CA resident working remotely for NY state

[maglib]

NJ fighting back. Let me know what court cases that have had any rulings considering MASS one didn't complete. We are following it.

The Gross Income Tax Convenience of the Employer Sourcing Rule was enacted for tax years beginning on and after January 1, 2023.

What is a Convenience of the Employer Rule?
Under a Convenience of the Employer Rule, a nonresident taxpayer’s employee compensation from a New Jersey employer for the performance of personal services is sourced to the employer’s location in New Jersey if the employee is working from an out-of-state location (e.g. telecommuting from their resident state) for their own convenience, rather than for the necessity of their employer.

Does New Jersey have its own Convenience of the Employer Rule?
New Jersey does not have its own Convenience of the Employer Rule. However, P.L.2023, c.125 was enacted on July 21, 2023, to provide that this State will apply another state’s Convenience of the Employer Rule on nonresidents, which would be the same as the one in the nonresident’s home state. For example, compensation earned by a telecommuting New York resident working for a New Jersey employer will be deemed New Jersey source income by applying New York’s Convenience of the Employer Rule.

Who does the Convenience of the Employer Rule apply to?
The new law only applies to nonresident employees working for a New Jersey employer who are residents of states that also impose a similar test, such as Delaware, Nebraska, and New York. Note that this list may change accordingly based on the laws of different states. Under the new law, wages earned by residents of , Delaware, Nebraska, and New York working for a New Jersey employer and working from an out-of-state location (e.g. telecommuting from their resident state) are allocated to New Jersey, unless they are working remotely due to the necessity of the employer, rather than their own convenience.

Who does the Convenience of the Employer Rule not apply to?
This legislation does not apply to Pennsylvania residents who work in New Jersey, since there is a Reciprocal Agreement in place with that state. Based on the reciprocal nature of Connecticut’s law, an employee who works from home in Connecticut for a New Jersey employer will not be subject to New Jersey’s convenience of the employer rule. However, for more information regarding the application of Connecticut’s rule, see the above link to the webnotice.

How does a nonresident employee working for a New Jersey company qualify as an exception from the Convenience of the Employer Rule?
A nonresident employee working for a New Jersey company that is working outside of New Jersey due to the necessity of the employer is given an exception from the Convenience of the Employer Rule. Generally, based on other states’ Convenience of the Employer rules, they must be given a task by the employer that can only be fulfilled outside of New Jersey, and it is impossible to do the work in New Jersey. For example, if a New York resident employee working for a New Jersey painting company is tasked with painting houses in New York; that work would qualify as an exception, since there is no possible way for that work to have been performed in New Jersey.

How has New Jersey taxed nonresident telecommuters working for a New Jersey employer prior to the enactment of the Convenience of the Employer Sourcing Rule?
With regard to nonresident telecommuters working from home for a New Jersey employer to perform work or services, only the telecommuting employee’s home state taxes the income. If the nonresident telecommuter working for a New Jersey employer comes into New Jersey for work or services, even occasionally, this individual is considered to have New Jersey source income and must file and pay tax on this income in New Jersey on the nonresident income tax return (NJ-1040NR).

Note that this treatment has not changed for nonresidents of states that do not impose a Convenience of the Employer Rule on New Jersey residents.

How does the new law affect New Jersey employers?
New Jersey employers should withhold New Jersey Gross Income Tax on Delaware, Nebraska, and New York resident employees who are working remotely (e.g., in an out-of-state location) for their own convenience.

How is a “New Jersey employer” defined for withholding purposes?
A New Jersey employer is someone who maintains an office or transacts business within this State and makes payment of any salaries, wages and remuneration subject to New Jersey Gross Income Tax or makes payment of any remuneration for employment subject to contribution under the New Jersey unemployment compensation law. N.J.S.A. 54A:7-1.

