In another challenge to New York’s so-called convenience of the employer rule (the “convenience rule”), an Administrative Law Judge (“ALJ”) recently issued a determination upholding application of the rule against a nonresident working for a New York company. In the Matter of the Petition of Bryant, DTA No. 830818 (Sept. 12, 2024). This is another decision in a line of cases where the New York Tax Appeals Tribunal upheld application of the convenience rule, which presumes that a nonresident employee’s income from a New York employer is taxable by New York unless the employee works outside the state for the employer’s necessity, not the employee’s convenience, despite state-issued COVID-19 restrictions requiring businesses to employ telecommuting polices to the maximum extent possible.

Facts: The Bryants (“petitioners”) filed a New York State nonresident income tax return for 2020, listing a New Jersey home address and claiming a refund of $54,044.00. The return further reported that Mr. Bryant’s employer withheld $58,471 in New York State taxes. The Division of Taxation (“Division”) audited the return and sent a request for information, requesting copies of W-2s and other documentation, and a questionnaire. In response, petitioners sent Mr. Bryant’s W-2 and stated “OFFICE LOCATION IN NYC WAS CLOSED[,] I WAS ORDERED NOT TO COME IN TO NYC[.]” Mr. Bryant’s W-2 indicated that he was employed by NN Investment Partners North America LLC and that $28,471.19 in New York State income tax was withheld. In response to the questionnaire, Mr. Bryant stated that he was employed by NN Investment Management located in Delaware. For his assigned primary work location, Mr. Bryant indicated “NONE.” Petitioners also completed a day count table which did not reflect where Mr. Bryant worked for 42 workdays.

The Division subsequently issued an account adjustment notice recomputing petitioners’ return by allocating all of Mr. Bryant’s income to New York State and adjusting his claimed New York State withholdings from $58,471 to $28,471, the amount shown on his W-2. Petitioners responded by resubmitting documents, including a new response to the questionnaire. This time, Mr. Bryant indicated that (i) he was employed by NN Investment Partners, an investing firm located in New York; (ii) his role was Vice President; and (iii) his assigned primary work location was his home address in New Jersey. Petitioners also included a new day count schedule which conflicted with the original schedule provided. The response showed that Mr. Bryant worked 40 days from his employer’s office in New York City and stated: “My company closed their NY office during 2020, they provided a full home office equipment setup for full time remote work. I have not been into New York City since March 6^th [2020], a formal communication was sent out the following week, attached[.]” The “formal communication” referenced was not included with the submission. Though New York’s governor had issued an executive order requiring businesses to employ work-from-home policies to the maximum extent possible (“Executive Order”), the order did not apply to essential businesses, including banks and related financial institutions.

After receiving petitioners’ revised submission, the Division issued a notice of disallowance (“Notice”), stating that the information petitioners provided was insufficient to establish that Mr. Bryant’s assigned primary work location was outside New York or that his employer had established a bona fide employer office at his telecommuting location. As a result, the Notice concluded that: Mr. Bryant owed New York State income tax on income earned while telecommuting and disallowed $51,610.12 of the claimed refund amount.

Decision: As an initial matter, the ALJ determined that Mr. Bryant’s employer withheld $28,471.19, the amount indicated on Mr. Bryant’s W-2, not the $58,471.00 listed on the return, and that the Division properly adjusted the withholdings to the correct amount. The ALJ further granted the Division’s request that judicial notice be taken of New York guidance concluding that mandatory workforce reductions in the Executive Order did not apply to financial institutions, such as Mr. Bryant’s employer. Petitioners did not avail themselves of the opportunity to be heard on the issue of whether the Executive Order applied to Mr. Bryant’s employer.

As for the remaining issue of whether the Department properly allocated all of Mr. Bryant’s income to New York, the ALJ applied the convenience rule. The ALJ found that petitioners did not meet their burden of establishing that Mr. Bryant worked from home due to his employer’s necessity, rather than for his own convenience. The ALJ determined that in order to show the convenience rule is inapplicable, a nonresident employed by a New York employer must show that they work outside of New York, perform no work within New York, and have no office or place of business in New York. The ALJ concluded that petitioners did not make this showing because Mr. Bryant worked in New York City in the beginning of 2020. The ALJ noted that petitioners did not adduce evidence to support their position. While Mr. Bryant’s employer was not under a legal mandate to close its New York office during the pandemic, it could have ordered its employees to report from specific locations outside of New York for its own necessity.

Though Mr. Bryant testified that his employer had issued such an order, there was no corroborating evidence, and the ALJ questioned Mr. Bryant’s credibility given the inconsistent information contained in petitioners’ two responses to the questionnaire. Furthermore, the ALJ noted that Mr. Bryant’s testimony, alone, cannot carry the burden of proof.

Takeaway: The convenience rule has consistently been upheld by New York courts. The ALJ seems to have provided a blueprint for what a petitioner must show in order to establish that the convenience rule is inapplicable. If petitioners had submitted evidence, other than Mr. Bryant’s own testimony, that his employer required employees to work outside of New York for its own necessity, it appears that petitioners’ claim would have at least been partially successful. Furthermore, though it seems unlikely based on other ALJ determinations (see, e.g., In the Matter of Petition of Zelinsky, DTA Nos. 830517 and 830681 (Nov. 30, 2023) and In the Matter of the Petition of Struckle, DTA No. 830731 (Aug. 8, 2024)), the Decision left open the question of whether the result would have been different had petitioners shown that the mandatory workforce reductions in the Executive Order applied to Mr. Bryant’s employer. Unless and until the New York Court of Appeals hears a case involving application of the convenience rule while the ExecutiveOrder was in place, it appears that nonresidents will continue to be subject to the rule, despite their employers’ New York offices being closed during the pandemic.