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Tax Law

Keeping it Convenient? Bill Introduced in NY Senate that Would Allow Employers to Withhold Based on “Normal Work Location.”

New York S. 8386, introduced and referred to the Budget and Revenue Committee on May 21, 2020, provides that employers “may designate” remote work by employees who have been required to telework during the Covid-19 pandemic state of emergency “as having been performed at the location such work was performed prior to the declaration of such state disaster emergency for all state and local tax purposes, including but not limited to, apportionment.” The Bill is broad in scope, not limited by tax type, taxing jurisdiction, an employee’s residency status, or an employee’s “normal work location.” However, the primary intent of the Bill is to “remove unnecessary confusion and complexity” for “people [who] are working in a different jurisdiction from where they worked before” due to the pandemic. Thus, among other impacts, the Bill would allow employers to withhold state or local tax from wages based on an employee’s work location immediately before Governor Cuomo issued the state of emergency declaration in New York Executive Order 202. If signed into law, the Bill would take effect immediately but only apply during Executive Order 202, which currently runs from March 7, 2020 through September 7, 2020.

If adopted, S. 8386 may impact New York State’s application of the “convenience of the employer test” that applies to employer withholding and personal income tax obligations. Under that test, the Department of Taxation and Finance deems an employee who is teleworking from an out-of-state location to be working from their assigned office in New York unless the teleworking arrangement is entered into out of necessity, whether a specialized condition of the teleworker’s employment or a mandatory work-from-home policy. To-date, the Department has not issued guidance on whether teleworking out-of-state during the Covid-19 pandemic meets the “necessity” exception. Because the Bill creates an employer election to retain an employee’s normal work location for tax purposes during the pandemic, it may also create an inference that Executive Order 202 triggered the necessity exception if ultimately signed into law.

Finally, S. 8386 only applies to employer-mandated remote work during the duration of Executive Order 202. Therefore, if the Bill is enacted, employers and employees should re-evaluate their state and local tax obligations as a result of any teleworking arrangement within its scope.