A Stitch in Haste

ITEM: Apparently the word “virtual” doesn’t appear anywhere in the New York State Tax Code --

A telecommuter who lives out of state while working by computer for a New York employer must pay New York tax on his full income, the state's highest court ruled Tuesday in a case that could have wide implications in the growing practice. [Huckaby v. New York State Division of Tax Appeals, PDF – 33 pages]

The Court of Appeals said that computer programmer Thomas Huckaby who lives in Nashville, Tenn., owed New York income tax for his full salary, not just the time he spent working at his employer's New York offices.

"New York has the right to tax 100 percent of a nonresident employee's income derived from New York sources," according to the 4-3 decision by Court of Appeals. The court relied on a fairness rule called the "convenience of the employer" under law that says a worker's income is taxable if he chooses to live outside the state, as opposed to if he or she was transferred there.

In a strong dissent, Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is ... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."

MY TAKE: Telecommuting – and “teletaxation” – are the wave of the future. This nonsensical ruling is just Twenty-First Century “Penny in Your Pocket” jurisprudence. Unfortunately, New York is a highly persuasive jurisdiction in financial litigation – expect many other states to invoke this ruling. This could be the Poletown of the next centrury. Hit & Run chimes in, as does Out of Control.

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ITEM: The tax cheat cometh --

Americans' unpaid taxes are now topping $300 billion a year, with people who underreport their income the biggest culprits.
...
The IRS estimated the tax gap, the difference between taxes owed and taxes due, after auditing 46,000 people and combining those findings with older estimates of unpaid corporate, payroll and unemployment taxes. The report Tuesday estimated the gap at $312 billion to $353 billion for 2001, about 15 percent of the total taxes owed. Taxpayers were slightly less likely to comply with tax laws than they had been at the time of the latest previous study, completed in 1988.
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The audits found frequent mistakes reporting alimony income, unemployment compensation and state income tax refunds.

Everson said the tax agency will probably never collect every dollar owed. "No one should think we can totally eliminate the gap," he said. "That would take draconian measures and make the government too intrusive."

MY TAKE: The more oppressive taxes become (see the first item of this post), the more likely people are to try both to avoid (legal) and to evade (illegal) paying income taxes. Meanwhile, the more complicated taxes become, the more likely that people will make mistakes. In other words, is anybody really surprised by a story like this?