In the Matter of Edward A. Zelinsky et al.,
Tax Appeals Tribunal of the State of New York et al.,
2003 NY Int. 138
The taxpayer, a professor at Cardozo School of Law in New York City, contends that New York State may not constitutionally tax the entirety of his income because he performed some of his work at his home in Connecticut. We disagree and uphold the challenged tax.
During the academic semesters in 1994 and 1995,
petitioner-taxpayer commuted to New York three days each work
week to teach his classes and meet with students. On the
On the 1994 and 1995 New York State nonresident income tax returns filed jointly by the taxpayer and his wife, he apportioned to New York the percentage of his total salary that reflected the number of days he commuted to the law school, allocating the remainder to Connecticut. The New York State Department of Taxation and Finance issued notices of deficiency for both years, maintaining that the entire law school salary was subject to taxation by New York. Applying the "convenience of the employer" test, the Department determined that the days that the taxpayer worked at his Connecticut residences should be counted as New York work days because he stayed at home for his own convenience and was not obligated by his employer to work outside New York. The portion of his salary that he allocated to the days he worked at home was also taxed by Connecticut, which did not provide a credit for the taxes assessed by New York.
Petitioner contested the deficiencies and also
sought a refund for taxes paid on salary earned during his
Although a state may tax all the income of its
residents, even income earned outside the taxing jurisdiction,
it may constitutionally tax nonresidents only on their income
derived from sources within the state ( see Shaffer v Carter,
252 US 37, 57 ). In New York, the income of
nonresidents is thus taxed by the State if it is "derived from
or connected with New York sources" ( see Tax Law §§ 601
[e]; 631 [a]).
New York source income includes income
attributable to a business, trade, profession or occupation
carried on in this State ( see Tax Law § 631 [b][B]). When
a nonresident works partly in New York and partly in another
The Commissioner's regulations generally provide that if a nonresident employee performs services for an employer both within and without New York State, the portion of his or her income derived from New York sources, and thus apportioned and allocated to New York, consists of the ratio of total days worked in New York to total days worked both in and out of the State ( see 20 NYCRR 132.18 [a]). Such apportionment and allocation, however, are limited by the convenience of the employer test, which states that "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" (20 NYCRR 132.18 [a]). Accordingly, nonresidents employed in New York who work at home when not required to do so by their employers must treat those days as if they had been present at their workstation in New York, resulting in New York source income. That is the proposition being tested by the present appeal.
Although the dormant Commerce Clause limits the power of states to erect barriers against interstate trade, a challenged tax will generally satisfy constitutional requirements if it "is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State" ( Complete Auto Tr., Inc. v Brady, 430 US 274, 279 ).
Here, the taxpayer challenges only the second prong of this four-part test -- that the tax be fairly apportioned --conceding that the remaining three criteria are met. The central purposes of the fair apportionment requirement are "to ensure that each State taxes only its fair share of an interstate transaction" ( Goldberg v Sweet, 488 US 252, 260-261 ) and to "minimize the likelihood that an interstate transaction will be improperly burdened by multiple taxation" ( Tennessee Gas Pipeline Co. v Urbach, , 96 NY2d 124, 133 ).
A tax is fairly apportioned if it is both internally
and externally consistent. To be internally consistent, the
tax must be structured so that if every state were to impose
an identical tax, no multiple taxation would result. Here,
the taxpayer concedes that if Connecticut were to adopt the
convenience of the employer test, he would not be subject to
External consistency looks "to the economic
justification for the State's claim upon the value taxed, to
discover whether a State's tax reaches beyond that portion of
value that is fairly attributable to economic activity within
the taxing State. * * * [T]he threat of real multiple
taxation * * * may indicate a State's impermissible
overreaching" ( Oklahoma Tax Commn. v Jefferson Lines, Inc.,
514 US 175, 185  [internal citations omitted]).
External consistency is "essentially a practical inquiry"
( Goldberg, 488 US at 264) for determining "whether the State
has taxed only that portion of the revenues from the
interstate activity which reasonably reflects the in-state
component of the activity being taxed" ( id. at 262). No
particular apportionment formula or method need be used to
satisfy constitutional requirements, "and when a State has
chosen one, an objecting taxpayer has the burden to
demonstrate 'by clear and cogent evidence' that 'the income
attributed to the State is in fact out of all appropriate
proportions to the business transacted * * * in that State, or
In applying these principles, we need decide only whether the convenience of the employer test is constitutional as applied to the facts of this case.
