New York Appellate Court Upholds Application of Convenience of Employer Rule Against Connecticut Law Professor

The New York Appellate Division, Third Department, has issued a significant ruling affirming the state’s right to tax the income of out-of-state telecommuters, even when those employees were barred from their physical offices during the COVID-19 pandemic. In the case of Edward A. Zelinsky et al. v. Commissioner of Taxation & Finance, et al., the court rejected a challenge brought by Edward Zelinsky, a professor at the Benjamin N. Cardozo School of Law in Manhattan. The professor, a resident of Connecticut, argued that the days he spent working from home during the 2020 lockdowns should not be considered New York workdays for tax purposes. This decision reinforces the controversial “convenience of the employer” rule, a decades-old tax doctrine that has long been a point of contention between New York and its neighboring states.

The ruling is a major victory for the New York Department of Taxation and Finance, which relies heavily on income tax revenue from non-residents who work for New York-based entities. For Professor Zelinsky, the decision represents a second unsuccessful attempt to dismantle the rule in the state’s highest courts, following a similar legal battle he lost more than 20 years ago. The court’s refusal to acknowledge the pandemic-era lockdowns as a "necessity" that forced work to be performed outside of New York sets a high bar for any future challenges to the state’s aggressive sourcing rules.

Understanding the Convenience of the Employer Rule

At the heart of the dispute is 20 NYCRR 132.18(a), a regulation commonly known as the “convenience of the employer” rule. Under this provision, if a non-resident employee works for a New York employer, any days worked outside of New York are treated as New York workdays unless the employee can demonstrate that they worked out-of-state out of "necessity" rather than for their own convenience.

Historically, the New York Tax Department has interpreted "necessity" very narrowly. It generally requires the employee to show that the employer did not have an office or facility in New York where the work could have been performed, or that the specific nature of the work required a specialized out-of-state location (such as a geologist inspecting a site in another state). Personal preference, child care needs, or even a general desire to work from home have never qualified as "necessity."

The proliferation of remote work technology over the last decade has made this rule increasingly lucrative for New York. While many states only tax non-residents on income earned while physically present within their borders, New York continues to claim a share of the salary of any worker tied to a New York office, regardless of where they sit, provided the employer is based in the state.

Chronology of the Zelinsky Litigation

The legal battle between Professor Zelinsky and the New York tax authorities spans three decades, marking him as one of the most persistent challengers of the state’s tax regime.

1. 1994–1995 (The First Dispute): During these tax years, Professor Zelinsky spent a significant portion of his time working from his home in Connecticut, including during a sabbatical. He argued that New York could not constitutionally tax the income earned on days he was physically in Connecticut.
2. 2003 (Zelinsky I): The New York Court of Appeals, the state’s highest court, ruled against the professor in Matter of Zelinsky v. Tax Appeals Tribunal. The court held that because he was a New York employee and his work was fundamentally tied to a New York institution, the "convenience of the employer" rule was constitutional under the Commerce and Due Process Clauses. The U.S. Supreme Court declined to hear the case in 2004.
3. 2019 (The Pre-Pandemic Claim): Zelinsky filed for refunds for the 2019 tax year, arguing that more recent U.S. Supreme Court precedents had weakened the legal standing of the 2003 decision.
4. 2020 (The Pandemic Dispute): Following the onset of COVID-19, New York Governor Andrew Cuomo issued Executive Order 202.8 on March 20, 2020. This order mandated that all non-essential businesses close their physical locations. Consequently, Cardozo Law School closed, and Zelinsky taught all his classes and conducted all faculty business from Connecticut.
5. 2024–2026 (Zelinsky II): Zelinsky sued for a refund of the taxes paid on his 2020 income, arguing that the government-mandated closure of his office transformed his remote work from a "convenience" into a "necessity."

The Court’s Reasoning: Necessity vs. Indifference

The Appellate Division’s decision focused on the distinction between the school being closed and the requirement to work specifically in Connecticut. Professor Zelinsky argued that because he was legally prohibited from entering the law school building in Manhattan, his work in Connecticut was a matter of employer necessity. He contended that the school required him to work from home to maintain its operations during the lockdown.

