NYS BEGINS AUDITS OF REMOTE EMPLOYEES’ INCOME TAX RETURNS

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Bloomberg Law / Daily Tax Report reports that New York Officials have already started auditing 2020 returns for teleworkers, which is a little surprising as we are still in a middle of a pandemic and the tax season is still underway. As noted in our previous alert, NYS’s position is that teleworking days are treated as time working in the state, therefore they are still taxed in NYS unless, in general, the employer has a bona fide office in the other state. This is based on 2006 legislation/guidance. This is not without controversy, and we are aware of challenges.

TSBM-06-(5)I provides in part:

For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below). Any day spent at the home office that is not a normal work day would be considered a nonworking day. A normal work day means any day that the taxpayer performed the usual duties of his or her job. For this purpose, responding to occasional phone calls or emails, reading professional journals or being available if needed does not constitute performing the usual duties of his or her job.

This guidance provides a multi-prong test in order to determine whether there is a bona fide employer office. Most commuters would not meet this test. A copy of the guidance is attached.

 Audits are stressful but we are here to help. Please do not hesitate to contact us should you need assistance.

NYS NON-RESIDENT TELECOMMUTERS - NYS INCOME TAX

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One question we received recently is whether an employee of a NYS business who lives in NJ is still subject to NYS income taxes even if due to the pandemic they telecommute.

NYS previously provided guidance on this issue, which provides as follows:

My primary office is inside New York State, but I am telecommuting from outside of the state due to the COVID-19 pandemic. Do I owe New York taxes on the income I earn while telecommuting?

If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.[1]

They also cite TSB-M-06(5)I, which goes into more detail of the “convenience of the employer” test. Therefore, NYS continues to tax this income and employers should continue to withhold. However, we are aware of New York Senate Bill S.8386 and litigation (New Hampshire v. Massachusetts, No. 22O154 (U.S. filed Oct. 19, 2020)) which may affect this issue. Stay tuned. 

 Please do not hesitate to contact us with any questions.

[1]           https://www.tax.ny.gov/pit/file/nonresident-faqs.htm#telecommuting

NYS ASSESSMENT CHALLENGED

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On July 20, 2017, in John L. Weslowski v. Assessor of Schenectady, the Supreme Court of New York, Appellate Division, Third Department, granted summary judgment to petitioners who asked a reduction of the tax assessment of their single-family dwelling, following its overvaluation by the Taxing Authority.

Petitioners bought their dwelling located in the City of Schenectady in June 2013. The seller listed the subject property for sale at the price of $149,000 in June 2011, and reduced one year later this price to $110,000. In June 2013 petitioners offered to purchase the house for the sum of $103,000, which was accepted by the precedent owner following the 30 unsuccessful showings during the last two years.

Only two weeks later, the Tax Authority assessed the subject property to $156,000 to determinate the property taxes. The new owners paid the corresponding taxes before seeking a reduction upon the ground that their property was overvalued according to Real Property Tax Law (RPTL) Article 7.

Petitioners took the case to Supreme Court to contest the assessment made by the Taxing Authority.

Private residences are annually assessed by an Assessor by referring to the subject property’s characteristics and the comparable sales.

Under the Article 7 a proceeding to review an assessment of real property, the proceeding shall be brought at a special term of the Supreme Court in the judicial district in which the assessment to be reviewed was made. Moreover, the grounds for reviewing an assessment shall be that the assessment to be reviewed is excessive, unequal or unlawful, or that real property is misclassified (RPTL 706).

In a previous tax certiorari proceeding, the Supreme Court of New York considered that “a rebuttable presumption of validity attaches to the valuation of property made by the taxing authority” (Matter of Board of Mgrs. Of French Oaks Condominium v. Town of Amherst, 23 NY3d 168, 174-175, 989 N.Y.S.2d 642, 12 N.E.3d 1072). Petitioners need to rebut the presumption to present substantial evidence to demonstrate that the subject property is overvalued. The minimal threshold is met by demonstrating the existence of a valid and credible dispute regarding valuation based on sound theory and objective data.

However, the Supreme Court has consistently held that evidence of a recent sale of the property is a highly reliable measure of value. Nevertheless, the subject property should not be purchased in any abnormal manner, such as, for example, in a related party sale. Otherwise the purchase price shouldn’t be taken as evidence of real assessment.

Thanks to the associate real estate broker affidavit who had been engaged to sell the subject property, together with their owns, petitioners offered evidence that the subject property was overvalued by the assessor. Indeed, the property was for sale since June 2011, and had been continuously, publicly and widely advertised on a multiple listing service throughout the Capital Region.

The Appellate Court affirmed the lower court’s decision by taking account the petitioners’ evidence presented. It finally selected two essential points to retain petitioners’ assessment:

1. Supreme Court retains that the subject sale was an “arm’s length transaction” which means that is not explained away as abnormal by any fashion. It adds that this is the very best form of evidence.
2. Supreme Court highlights that the appraiser’s method of valuation makes him unable to obtain reliable adjustments by referring to comparable sales. Indeed, this appraiser was unable to inspect the interior or exterior of the subject property, which prevented him from providing a fair and realistic value of the subject property.

The Supreme Court confirmed a reversal of the burden of proof in favor of petitioners. The Taxing Authority should refer to the purchase price when the subject property has been sold by an arm’s length transaction shortly before the assessment unless the transaction was not arms-length.

This case illustrates the way to contest an assessment made by the Taxing Authority used to calculate the Real Property Tax. Even if Taxing Authority has a presumption of validity attached to the valuation of properties, it’s possible for the owners to challenge this assessment by giving the proof of a recent sale in normal conditions. Under these circumstances, the Taxing Authority should refer to this purchase price to determine the amount of Real Property Tax due.