The convenience test was originally adopted to
prevent abuses arising from commuters who spent an hour
working at home every Saturday and Sunday and then claimed
that 2/7 of their work days were non-New York days and that
2/7 of their income was thus non-New York income, and either
free of tax (if the state of their residence had no income
tax) or subject to a lower rate than New York's.
present case, the taxpayer's efforts to reduce the amount of
tax owed to New York on his New York source income earned
during the work week raise similar concerns.
We note at the outset that many busy professionals, at the conclusion of a full day, routinely bring work home for the evenings or weekends. Even when undertaken by an out-of- state commuter such as petitioner, this work cannot transform employment that takes place wholly within New York into an interstate business activity subject to the Commerce Clause. Cardozo Law School provides educational services to its students in New York City, which is where the taxpayer performs the primary duties of his occupation -- teaching classes and meeting with students. The work he chooses to do at home is thus inextricably intertwined with the business of his New York law school, and cannot convert his employer's New York business into an interstate one when Cardozo did not employ him to carry out any of the school's business activities in Connecticut.
The taxpayer's reliance on City of New York v State
of New York (94 2 577 ) is therefore misplaced. In
that case, we rejected the claim that a tax on out-of-state
commuters did not implicate the Commerce Clause, explaining
that the commute of tens of thousands of out-of-state
residents "into New York City, on a daily basis, earning and
spending part of their income in New York City, while paying
Nor can petitioner's circumstances be likened to the
bus in Central Greyhound Lines, Inc. v Mealey (334 US 653
), where the Supreme Court struck down an unapportioned
gross receipts tax imposed on the sale of transportation
services between points within New York because the bus
"The dormant Commerce Clause protects markets and
participants in markets, not taxpayers as such" ( General
Motors Corp. v Tracy, 519 US 278, 300 ). The taxpayer's
crossing of state lines to do his work at home simply does not
impact upon any interstate market in which residents and
nonresidents compete so as to implicate the Commerce Clause.
On these facts, the convenience of the employer test neither
unfairly burdens interstate commerce nor discriminates against
the free flow of goods in the marketplace. Nor does it result
in differential treatment benefitting in-state interests at
the expense of out-of-state interests. Rather, the
convenience test serves merely to equalize tax obligations
among residents and nonresidents, preventing nonresidents from
manipulating their New York tax liability by choice of
auxiliary work location in a manner unavailable to similarly
situated New York resident employees. Since a New York
Allowing this taxpayer to allocate his income to Connecticut when he stays home to do his work in connection with his teaching activity would enable him to avoid paying taxes that his colleagues who do that work at home in New York _ or at the law school -- pay. The Constitution does not require that a nonresident who does not opt for the personal convenience of taking work home rather than traveling into work every day be taxed at a higher effective tax rate than one who does. The State need not subsidize such personal convenience, while at the same time discouraging commuting into New York City and facilitating erosion of the tax base.
