Should New York Be Able To Tax Out-of-State Telecommuters?

Edward Zalinsky, a Tax professor at Cardozo Law School (Yeshiva University’s law school in New York City), wrote an interesting article at the Oxford University Press Blog.

In it, he explained how he sometimes telecommutes from his home in Connecticut to his job in New York City. He did not include the income he made that he felt was attributable the work he performed in Connecticut. He argues that the Due Process and Commerce Clauses of the Constitution prevent New York state from taxing income earned outside of its borders.

He has taken his case all the way to the New York Court of Appeals, but he was not successful. He argues that, especially now, people should be encouraged to telecommute in order to help prevent the spread of Swine Flu.

Here’s the article: Swine Flu, Telecommuting and New York’s Extraterritorial Taxation of Nonresidents’ Incomes

New IRS Form I-9 For Employers Starting April 3rd

Adjunct Law Prof Blog just posted that employers who hire an employee must verify their legal status to work and fill out the new I-9 form.  Employers must have the employee sign the form within three days of starting work. It would be wise to see the form and instructions right away, if you haven’t already done so. Those items are available here.

When Can the Non-Custodial Parent Attach a Divorce Decree to Get Tax Exemption?

Many non-custodial parents think that they can get the child tax exemption that they are entitled to (based on I.R.C. § 152(e)2)) pursuant to their divorce decree by simply attaching the divorce decree to their tax return. People try this use the divorce decree in lieu of IRS form 8332 because they are either hesitant or feel unable to have that form filled out and signed by the custodial parent.

Unfortunately, this does not work. As accountant Louis J. Cercone, Jr. points out, even when a non-custodial parent can take a tax exemption pursuant to a divorce decree,  the Internal Revenue Code only permits him (or her) to do so if the custodial parent fills out Form 8332 or signs a letter with the following information contained in it:

1. The name of the child to which an exemption is released;
2. The year for which the exemption is released to the non-custodial parent;
3. A signature, date of signature, & social security number for the custodial parent; and
4. the name and social security number of the non-custodial parent to whom the exemption is released.

Without either form 8332 or a letter signed by the custodial parent with the aforementioned elements, a non-custodial parent cannot get the exemption he or she is entitled to according to the divorce decree. The divorce decree, which is not signed by the custodial parent, will not suffice.

For any other legal advice on matrimonial or family law issues, please call our office for information.

Picture courtesy of cityofcyn.

Oprah’s Car Giveaway & Awarding Additional Taxes in ADA Suit

Paul L. Caron at the TaxProf Blog  reported on an interesting 3rd Circuit case, Eshelman v. Agere Systems, Inc. Basicially, an employer fired an employee in violation of the Americans With Disabilities Act (the “ADA”). The District Court, the trial court, held that the employer had to pay not only the back pay it owed to the employee, but also had to pay an additional amount to cover her additional taxes. Since the lump-sum back-pay payment would put the employee into a higher tax bracket than she would have otherwise been in had she been continuously employed the whole time, the District Court ruled that the employer had to pay the additional amount the employee would have to pay in taxes.

The 3rd Circuit affirmed this ruling, holding that the only way the employee could be “made whole” for the pay she should have received but didn’t because she was fired illegally, was to have her additional taxes paid by the employer as well. Otherwise, because of the higher tax rate that she would have paid at the time of the back-pay payment, she would end up with less than she would have, if she’d been paid smaller amounts over a longer period of time.

Giving an employee back pay, but forcing her to pay extra taxes because of it, reminds me of the time Oprah Winfrey gave everyone in her audience both a new car, and an obligation to pay income taxes on the receipt of that car. They had to either come up with up to $7,000 of their own money to pay for the income taxes on the car, forfeit the right to get the car, or sell the car (at a used car price) to pay the taxes, and keep the difference.

Thanks but no thanks. I can definitely see the logic behind awarding an employee an additional amount to pay the higher-bracket taxes on the back pay. If you’re going to give someone money or something of monetary value, whether as a gift or because you have to, it’s only fair that you also pay the additional tax liability you’re causing the person by giving the gift/money!

New Yorkers May Soon Pay Sales Tax on Amazon.com

The Channel Register is reporting that the New York Supreme Court (lowest level) threw out a lawsuit brought by Amazon.com and Overstock.com, challenging New York State’s new law, requiring that they start charging sales tax to their New York Customers. Here’s how they explain the new law:

…New York enacted a new tax law called the Commission-Agent Provision, which requires out-of-state retailers to collect and remit sales and use taxes if they have a commission agreement with an in-state resident based on the referral of customers (provided that resident earns more than $10,000 in revenues from New Yorkers).

A state cannot collect taxes and enforce that right against a company or person unless that person has “substantial contacts” with that state. That’s why, until recently, out-of-state, web or phone based sellers didn’t have to collect sales tax from customers in states other than the one in which they are based. But that all changes for New Yorker’s with the new law.  Amazon will probably appeal and since this involves constitutional issues, this could very well evenetually go up to the Supreme Court. Hopefully they’ll appeal so we can at least get a few more years of sales-tax-free Amazon purchases!

HT: Sui Generis – Picture courtesy of Town of Frisco, CO