Working from home has become a necessity during the Covid-19 pandemic. With many companies deemed “non-essential”, their employees have been working from home to comply with NY and other state orders.
Section 132.18 (a), income tax for non-New York residents, states: “However, any allowance claimed for days worked outside 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 his employer.”
Due to this unprecedented situation caused by the pandemic, employers who were required to withhold income tax on their out-of-state employees may be looking to alleviate this requirement. Courts have heard cases in years past where employers and employees attempted to justify excluding themselves from a NY tax liability, however, NY has a history of success in defending the position provided by this law.
With many services now being performed out-of-state by necessity, rather than for convenience, this presents a new angle for state income tax sourcing cases to be heard. Non-residents account for almost one-fifth of New York’s income tax revenue. Due to the high Covid-19 case count in New York, the state desperately needs the income raised through this tax revenue, now more than ever.
Fortunately for New York, neighboring states have not yet challenged the tax payments and are continuing business as usual. Although no challenges have been raised yet, this pandemic will likely prompt employers to reconsider how they do business with New York State.
If you have questions about how this will affect you, please contact our State and Local Tax (SALT) team today!