Florida for any part of 2021. In fact, the ALJ pointed out that Employer was likely not legally required to close its physical office during the pandemic because essential businesses, including services related to financial markets, were exempt from in-person restrictions.
[xxxi] Employer’s decision to temporarily close its NYS office during the pandemic did not satisfy the convenience of the employer test.
[xxxii] TSB-M-06(5)I. Technical memoranda are informational statements; they do not have legal force or effect and are not binding (see Tax Law 171 [subdivision first]; 20 NYCRR 2375.6).
[xxxiii] For example, where there was some unique aspect of Taxpayer’s employment that required her to work in Florida.