New York Law Review

Tag: Non-resident Income Tax

  • Zelinsky v. Tax Appeals Tribunal, 1 N.Y.3d 85 (2003): New York’s ‘Convenience of the Employer’ Test Upheld

    Zelinsky v. Tax Appeals Tribunal, 1 N.Y.3d 85 (2003)

    A state’s “convenience of the employer” test for apportioning income of non-residents working partly within and partly outside the state does not violate the Commerce or Due Process Clauses when applied to a non-resident who works at home for their own convenience, not out of employer necessity.

    Summary

    A law professor residing in Connecticut challenged New York’s taxation of his entire salary, arguing that days worked at home should be allocated to Connecticut. New York applied the “convenience of the employer” test, taxing income based on work performed in New York unless the out-of-state work was a necessity for the employer. The New York Court of Appeals upheld the tax, finding that the professor’s choice to work from home was for his convenience, not a requirement of his employment, and that New York provided sufficient benefits to justify the tax. The court reasoned that allowing the professor to avoid New York taxes based on a personal choice would create an unfair advantage over New York residents.

    Facts

    The taxpayer, a law professor at Cardozo School of Law in New York City, resided in Connecticut. During the academic year, he commuted to New York three days a week to teach and meet with students. The other two days, and during sabbatical, he worked from his home in Connecticut, preparing examinations, writing recommendations, and conducting research. He sought to allocate a portion of his income to Connecticut, reflecting the days worked at home.

    Procedural History

    The New York State Department of Taxation and Finance issued notices of deficiency, asserting that the entire salary was subject to New York tax under the “convenience of the employer” test. The taxpayer contested the deficiencies, arguing violations of the Commerce and Due Process Clauses. An Administrative Law Judge and the Tax Appeals Tribunal rejected these claims. The taxpayer then commenced an Article 78 proceeding in the Appellate Division, which confirmed the administrative determination. The New York Court of Appeals granted leave to appeal and affirmed.

    Issue(s)

    Whether the application of New York’s “convenience of the employer” test to a non-resident law professor, resulting in New York’s taxation of salary earned on days worked at home for his own convenience, violates the Commerce Clause of the U.S. Constitution?

    Whether the application of New York’s “convenience of the employer” test to a non-resident law professor, resulting in New York’s taxation of salary earned on days worked at home for his own convenience, violates the Due Process Clause of the U.S. Constitution?

    Holding

    1. No, because the tax is fairly apportioned and does not unfairly burden interstate commerce. The taxpayer’s choice to work at home for personal convenience does not transform his employment into an interstate business activity.

    2. No, because the taxpayer has a sufficient “minimum connection” to New York due to his employment there, and the tax is rationally related to the benefits New York provides.

    Court’s Reasoning

    The court applied the four-part test from Complete Auto Transit, Inc. v. Brady, noting that the taxpayer only challenged whether the tax was fairly apportioned. A tax is fairly apportioned if it is internally and externally consistent. Internal consistency was conceded. External consistency requires that the tax fairly reflects the in-state component of the activity being taxed. The court reasoned that the professor’s teaching services were performed in New York, and his choice to work at home was for personal convenience. The court distinguished this case from cases involving interstate transportation, where the activity itself crosses state lines. The court stated, “The dormant Commerce Clause protects markets and participants in markets, not taxpayers as such” and found that the convenience test serves to equalize tax obligations between residents and non-residents.

    Regarding the Due Process Clause, the court found a sufficient connection between the taxpayer and New York due to his employment, satisfying the minimum connection requirement. The tax was also rationally related to the opportunities and benefits conferred by New York, such as employment opportunities and public services. The court quoted Wisconsin v. J.C. Penney Co.: “The simple but controlling question is whether the state has given anything for which it can ask return”.

    The court rejected the taxpayer’s argument that double taxation violated the constitution, stating, “The multiple taxation placed upon interstate commerce by such a confluence of taxes is not a structural evil that flows from either tax individually, but it is rather the accidental incident of interstate commerce being subject to two different taxing jurisdictions”.

  • Legum v. City of New York, 51 N.Y.2d 167 (1980): Enforceability of City Charter Provision Requiring Non-Resident Employees to Pay Equivalent of Resident Income Tax

    Legum v. City of New York, 51 N.Y.2d 167 (1980)

    A requirement in a city charter mandating non-resident employees to pay an amount equivalent to the city’s resident income tax as a condition of employment is a valid contractual obligation, not an unauthorized tax on non-residents.

    Summary

    The case concerns the validity of Section 822 of the New York City Charter, which requires non-resident city employees to pay the difference between what they would owe under the city’s resident income tax and the actual city earnings and income tax they pay. Steven Legum, a non-resident employee, challenged this provision, arguing it was an impermissible tax on non-residents. The Court of Appeals held that the requirement was a contractual condition of employment, not a tax, and therefore valid because Legum voluntarily agreed to it. The critical distinction lies in the voluntary nature of the agreement versus the involuntary imposition of a tax.

    Facts

    Steven Legum was employed by the Law Department of New York City from February 2, 1976, to August 1, 1980. He was a non-resident of the city throughout his employment. As a condition of employment, Legum signed a contract agreeing to pay the city an amount equivalent to the city’s resident income tax, as required by Section 822 of the City Charter. In December 1978, Legum was notified that the city intended to enforce this provision, prompting him to challenge its validity.

    Procedural History

    Legum initiated an Article 78 proceeding challenging the validity of Section 822 of the New York City Charter and the related contractual provision. The lower courts ruled in favor of the City, upholding the validity of the charter provision and the employment contract. Legum appealed to the New York Court of Appeals.

    Issue(s)

    Whether Section 822 of the New York City Charter, requiring non-resident employees to pay an amount equivalent to the city’s resident income tax as a condition of employment, constitutes an unauthorized tax on non-residents, or a valid contractual obligation.

    Holding

    No, because the requirement is a contractual condition of employment voluntarily agreed to by the employee, not a tax imposed by the city in its sovereign capacity. It operates through contract, not through the city’s taxing power.

    Court’s Reasoning

    The court distinguished between a tax, which is an enforced contribution levied by the government, and a contractual provision, which is agreed upon by two parties. Taxes are involuntary and based on the duty owed to the government, whereas contractual obligations are voluntary and based on mutual agreement. The court cited City of New York v McLean, 170 NY 374, 387, stating that taxes are “enforced contributions levied by the authority of the state for the support of its government.”

    The court emphasized that Legum voluntarily agreed to the contractual provision as a condition of his employment. The court noted Legum did not allege fraud or duress in entering the agreement. Therefore, the obligation to pay the specified amount arose from the contract, not from the city’s exercise of its taxing authority. The court emphasized, “The test is not to whom the funds are paid, but whether the payment is imposed in invitum by the sovereign or is owed pursuant to a contractual agreement voluntarily entered into.”

    Because the payment was owed as a result of a contract, not an exercise of taxing authority, the court found Section 822 and the contractual provision to be valid. This case clarifies that a municipality can require certain payments as a condition of employment without necessarily levying a tax, especially when the condition is clearly outlined and voluntarily accepted in an employment contract. The key is the voluntary agreement, which distinguishes the payment from a tax imposed under governmental authority.