N.Y. tax code needs to catch up to reality of remote work
The pandemic changed a great deal about how the average American works. A slow trickle of Americans switching to remote work arrangements suddenly became a flood, with the number of remote workers more than tripling between 2019 and 2021. While some have since returned to the office, a June 2022 Gallup survey found that just 22 percent of employees capable of working remotely now work exclusively in the office — down from 60 percent pre-pandemic.
With new working arrangements can come new tax obligations — and the rules vary by the state. Navigating the different thresholds, income sourcing rules, and interstate agreements becomes yet another tax compliance headache for taxpayers and their employers.
Unfortunately, New York has not done a good job of crafting a competitive tax code to encourage remote workers to stay in or move to New York. Instead, the Empire State has sought to expand its tax imperium far beyond its own borders.
In a new report from my organization that ranked states on the friendliness of their tax codes to remote workers, the Remote Obligations and Mobility (ROAM) Index, New York earns a ranking of fourth-to-last. In other words, remote workers are best off avoiding any connection with New York at all costs, at least to the extent they can.
New York’s poor score is likely of little surprise to anyone with the misfortune of dealing with the state’s aggressive treatment of nonresidents. For example, when New York City was an early hotspot for the coronavirus, New York begged out-of-state medical workers to volunteer to come to New York to provide surge capacity. Once they did, New York let them know that they would face New York tax obligations as repayment for their generosity.
New York is also infamous for enforcing a so-called “con
venience of the employer” rule. This rule requires taxpayers who switch from commuting across state lines into New York to working remotely in their home state to continue paying taxes to New York — so long as their switch to remote work was a matter of “convenience” and not absolute necessity.
This confrontational approach to nonresident taxation has led to fractious relationships with neighbors. Whereas states like Pennsylvania and New Jersey have in place a reciprocity agreement which clarifies that commuters will only face taxes in their state of residence — an agreement that provides security and certainty to taxpayers — New York has chosen to take a far more confrontational stance.
Connecticut, for example, has responded to New York’s aggressive “convenience of the employer” rule by enforcing a retaliatory version only against New York taxpayers (and taxpayers of the three other states with similar rules). New Jersey may soon do the same if a proposal by Gov. Phil Murphy is passed into law. New York’s insistence on grasping at out-of-state taxpayers for revenue only comes back to bite New York residents in the end.
To improve on the ROAM Index, New York will have to completely rethink how it approaches its tax policy. Rather than trying to force taxpayers who want to go elsewhere to pay New York taxes, New York should try and craft a tax code that doesn’t have taxpayers running for the exits.
Doing so involves not trying to force its tax code upon taxpayers who don’t live in the state and lack representation. This means not only getting rid of its “convenience of the employer” rule, but also seeking to enter into reciprocity agreements with neighbors, setting filing and withholding thresholds that protect taxpayers and their employers from burdensome tax obligations on the basis of just a few days spent in the state, and making the state’s overall tax burden less onerous to live under.
New York can choose to innovate, crafting a 21st-century tax code that invites businesses and workers alike, or it can stagnate, digging in its heels and trying to force out-of-state taxpayers to keep paying taxes to a state they do not live in. Only the former option will allow New York to see remote work as anything other than a threat.