I researched this further and found this court case from 1978, which would seem to say that, since your wife's work was 100% performed in Michigan, it is not taxable by NY:
In the Matter of Arthur Hull Hayes v State Tax Commn, 61 AD2d 62 [1978], the petitioner was a nonresident working as a consultant for a New York based company under an agreement which allowed him to work at home. The court held that since the petitioner performed no services in New York for the income in question and did not maintain an office or place of business in New York, the income was not received from a source in New York. The court stated that “A nonresident who works in another state but who performs no work in
New York is not subject to New York State tax liability no matter for whose convenience or necessity he performs the work.”
From page 7, TSB-A-05(2)I:4/05:Robert M. Braun,Petition No. I040414A,tsba052i (ny.gov)
Hayes v. State Tax Comm, 61 A.D.2d 62 | Casetext Search + Citator
It would seem from this that NY's "convenience of the employer" rule would apply only to workers who perform at least part of their work (in a given tax year) both within and without NY. Caveat: I am neither an accountant nor a tax attorney.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
