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Zelinsky v. Tax Appeals Tribunal of New York, 2003 N.Y. Int. 0138 (Nov. 24, 2003).




Whether taxpayers who are employed in the state of New York but perform part of their work in another state may constitutionally be taxed by New York on the portion of their income apportioned to those days on which they worked outside of New York.


Yes. The taxpayer's choice to work outside of New York on some days does not impact interstate markets so as to implicate the Commerce Clause, and so long as the taxpayer has a minimum connection with New York and has availed himself of the benefits of New York, the Due Process Clause is likewise not violated.


Petitioner taxpayer was a professor at Cardozo Law School in New York City who taught in New York for three days per week and spent the other two days of the work week performing duties related to his work at his Connecticut home. On his 1994 and 1995 tax returns, Petitioner apportioned to New York the percentage of his total salary reflecting the number of days he commuted to the law school and allocated the remainder to Connecticut. The New York State Department of Taxation and Finance maintained that Petitioner's entire salary was subject to New York tax because he chose to work at home for his own convenience, not his employer's, and thus the "convenience of the employer test was not applicable to him. Petitioner contested the deficiencies based on constitutional grounds. An Administrative Law Judge rejected his challenge, as did the Tax Appeals Tribunal and the Appellate Division. On appeal to the Court of Appeals, the tax was once again upheld.

The Court first reviewed the circumstances under which New York may impose an income tax on nonresidents. The Court noted that the income of nonresidents may be taxed if it is "derived from or connected with New York sources." See Tax Law §§ 601(e)(1); 631(a)(1). The Court next reviewed the four constitutional requirements for a tax: the tax must be fairly apportioned, nondiscriminatory against interstate commerce, fairly related to services the state provides, and applied to an activity with a substantial nexus to the taxing state. Here, Petitioner challenged New York's taxation of all of his income as a violation of the Commerce Clause requirement that the tax be fairly apportioned. The Court stated that a tax is fairly apportioned when it is both internally and externally consistent. Petitioner claimed that the tax is not externally consistent because the economic activity at issue is not fairly attributable to New York and his income on the days he worked in Connecticut may be taxed by both New York and Connecticut. See Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175, 185 (1995). The Court noted that determining external consistency is a practical inquiry with no set apportionment formula.

The Court focused its inquiry on the constitutionality of the convenience test, which allows an employee working out-of-state to apportion a part of his income to that other state only if he works there for the convenience of his employer. See N.Y. Comp. Codes R. & Regs. tit. 20, § 132.18(a). The Court held that Petitioner's voluntary choice to do his work at home did not impact upon any interstate markets so as to implicate the Commerce Clause. See General Motors Corp. v. Tracy, 519 U.S. 278, 300 (1997). Thus, in this case, the convenience test did not unfairly burden commerce or discriminate against the free flow of goods or out-of-state interests. Rather, the Court held that it serves to prevent nonresidents from manipulating their New York tax liability in a way that residents could not. See Matter of Speno v. Gallman, 35 N.Y.2d 256, 259 (1974).

The Court further found that even if Petitioner's work at home did implicate the Commerce Clause, the entirety of his salary is derived from New York sources and, thus, New York's tax on his nonresident income is fairly apportioned. New York may require contributions from him because he earns his entire salary partly due to the tangible and intangible benefits he receives everyday from New York. See Shaffer v. Carter, 252 U.S. 37, 51 (1920). The Court noted that the tax imposed does not need to correspond exactly to the services actually provided to a taxpayer. Matter of Tamagni v. Tax Appeals Tribunal, 91 N.Y.2d 530, 544 (1998). Petitioner argued that he was entitled to allocate part of his income to Connecticut because of Connecticut's refusal to provide a credit to Petitioner for nonresident income tax paid to New York. However, the Court responded that even if double taxation does result, this does not serve to invalidate the tax because the New York tax is fairly apportioned and the Commerce Clause need not protect residents from their own state taxes. Goldberg v. Sweet, 488 U.S. 252, 266 (1989).

The Court further held that the tax does not violate the Due Process Clause. Petitioner had a minimum connection with New York through his physical presence in teaching there and because he had availed himself of the benefits of New York. He also received both tangible and intangible benefits from New York because his employer is located there. Therefore, the Court affirmed the order of the Appellate Division.

Prepared by the liibulletin-ny editorial board.