If an employer with multiple offices in several states, including New Jersey, employs a resident of Delaware, Nebraska, and New York, are they considered a New Jersey employer?
When an employer has multiple offices in several states, including New Jersey, New Jersey will apply the nonresident’s home state’s Convenience of the Employer rule test to determine whether the employer is considered a New Jersey employer. For example, if a New York resident taxpayer has an assigned or primary office (i.e., generally the office out of which the employee is supervised) in New Jersey; that will be considered a New Jersey employer.

Are wages earned by Delaware, Nebraska, and New York resident employees allocated to New Jersey if their employer has offices in several states, including New Jersey, and they work from all these locations, in addition to working from home in their home state?
The employee should have a primary or assigned office. If that primary or assigned office is New Jersey, wages earned by telecommuting Delaware, Nebraska, and New York resident employees are allocated to New Jersey, unless they are working remotely due to the necessity of the employer rather than the employee’s convenience.

For example, what if a New York resident works from a vacation home in a third state, such as Maine or Connecticut? Does the new Convenience of the Employer rule source those wages from the third state to New Jersey?
The Convenience of the Employer rule applies to the third state because the statute isn’t limited to the situation where the New York resident works remotely solely from their home state.

If a Delaware, Nebraska, and New York resident employee working for a New Jersey company doesn’t physically work in New Jersey in a calendar year at all, would P.L.2023, c.125 apply to such employee?
In general, a minimum connection is required for taxation. Thus, for residents of those states imposing a Convenience of Employer rule, if an employee performs no services in New Jersey, even if employed by a New Jersey employer, wages are not allocated to this State under P.L.2023, c.125.

When does the new law take effect?
The new law is retroactive to January 1, 2023. Affected taxpayers must begin withholdings and/or making estimated payments for tax year 2023 as soon as possible and are required to have proper tax paid by April 15, 2024. Employers should consider making adjustments to withholdings as an accommodation to employees, so that they are not underpaid.

Will the Division impose penalty and interest on Tax Year 2023?
The Division will waive penalty and interest, as long as the taxpayer is complying with the new law by September 15, 2023. Such waiver from penalty and interest in accordance with Convenience of the Employer Rule changes can only be granted once assessed and the taxpayer is notified (billed). You should send your request for relief to the address listed on your billing notice, and specify that you are requesting relief due to the Convenience of the Employer Rule changes.

[maglib]

