New York Slice: 2020 Yr-in-Assessment (Half One)

The fallout from the Covid-19 health crisis has dominated almost every part of New York life in 2020, including New York tax law. While initial steps taken during the crisis provided temporary relief to New York taxpayers, many subsequent developments are likely to challenge New York taxpayers for years to come. This edition of New York Slice focuses on some of the most important New York legislative and regulatory tax developments. We will address litigation developments in a subsequent article.

Department Responses to Covid-19

Like other state and local revenue departments, the New York State Department of Taxation and Finance (NYS Tax Department) and New York City Department of Finance released guidance providing filing relief to taxpayers during the early stages of the Covid-19 health crisis. Relief included the automatic extension of corporate tax filing deadlines, waiver of penalties for late-filed corporate and sales and use tax returns, and temporary authorization for the use of digital signatures.

As the crisis dragged on, however, it became clear that taxpayers needed substantive guidance regarding the treatment of out-of-state employees who generally work in New York offices but could not work from those offices during the pandemic. In October, the NYS Tax Department released FAQs addressing how these teleworkers are treated for purposes of the “convenience of the employer” test. According to the FAQs, employees based in New York offices who are teleworking outside the state due to the Covid-19 pandemic generally must continue to source their income to New York under the “convenience of the employer” test.

New York has long applied a “convenience of the employer” test, which deems a nonresident who teleworks outside the state to be working at its employer’s New York location (and, hence, requires such wages to be sourced to New York), unless the nonresident teleworks out of necessity for the employer and not just for the employee’s convenience. The convenience of the employer test has survived judicial scrutiny in New York courts. See e.g., Zelinsky v. Tax. App. Trib. However, it is far from clear whether it should apply in the context of a global pandemic, where employees are either being required to work from home under state health and safety regulations, or are being prevented or discouraged from working in their offices by their employers.

The Massachusetts Department of Revenue has promulgated a temporary emergency regulation that effectively adopted a temporary convenience of the employer test during the Covid-19 pandemic. The state of New Hampshire filed a complaint in the U.S, Supreme Court requesting that the Court rule that the Massachusetts regulation is an unconstitutional “extraterritorial assertion of taxing power.” New Hampshire v. Massachusetts. If the Court decides to hear the case, a decision by the Court could limit New York’s convenience of the employer test as applied during the Covid-19 health crisis or on a more long-term basis.

Application of Covid-19 Executive Orders to Administrative Tax Appeal Deadlines

In connection with his prior declaration of a disaster emergency related to Covid-19, New York Governor Andrew Cuomo released Executive Order 202.8, which tolled deadlines “for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding” from March 20 until April 19, 2020. Subsequent executive orders extended the tolling period until Nov. 3, 2020.

The New York City Tax Appeals Tribunal (City TAT) provided guidance on its website confirming that Governor Cuomo’s Executive Orders extended the time limitations for filing an appeal at the city level. However, the New York State Division of Tax Appeals (State DTA) has stated on its website that it does not have “the authority to waive statutory deadlines” and that “any petition, exception, or request for an extension of time to file an exception must be filed … by the current statutory deadline”—indicating that it believed the Executive Orders did not extend administrative tax appeal filing deadlines. Although the City TAT and State DTA has been releasing contradictory guidance since at least April, no subsequent Executive Order issued by the governor has cleared up the confusion. It is likely that future litigation will be necessary to address the issue.

New Advisory Opinions Are Here Again!

After years of decreased advisory opinion output, the NYS Department released dozens of advisory opinions this year. An advisory opinion outlines the NYS Department’s interpretation of New York statutes and regulations as applied to a specified set of facts provided by the petitioner requesting guidance. While advisory opinions are made available to the public, they are only binding upon the NYS Department with respect to the petitioner.

In recent years, the issuance of advisory opinions by the NYS Department had ground to almost a complete halt. For example, the NYS Department issued 53 advisory opinions addressing sales and use tax issues alone, but only issued two advisory opinions (including one addressing a sales and use tax issue) in 2019. Taxpayers have frequently complained of extensive, multi-year delays by the NYS Department in issuing advisory opinions, causing many taxpayers to give up on requesting an advisory opinion at all.

