The state of New Jersey is offering a tax incentive for residents to sue New York — and Connecticut may be next. It all stems from a New York tax law that says workers have to pay income tax to the Empire state if their employer is located there, even if they work from home in another state like New Jersey or Connecticut, except under limited circumstances where it’s required by an employer.

During the pandemic, tax attorney Open Weaver Banks worked from her New Jersey home but still paid income taxes to New York, where her firm was. The rates are similar, and she said she didn’t think too much of it at the time.

Now she’s appealing her New York tax assessment, saying she had to work from home. If she succeeds, New Jersey would ordinarily collect those taxes itself. But under the new policy, taxpayers get to keep half.

“This is the first time there’s really been an incentive for a New Jersey resident to say, ‘New Jersey should have really had a right to these tax dollars,'” she said. “And I’m going to try to go get it so that I can keep half of it.”

Connecticut lawmakers are considering a similar policy, with hundreds of millions in revenue at stake.

That could put pressure on New York to change its law, said Jared Walczak, vice president of state projects at the Tax Foundation.

“And maybe to eventually set the groundwork for a larger legal challenge,” he said. 

Walczak said the increase in flexible work raises constitutional questions about liability for taxes in multiple states.

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