In the era of remote work, New York State has held to its long-standing controversial position that for an employee whose assigned or primary office is in New York, any normal workday spent working at a home office will be treated as a day worked in New York—and income earned for that day subject to New York State income taxes. The rule applies unless the home office meets requirements for a “bona fide employer home office,” a threshold considered extremely difficult to meet.

That so-called “convenience of the employer” rule is being challenged for a second time by Edward Zelinsky, a tax law professor and nonresident of New York State who teaches at Yeshiva University’s Cardozo School of Law, a New York-based institution. He has filed petitions with the New York Division of Tax Appeals contending that the days spent working outside the State should not be taxable to New York. Zelinsky previously challenged the rule unsuccessfully in 2003.

While the challenge is to New York’s rule, the impact could be broader, as other states, including Arkansas, Delaware, Nebraska, Pennsylvania, and to a limited extent, Connecticut, have similar laws. As well, hybrid working arrangements, including working remotely from home, have become more popular and prevalent since the height of the COVID-19 pandemic, and many employees and their companies have implemented technology to make working remotely more efficient and convenient. As such, tax and legal professionals are warning employers, particularly in states with a convenience of the employer rule, to keep an eye on the litigation as it progresses.

If you have questions on State and Local Tax matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

The Interstate Income Act of 1959 (P.L. 86-272) protects an out-of-state business or representative from a state’s net income tax if the only activity in the state is soliciting orders for sales of tangible personal property and if the orders are reviewed and approved out of state and the property is delivered from outside the state.

On February 14, 2022, California became the first state to update its interpretation of P.L. 86-272, adopting the view of the Multistate Tax Commission (MTC) that an out-of-state person or business could lose protection under PL 86-272 due to internet-based activities with in-state customers. The MTC’s guidance contends that a customer using a business’s website in the customer’s home state is an activity of the business in the customer’s state.

On Friday, April 29, the New York Department of Taxation and Finance proposed guidance on P.L. 86-272 that would make it the second state to conform to the MTC interpretation. Like the MTC and California, New York proposes that any activities, including those conducted over the internet, would not be shielded by P.L. 86-272 unless they consist only of solicitation of orders for tangible personal property, or are insignificant. However, also like the MTC and California, posting text or images on a website alone would not trigger taxation.

Opponents of the New York proposal contend that it is inconsistent with the intent of P.L. 86-272. They suggest it incorrect to interpret P.L. 86-272 as supporting taxation of a corporation merely due to residents of a state engaging with a company’s website.

If you have questions on the New York’s legislation or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.

On March 30, the New York State Assembly and State Senate both overwhelmingly passed the Marijuana Regulation & Taxation Act, decriminalizing the use of adult-use marijuana and establishing an office for the regulation of cannabis. The Act permits adults 21 and over to purchase marijuana and grow the plant in their home. By decriminalizing marijuana, the Act is being heralded as criminal justice reform. According to the bill’s sponsor, Senator Liz Kruger, “New York’s program will not just talk the talk on racial justice, it will walk the walk.” Other key provisions of the law include:

• 13 percent excise tax on retail sales: 9 percent to the state, 4 percent to the municipality
• 40 percent of cannabis tax revenues to be spent on education, 40 percent for community reinvestment grants for communities harmed by marijuana prohibition, and 20 percent to drug treatment and public education programs
• Marijuana arrests and convictions legalized under the law to be expunged, and law enforcement prevented from using the odor of marijuana as a pretext for a search
• The opportunity for New Yorkers currently working in the illegal market to obtain one of ten different licenses to work in the new cannabis economy

That new cannabis economy is projected to create $350 million in taxes each year as well as 30,000 to 60,000 jobs statewide.

“The New York approach is interesting and very smart, I think, in terms of taking an assertive criminal justice position as part of the deal,” noted Christopher T. Marrie, HBK Principal and National Co-director, HBK Cannabis Solutions. “That is an element missing in the federal position on legalizing cannabis. It’s going to be difficult to do it without tying it to criminal justice reform.”

Marrie pointed out that, “New York was a very tight market, allowing the sale of extracts only, not flower. It will be interesting to see how the transition unfolds.”

That is expected to take about 18 months, Marrie said. “In the meantime, the State has likely created a huge black market. It’s legalized but not regulated. That’s what happened in Michigan where it was legalized in 2008 but not regulated until 2017. It wound up being regulated differently in every municipality.

“New York City will be a huge market,” Marrie proposed. “Some retailers in the big cities, like Chicago and Philadelphia, are doing more than $25 million in annual sales.”

Marrie also said that he expects the tax rates in New York will increase as marijuana is commoditized. “I expect to see the tax rate rise to 20 or 21 percent,” he said.

The new law comes in response to what has become a huge issue in the state. According to reports, in the 1990s and early 2000s, more than 800,000 New Yorkers were arrested or ticketed for marijuana, more than anywhere else in the world.