In 2020, however, the NYS Department issued 35 advisory opinions. Twenty-nine of these new advisory opinions related to sales taxation and addressed a variety of issues, ranging from the taxation of clothing rental subscriptions, membership and rental charges for the use of climate-controlled doghouses, and whether “mitten clips” are articles of clothing that may be exempt from sales tax if they cost less than $110 (unfortunately, the NYS Department concluded they are not).

Other advisory opinions provided guidance about the NYS Department’s position that so-called “software as a service” may be treated as “prewritten computer software” subject to sales and use tax. For example, in one advisory opinion the NYS Department concluded that a service that helped reimburse retailers that accepted of manufacturer’s coupons was not a taxable service, even though the service provider offers access to online “prewritten software” related to its services. According to the NYS Department, such software had “limited functionality” and was a mere “incidental part of the (coupon clearing) service” provided.

We understand that some (if not most) of the advisory opinions issued this year had been requested years earlier, which can be frustrating to taxpayers seeking guidance regarding the collection of sales and use tax on products and services not clearly addressed under New York law. Nevertheless, the increased issuance of advisory opinions by the NYS Department may suggest that the advisory opinion process is a viable option for New York taxpayers.

Bills, Bills, Bills …

New York State budget legislation for the Fiscal Year 2021 (finalized in April) was relatively tame from a tax standpoint. Most notably, the legislation decoupled New York State franchise tax (under Article 9-A) and the New York City corporation tax from certain changes to Internal Revenue Code Section 163(j) emanating from the federal CARES Act.

Next year’s budget legislation, however, is likely to be far more controversial. The state is projected to have a $16 billion deficit in Fiscal Year 2022 and additional multi-billion dollar deficits in subsequent years, while both New York City and the Metropolitan Transportation Authority are projected to have billions of dollars more of their own deficits.

Governor Cuomo, without providing details, recently acknowledged that the state must raise taxes—and in recent months New York’s legislators have introduced a variety of bills proposing to do just that. While many proposals, such as increasing personal income tax rates for high income earners, are unsurprising (even if they may further incentivize New Yorkers to leave the state), others represent downright awful tax policy that would likely cause further deterioration to New York’s business environment. Especially bad ideas include:

  • Revival of New York’s Stock Transfer Tax: New York has long had a tax on transfers of stocks, stock sales agreements, and certain other transactions occurring within New York state, but that tax has been fully rebated to taxpayers since 1981. Legislation introduced this year would either repeal the rebate in full or in part. Similar proposals in New Jersey to impose a tax on financial transactions such as stock sales caused companies to make preparations to move out of New Jersey. If New York revives its stock transfer tax, many financial institutions would similarly look to leave the state altogether, a move that would have disastrous long-term consequences for New York’s economy.
  • Taxation of Digital Advertising: Following legislative proposals in Maryland and the District of Columbia, separate proposals in New York would subject digital advertising services to sales and use taxand establish a new tax on “gross revenues derive(d) from digital advertising services.” Such taxes will be subject to scrutiny under the U.S. Constitution and the federal Internet Tax Freedom Act, which could prevent them from generating any revenues. Further, even if such taxes survived judicial scrutiny, they would have a substantial negative impact on small businesses who purchase advertising services—at a time when small businesses in New York are already suffering.
  • Tax on Broadband Internet Access Service: Companion bills introduced this month would impose a temporary tax on businesses that provide broadband internet access service. The proposal—which would leave it to the Department to determine the appropriate tax rate to fund broadband internet services for educational purposes—would prevent an internet access service provider from passing through the tax to customers “as a fee, charge, increased service cost, or by any other means.” Preventing companies from itemizing a tax on its invoices raises significant First Amendment concerns, in addition to the constitutional and Internet Tax Freedom Act issues associated with the proposed tax.


New York taxpayers are encouraged to pay special attention to New York tax legislation and policy in 2021. Governor Cuomo is expected to release draft Fiscal Year 2022 budget legislation by January 19, and for the first time in his tenure, he will have to negotiate final budget legislation with veto-proof Democratic supermajorities in both the New York State Assembly and Senate. Future editions of New York Slice will keep you up-to-date on New York developments—be prepared for some heartburn.

This column doesn’t necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners.

Author Information

Eversheds Sutherland (US) LLP Counsel Michael Hilkin focuses on tax controversy and transactional issues relating to state and local income, franchise, sales and use, gross receipts and other business taxes.

Chelsea Marmor is an associate with Eversheds Sutherland in New York.