However, the court found this argument unpersuasive. The justices noted that while the Executive Order prevented Zelinsky from working at the Manhattan campus, it did not mandate that he work from Connecticut. In the court’s view, Cardozo Law School was "indifferent" to where the professor performed his duties, as long as they were performed remotely. Because the employer did not specifically require a Connecticut-based location for the performance of his duties, the court ruled that the work remained "for the convenience of the employer" in the eyes of the law.

Furthermore, the court dismissed the constitutional challenges. Zelinsky had argued that taxing his Connecticut-based work violated the dormant Commerce Clause, which prevents states from unduly burdening interstate commerce. He cited the 2015 Supreme Court case Comptroller of Treasury of Md. v. Wynne, which struck down a Maryland tax scheme that resulted in double taxation of out-of-state income. The New York court, however, distinguished the Wynne case, stating that Zelinsky’s income was derived from a single New York source and that the tax bore a rational relationship to the benefits he received from New York’s economic and legal infrastructure.

Supporting Data and Economic Context

The implications of this ruling are vast, particularly given the scale of New York’s reliance on non-resident taxpayers. According to data from the New York State Department of Taxation and Finance, non-residents typically account for roughly 15% to 20% of all personal income tax (PIT) collections. In a typical year, this represents billions of dollars in revenue.

The 2020 tax year was particularly fraught. Estimates suggest that during the height of the pandemic, hundreds of thousands of workers who normally commuted into New York City from New Jersey, Connecticut, and Pennsylvania worked entirely from home. Had the court ruled in favor of Zelinsky, it could have triggered a massive wave of refund claims, potentially creating a multi-billion-dollar hole in the New York State budget.

Conversely, the "convenience" rule creates a "double taxation" friction for neighboring states. Connecticut and New Jersey generally provide their residents with a credit for taxes paid to other states. When New York taxes a Connecticut resident for work performed in Connecticut, the State of Connecticut effectively loses that tax revenue because it must grant a credit to the taxpayer. This has led to ongoing political tension, with Connecticut and New Jersey lawmakers frequently proposing "retaliatory" tax measures or seeking federal intervention.

Reaction from Legal and Tax Experts

The legal community has reacted to the decision with a mix of resignation and scrutiny. Tax experts note that the Third Department’s interpretation of "necessity" is perhaps the strictest yet. By requiring an employer to mandate a specific out-of-state site, the court has made it nearly impossible for any remote worker to avoid New York taxation unless their company officially relocates them to a satellite office.

"The court’s logic implies that as long as you have a laptop and an internet connection, you can work anywhere, and therefore New York can claim you," said one tax consultant specializing in tristate residency issues. "It ignores the reality that during 2020, there was no ‘anywhere’ else to go. People were legally required to stay in their homes."

Critics of the ruling argue that it fails to account for the modern digital economy. They suggest that the "convenience" rule is an artifact of the 1940s and 1950s that no longer reflects how professional services are rendered. However, the court explicitly stated that any change to this long-standing policy must come from the New York State Legislature, not the judiciary.

Broader Impact and Future Implications

The decision in Zelinsky II solidifies New York’s position as one of the most aggressive states in the nation regarding the taxation of remote workers. This has several long-term implications for the regional economy:

• Corporate Strategy: Many New York-based firms may face pressure from out-of-state employees to establish formal "bona fide" offices in neighboring states to help those employees avoid the New York tax burden.
• Talent Acquisition: New York employers may find it increasingly difficult to recruit talent from neighboring states if those employees are forced to pay New York’s high income tax rates without the benefit of using the state’s infrastructure daily.
• Legislative Pressure: The ruling is likely to reignite efforts in the U.S. Congress to pass the Multi-State Worker Tax Fairness Act. This federal proposal seeks to limit the ability of states to tax non-residents who are not physically present in the state.
• Appellate Prospects: Professor Zelinsky is expected to appeal the decision to the New York Court of Appeals. While the court ruled against him in 2003, the unique circumstances of the pandemic and the shift in Supreme Court jurisprudence over the last two decades may provide a narrow window for reconsideration.

As the dust settles on this latest legal chapter, one thing remains clear: for those living in Connecticut or New Jersey and working for New York companies, the "commuter tax" persists even if the commute does not. The New York courts have signaled that the state’s coffers will remain protected by the "convenience" rule, barring a radical shift in legislative policy or a definitive ruling from the U.S. Supreme Court. For now, the virtual border of New York’s tax authority remains firmly planted at the front doors of remote workers across the tristate area.