A client reached out to CBM for assistance with a state income tax audit–in particular, related to employee physical presence nexus for his home office, which was in a different state than his employer’s physical location. The client, an employee in New York City, had a corporate office at the employer’s headquarters and a home office in Connecticut. The client needed the two offices to perform his dual job positions, and according to the terms of his employment contract, one position required him to be in the NYC office while the other had no clear requirement about location. Partway through the employment contract, the client was relieved from the position that required him to perform his duties at the New York City corporate office. Shortly after filing his taxes, he received a notice about a New York State audit for three years.
The audit was performed virtually due to the COVID-19 pandemic. After CBM provided the auditor with all the documentation requested and our client’s non-residency was confirmed, the next step was to determine the home office nexus in his home state, Connecticut. Easier said than done, as even the auditor and her supervisor mentioned during one of our phone conferences, that very few home offices get nexus in their home state. But CBM was able to prove using the NY state guidelines for the convenience of the employer test that the Connecticut home office was indeed for the convenience of the employer by following the state’s test and answering its questions in a logical manner to benefit our client. Even though some of the specific factors which were answered “yes” would have led to failing the test, CBM was able to convince the auditors there was a logical or business reason behind the “yes” replies, but those questions should not be considered as factors for the convenience of the employer test in our client’s case.
After providing the auditors with all the additional documentation requested, they conceded to CBM’s position taken on the return: the non-specified location portion of his contact as having physical nexus in their home state of Connecticut. A no change audit opinion was issued and the client thus saved a significant amount in state income taxes.