Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York tax law.

The Connecticut vs. New York “Convenience Rule” Battle: After 15 years, Connecticut Blinks!

This problem spawned a couple of high-profile court battles that reached New York’s highest court, including one by a Connecticut resident who complained about the constitutionality of this double taxation. See Zelinsky v. Tax Appeals Tribunal of the State of New York, 42 1 N.Y.3d 85, 801 N.E.2d 840, 769 N.Y.S.2d 464 (2003) as explained here. And it also was the source of some consternation between the Connecticut and New York tax departments, with neither willing to budge.[1] I discussed some of these issues way back in the day, in this article here. Things have been quiet on the issue for the last decade or so, presumably with both states retreating to their corners and giving up the fight. But just recently, Connecticut finally relented, and enacted a convenience rule of its own! What follows are a few notes on this change.


So what’s the “convenience rule?” Under normal rules, nonresident income tax applies only to those wages that are earned for work performed within the nonresident state. For instance, if an employee is a resident of Connecticut and works one month in New York, only wages earned for that one month in New York are subject to New York nonresident income tax. But what if the Connecticut employee worked one month out of a home office?  Under the “convenience rule,” the days worked from home are still treated as New York work days unless the nonresident employee worked outside of New York by necessity because he could not provide those services elsewhere. Any allowance claimed for days worked outside New York State (here at the Connecticut resident’s home) must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the service of his employer.

But here was the problem. Connecticut didn’t have such a rule. Under Connecticut’s rules, if the employee worked at home in Connecticut, Connecticut treated those as Connecticut work days. So when the employee attempted to claim credit for the taxes paid to New York on the work-at-home days, Connecticut denied the credit. Under Connecticut’s rules, like most states, a resident credit for taxes paid to other states is only allowed for income that Connecticut would deem taxable by the other state, under Connecticut’s rules. So a perfect storm of double taxation ensued. The New York courts refused to quiet the storm. And Connecticut laid low on the issue as well.

Things got so bad, Congress even tried to get involved! In fact, one of the pieces of legislation was drafted and introduced by a Connecticut congressman, Rep. James A. Himes. Himes introduced the “Multi-State Worker Tax Fairness Act of 2014,” (H.R. 4085) on February 25, 2014 to prohibit a state from imposing an income tax on the compensation of a nonresident individual for any period in which such individual is not physically present in or working in such state or from deeming such nonresident individual to be present in or working in such state on the grounds that: (1) such individual is present at or working at home for convenience, or (2) such individual's work at home fails any convenience of the employer test or any similar test. This bill died shortly after it was introduced.

The New Connecticut Law

Well, problem solved. A couple of months ago, Connecticut issued its own version of a convenience rule. It takes effect for tax years beginning January 1, 2019. Here’s what the new law says:

By amending its state regulations, Connecticut’s legislature revised its Public Act 18-49, Sec. 20(2)(C) as enumerated below:

(C) For purposes of determining the compensation derived from or connected with sources within this state, a nonresident natural person shall include income from days worked outside this state for such person's convenience if such person's state of domicile uses a similar test (emphasis added).

Notice the twist though. This isn’t a full-on imposition of the convenience rule. Instead, it only applies if the taxpayer’s home state applies the same test. So under the new rules, Connecticut income tax is imposed on convenience days if:

(1) the state from which they perform those services is within Delaware, Nebraska, New York, or Pennsylvania (because this new Connecticut rule is invoked only when nonresident employees are residents of a state also imposing a similar rule), and

(2) the work is performed outside of Connecticut for other than a bona fide reason of the employer.

Example 1: Employee Richard performs accounting services from his home office in New York for Sparkle Paper Co., a Connecticut employer. All wages paid to him are subject to Connecticut nonresident income tax. Richard’s wages are also subject to New York resident income tax and income tax withholding; however, a credit is allowed for the Connecticut income tax withheld against the required New York income tax.

And note that the same thing should happen in reverse, to solve the old “Zelinsky” problem:

Example 2: Employee Richard performs accounting services from his home office in Connecticut for Sparkle Paper Co., a New York employer. All wages paid to him are subject to NY nonresident income tax. Richard’s wages are also subject to CT resident income tax and income tax withholding; however, a credit is allowed for the NY income tax withheld against his CT income tax.

This new telecommuter rule will not apply to sources of income from a business, trade, profession, or occupation carried on in Connecticut other than compensation for personal services rendered by a nonresident employee, and does not apply to sources of income derived by an athlete, entertainer or performing artist, including, but not limited to, a member of an athletic team.


There still will be some questions about how this applies in practice. For instance, although it is clear that “present in the state” for any part of the date constitutes being present for the entire day, it is uncertain if at least one day of work within Connecticut during the calendar year will be required to trigger the rule. Under NY’s rules, the convenience rule won’t apply to a particular tax year if the nonresident employee stays out of New York for the entire year. Also, although the law change is prospective, one wonders if the Connecticut DOR may be more willing to allow credits for taxes paid to other states on this issue for years prior to the law change.

But overall, kudos to Connecticut for making the change. And also, extra points for making it a reciprocal change only. While this admittedly adds some confusion to the application of the tax, it serves Connecticut interests by allowing it to still tax work-at-home days in many cases while making sure that it will do so only when it doesn’t result in double taxes for its residents. Very smart, very targeted, way to go Connecticut!

[1] See, e.g., Gavin and Pavano, "The Long Arm of the Empire State: Convenience Rule Discourages Interstate Telecommuting," 12 JMT 6 (Mar/Apr 2002) (Gene Gavin was then the Commissioner of the Connecticut Department of Revenue Services (DRS), and Stacey Pavano was a tax attorney in the DRS legal division).

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