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NYC Tax Fight Goes On

Out-of-staters who work in New York City soon must decide whether to play hardball over the city’s commuter tax, which was repealed last year — but only for New York state residents.

A trial court and a mid-level appeals court already have ruled that the selective repeal unconstitutionally discriminates against non-New Yorkers. But the courts refused to suspend collection of the tax, and the state instructed employers to continue withholding the levy from out-of-state employees while the matter heads for the state’s highest court, the Court of Appeals.

If the Court of Appeals does not rule before April 15, taxpayers who live in New Jersey, Connecticut and elsewhere must decide whether to file returns on the basis that the July 1, 1999 repeal also applies to them, or else report the full tax and file a claim for refund later, if the state loses its appeal. Because most of the commuter tax is paid by withholding, in most cases the state may simply deny the refund that taxpayers taking the more aggressive position will request. The taxpayer can renew the refund request if the courts ultimately strike down the tax, probably without risk that the statute of limitations will have lapsed in the meantime. Taxpayers who do not claim refunds on their original returns may lose the money that was collected unconstitutionally if they allow the statute of limitations to expire.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.