Even presuming that petitioner's work at home
sufficiently impacts upon interstate business activity as to
implicate the Commerce Clause, because the entirety of the
taxpayer's salary is derived from New York sources, New York's
tax on his nonresident income is fairly apportioned. As a law
professor, the taxpayer is primarily engaged in the business
of teaching. It is for this that Cardozo hired him and for
this that he is paid. It is thus readily apparent that he is
not paid his salary in exchange for working five days per
week, or three, or seven. Nor is he paid an hourly or daily
wage. As long as his work is completed, he receives his full
The taxpayer is able to earn his salary -- all of
it -- because of the benefits he receives every day from
New York. He benefits directly from an employment opportunity
and an office here. He benefits from a salary on every day
that he works, which he is able to earn entirely within this
State if he so chooses. As the Appellate Division noted, even
his scholarly writings, drafted at home, attach prominence to
his position as a professor at Cardozo Law School. New York
thus provides a host of tangible and intangible protections,
benefits and values to the taxpayer and his employer,
including police, fire and emergency health services, and
public utilities. Petitioner's election to absent himself
from the locus of his New York employment does not diminish
what New York provides in order to enable him to earn that
income. New York may require contributions from him because
he thus "realiz[ed] current pecuniary benefits under the
Nevertheless, petitioner maintains that a constitutional violation is evident because his income has been taxed by two jurisdictions. But the mere potential for or actual existence of double taxation does not automatically transgress the Commerce Clause if, as here, the challenged tax is in fact fairly apportioned. For as the Tax Appeals Tribunal recognized, it was his own choice to allocate his income that created the threat of double taxation, not the convenience rule.
In Tamagni, we upheld the application of New York's
resident income tax to statutory residents of this State who,
as domiciliaries of New Jersey, were subject to resident
income tax in New Jersey on certain income also taxed by
New York. Since each tax was permissibly imposed under a
different theory -- New York validly taxed its statutory
residents and New Jersey validly taxed its domiciliaries --
the New York tax did not violate the Commerce Clause, even
though its effect was double taxation. Similarly, in the
instant case, New York has validly taxed the income of a
nonresident derived from New York sources, while Connecticut
Since the New York tax is fairly apportioned, the resultant double taxation does not serve to invalidate the tax. For while a state may indeed constitutionally tax the worldwide income of its residents, it will typically provide a credit for income tax paid to another state -- as New York does. Here, it is Connecticut's refusal to provide a credit to its resident for all of the nonresident income tax that the taxpayer paid to New York that has created the threat of double taxation. It is not, however, the "purpose of the Commerce Clause to protect state residents from their own state taxes" ( Goldberg, 488 US at 266).
Since the New York tax imposed did not "reach
beyond that portion of value * * * fairly attributable to
economic activity within the taxing State" ( Jefferson Lines,
514 US at 185), the taxpayer has failed to demonstrate by
The Due Process Clause places two restrictions on a state's power to tax income generated by interstate activities. First, it "requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax" ( Quill Corp. v North Dakota, 504 US 298, 306  [citation omitted]). Second, the "income attributed to the State for tax purposes must be rationally related to values connected with the taxing State" ( Moorman, 437 US at 273 [citation omitted]). A state, therefore, may not tax value earned outside its borders ( see e.g. Allied-Signal, Inc. v Director, Div. of Taxation, 504 US 768, 777 ). Rather, the tax imposed must "bear fiscal relation" to "opportunities which [the state] * * * has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society. * * * The simple but controlling question is whether the state has given anything for which it can ask return" ( Wisconsin v J.C. Penney Co., 311 US 435, 444 ).
Here, petitioner -- both because of his physical
presence in New York and because he has "purposefully
Accordingly, the judgment of the Appellate Division should be affirmed, with costs.
; see also Labor Law § 511). Here, by contrast, the Commerce Clause requires that the tax be fairly apportioned among the various states from which one's income is derived.
1 Because of the joint return, she too is named as a petitioner in this proceeding, but her income is not relevant to this appeal.
3 The "convenience of the employer" would therefore more aptly be called the "necessity of the employer" test.
4 Of course, in the absence of the convenience test, opportunities for fraud are great and administrative difficulties in verifying whether an employee has actually performed a full day's work while at home are readily apparent.
5 We reject his claim that the convenience test no longer has any justifiable basis because Connecticut has since 1991 imposed an income tax. Insofar as the test "serves to protect the integrity of the apportionment scheme by including income as taxable" when the income results from services derived from New York sources but performed out-of-state "to effect a subterfuge" ( Matter of Colleary v Tully, 69 AD2d 922, 923 [3d Dept 1979]), the same incentive for tax avoidance exists when, as here, a neighboring state imposes tax at a lower rate than New York as when the state imposes no income tax at all.
7 Connecticut may and does tax petitioner's income because he is its resident, not because two out of five of his work days were allegedly sourced in Connecticut.