UNITED STATES

Global Employer Services News August 2021

New York crackdown on refund claims

New York state tax officials have been taking a closer look at refund claims filed in respect of the 2020 tax year for out-of-state filers, with particular reference to those that have claimed refunds on the basis that they were working outside of the state at a home office during the pandemic.

The issue is that of whether the decision to work from home is one of ‘convenience’.  New York state taxes the income of non-resident workers if drawn from in-state sources, including income that commuters make when choosing to work from home.  There have been challenges to this rule on the basis that commuters were forced to work from home by the pandemic and did not elect to do this (i.e. remote work was by necessity and not convenience) but the state authorities do not consider this to be sufficient. 

In October 2020 the state Department of Taxation and Finance confirmed that non-residents whose primary office is in New York should consider dates of remote work as in-state work.  The only exception to this would be if the employer had established a bona fide employer office in out-of-state location.  The requirements for an employee’s home office to be considered a ‘bona fide employer office’ are complex and unlikely to be met in the majority of cases.  The guidance for this position comes from Technical Services Division Memorandum TSB-M-06(5) I, and under these guidelines it will be difficult for employers to conclude that employees working from home outside of the state due to COVID-19 are exempt from New York non-resident income tax and withholding, or for taxpayers to successfully argue a position that exempts remote working income from New York state taxation.

Brad Veltkamp
bveltkamp@bdo.com