POST 2006/ post Hayes rules changed:
Revised application of the convenience of the employer test
For tax years beginning on or after January 1, 2006, it is the Tax Department’s position
that in the case of a taxpayer whose assigned or primary office is in New York State, any normal
work day spent at the home office will be treated as a day worked outside the state if the
taxpayer’s home office is a bona fide employer office (as determined below). Any day spent at
the home office that is not a normal work day would be considered a nonworking day.
A normal work day means any day that the taxpayer performed the usual duties of his or
her job. For this purpose, responding to occasional phone calls or emails, reading professional
journals or being available if needed does not constitute performing the usual duties of his or her
job.
Factors to apply to determine if a home office is a bona fide employer office
Employees should use the factors provided below to assist them in determining if their
home office constitutes a bona fide employer office. The factors are divided into three
categories: the primary factor, secondary factors, and other factors. In order for an office to be
considered a bona fide employer office, the office must meet either:
a) the primary factor, or
b) at least 4 of the secondary factors and 3 of the other factors.
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Primary Factor
The home office contains or is near specialized facilities.
If the employee’s duties require the use of special facilities that cannot be made available
at the employer’s place of business, but those facilities are available at or near the employee’s
home, then the home office will meet this factor. For example, if the employee’s duties require
the use of a test track to test new cars, and a test track is not available at the employer’s offices in
New York City, but is available near the employee’s home, then the home office will meet this
factor. In the alternative, if the employee’s duties require the use of specialized scientific
equipment that is set up at the employee’s home (or at a facility near the employee’s home) but
could physically be set up at the employer’s place of business located in New York, then the
home office would not meet this factor.
Secondary Factors
1) The home office is a requirement or condition of employment.
If the employer requires the employee to work from his or her home office as a condition
of employment, the home office will meet this factor. For example, if a written employment
contract states the employee must work from home to perform specific duties for the employer,
then the home office will meet this factor.
2) The employer has a bona fide business purpose for the employee’s home office
location.
If the employer has a bona fide business purpose for establishing an office in the locale
where the employee’s home is located, the home office will meet this factor. For example, if the
employee is an engineer working on several projects in his or her home state and it is necessary
that the employee have an office near these projects in order to meet project deadlines, then the
home office will meet this factor.
3) The employee performs some of the core duties of his or her employment at the
home office.
If some of the core duties of employment are performed at the home office, then the
home office will meet this factor. For example, the core duties of a stock broker include the
purchase and sale of stock. Accordingly, if the stock broker executes stock purchases and sales
from the home office, this would constitute performing some of the core duties at the home
office. However, if the stock broker merely reads business publications on the weekend, this
would not constitute performing any core duties at the home office.
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4) The employee meets or deals with clients, patients or customers on a regular and
continuous basis at the home office.
If an important part of the employee’s duties include physically meeting with clients,
patients or customers in the normal course of the employer’s trade or business, and those
meetings are performed on a regular and continuous basis at the home office, then the home
office will meet this factor. For example, the employer has clients located near the employee’s
home office and the employee must meet with the clients once a week to perform the duties of
his or her job. If the meetings with clients are on a regular and continuous basis at the
employee’s home office, then the home office will meet this factor.
5) The employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business.
If the employer does not provide the employee with designated office space or other
regular work accommodations at one of its regular places of business, then the home office will
meet this factor. For example, an employer wishes to reduce the size of the office space
maintained in New York to decrease rental expenses and, therefore, no longer provides
designated office space or other regular work accommodations for one of its employees. Instead,
the employer allows the employee to work from the employee’s home. If the employee must
come to the office, the employee must use the “visitors” cubicle, conference room, or other
available space that is also used by the other employees of the company. In this instance, the
home office will meet this factor.
6) Employer reimbursement of expenses for the home office.
If the employer reimburses the employee for substantially all of the expenses (e.g., utility
expenses, insurance) related to the home office, or the employer pays the employee a fair rental
value for the home office space used and the employer furnishes or reimburses the employee for
substantially all of the supplies and equipment used by the employee, then the home office will
meet this factor. For purposes of this factor, substantially all of the expenses means 80% or more
of the expenses.
Other factors
1) The employer maintains a separate telephone line and listing for the home office.
2) The employee’s home office address and phone number is listed on the business
letterhead and/or business cards of the employer.
3) The employee uses a specific area of the home exclusively to conduct the business of the
employer that is separate from the living area. The home office will not meet this factor if
the area is used for both business and personal purposes.
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4) The employer’s business is selling products at wholesale or retail and the employee keeps
an inventory of the products or product samples in the home office for use in the
employer’s business.
5) Business records of the employer are stored at the employee’s home office.
6) The home office location has a sign indicating a place of business of the employer.
7) Advertising for the employer shows the employee’s home office as one of the employer’s
places of business.
😎 The home office is covered by a business insurance policy or by a business rider to the
employee’s homeowner insurance policy.
9) The employee is entitled to and actually claims a deduction for home office expenses for
federal income tax purposes.
10) The employee is not an officer of the company

[TomD8]

@maglib @kristinelbly --

Arguments aside, there is likely to be a fairly minimal effect on a NJ taxpayer's bottom line based on whether or not he pays NY income tax.  That's because income tax rates in the two states are similar, and NJ will allow a credit on its tax return for income taxes paid to NY on income which is also taxed by NJ.  

NY's "convenience" rule primarily punishes its neighboring states, by diverting tax revenue away from them and toward New York.

On this topic, it's interesting to note that Arkansas repealed its "convenience" rule in 2021, and also that a bill has been introduced in the Nebraska legislature to repeal its "convenience" rule.  If the Nebraska law passes, the number of states with a convenience rule will drop to 4: New York, Pennsylvania, Delaware, and New Jersey (although NJ's convenience rule applies only to residents of NY or DE).