Skip to content
State and Local Tax

The Pandemic Lockdown Tests New York’s Application of its Convenience of the Employer Rule

· 8 minute read

· 8 minute read

By David Engel, and Jill C. McNally

In the aftermath of the COVID-19 pandemic, New York’s “convenience of the employer” rule is facing challenges from individual taxpayers and from neighboring states. A Connecticut resident, who, like many, was required to work from home due to New York’s mandated work from home response to the pandemic, is once again challenging the rule’s application (as is a a North Carolina resident). In addition, New Jersey, and more recently Connecticut, are encouraging their residents to challenge New York’s law.

New York source income.

New York imposes a personal income tax on a nonresident individual’s taxable income that is derived from New York sources.1If a nonresident employee, whose primary or assigned work location is within New York, performs services for the employer both within and without New York State, the income is apportioned based on a ratio consisting of the total number of working days employed within New York State compared to the total number of working days employed both within and without New York State. Compensation earned for days worked outside of New York can be excluded from the numerator of the ratio “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.”2

Department guidance.

To satisfy the convenience of the employer test, the Department of Taxation and Finance issued a memorandum stating that if a normal workday occurs at a home office it will be treated as a day worked outside of the state if the taxpayer’s home office is a bona fide employer office. Any day spent at the home office that is not a normal workday will be considered a nonworking day. To claim a bona fide office, a taxpayer’s office must satisfy a “primary factor” or meet at least four “secondary factors” in addition to three “other factors” to meet the test.3The test is stringent and arguably not easily met. The rationale for the strict standard is that out-of-state residents should not receive special tax benefits from working from home that a New York resident could not also receive.4

The pandemic lockdown.

The COVID-19 pandemic created a unique circumstance where New York required many workers to work from home for a portion of the year.5During this period, the Department advised non-resident taxpayers whose primary office was in New York State that the telecommuting days during the pandemic were considered days worked in New York unless their employer established a bona fide employer office at their telecommuting location.6The pandemic changed nothing regarding the Department’s policy. However, the mandatory lockdown has presented an opportunity to retest the rule.

Current litigation.

A Connecticut resident and law professor at a New York law school, recently revived his challenge to the New York rule relying on the unique set of facts the pandemic gave rise to with the state mandated lockdown.7An administrative law judge (ALJ) rejected the professor’s challenges concluding that the law school did not require him to work in Connecticut, he was present in New York for a portion of the year, and that he availed himself of the New York market and derived all of the New York economic benefits that comes with that. The ALJ was unmoved by the taxpayer’s argument that his working from home was for his employer’s necessity and not his as his employer barred employees from entering the building as required by state mandate. The ALJ maintained that his work was not so specialized that it had to be done outside of New York State and further added that the taxpayer was present in New York when hosting his zoom classes and meetings with students. Citing the U.S. Supreme Court’s decision in Wayfair, the court stated that “[i]n this modern economy with its internet technology, one can be present in a state without needing to physically be there.”8The court’s decision has been appealed to the Tax Appeals Tribunal.

Another taxpayer is also currently challenging application of New York’s rule against income he received while working remotely in North Carolina due to the closure of his employer’s New York City offices in 2020. While ruling on the motion for partial summary judgment, the ALJ noted that the taxpayer did “not offer evidence showing that he was obligated to perform his work duties from North Carolina out of his employer’s necessity as opposed to any other place [the taxpayer] may have found convenient to live and work in during the COVID-19 pandemic” thereby raising “questions of fact regarding [the] employer’s need for [the taxpayer] to work out of state.”  The taxpayer was denied partial summary judgment on the issue and a hearing is to be scheduled. 910

States joining the challenge.

In 2023, New Jersey enacted a law11providing taxpayers who successfully challenge rules like New York’s with a tax credit against their New Jersey gross income taxes amounting to 50% of the additional tax amount recovered. To qualify for the credit, taxpayers must: (1) be a New Jersey resident; (2) pay income tax or wage tax to another state; (3) apply for and be denied a refund from the other state on income earned while working remotely in New Jersey; (4) file an appeal of the other state’s assessment in an out-of-state tax court or tribunal;12 (5) obtain a final judgment in their favor from that tax court or tribunal; and (6) receive a refund from the other state as a result.13

Similarly, Connecticut Governor Ed Lamont has introduced the “Challenge Incentive” in his budget proposal encouraging Connecticut residents who commute to jobs in New York to challenge New York’s rule as more workers are working remotely.14Following New Jersey’s lead, a successful taxpayer will receive a 50% credit against any additional tax owed to Connecticut, in addition to waiving any penalty and interest associated with that tax, if this provision of the budget is enacted. It is not surprising these states are incentivizing taxpayers to challenge New York’s rule as they lose a lot of revenue to New York, especially with the increase in remote workers.


It appears challenges to New York’s rule are heating up. The COVID-19 pandemic lockdown has presented an opportunity for taxpayers to present a new set of facts and sidestep the application of the stare decisis doctrine.15Taxpayers may have different facts to argue based on employer office policies during this time and the inability to return to a normal work environment. Should taxpayers seek to join the challenge, a credit or refund may be claimed in New York within the later of: three years of filing a return or two years from payment of the tax.1617

5 “New York State on PAUSE Executive Order;” EO 202.6; EO 202.8.

7 In the Matter of the Petition of Edward and Doris Zelinsky, N.Y. Div. of Tax Appeals, ALJ, Dkt. No. 830517, 11/30/2023.

8 Id. at 20.

9 In the Matter of Fass v. State Tax Commission, N.Y. S.Ct., App. Div., Third Dept., 68 AD2d 977414 NYS2d 780 (1979), which stated that precedent “do[es] not stand for the proposition that out-of-State services are not for an employer’s necessity where they could have been performed somewhere in New York State.”

10 In the Matter of the Petition of Richter, N.Y. Div. of Tax Appeals, ALJ, Dkt. No. 850212, 11/02/2023.

11 L. 2022, A4694 (c. 125).

12 As part of the New York appeals process, a taxpayer proceeds through the Bureau of Conciliation which is not a court or tribunal. Any agreements made within this branch of the Division of Taxation would not meet New Jersey’s qualifications for the credit.

13 As stated during a Webinar on October 24, 2023, which was sponsored by NJSCPA, Alan Kline (counsel to the Director, Division of Taxation) stated that the Division of Taxation is monitoring these efforts and advised that there are multiple taxpayers who will be filing lawsuits to challenge New York’s convenience of the employer rule.

15 In the Matter of Edward A. Zelinsky et al., v. Tax Appeals Tribunal of the State of New York et al. , N.Y. Ct. of Appeals, Dkt. No. 138, 11/24/2003. The taxpayer currently challenging the convenience of the employer rule previously lost at New York’s highest court, which determined the rule was constitutional.

16 Personal income tax returns for 2020 were due on May 17, 2021, due to an extended filing deadline.


Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.

More answers