New York Advisory Opinion TSB-A-81(3)I: When allocating a nonresident employee's wages between New York and other states under the standard working-days formula, are paid holidays, sick leave, and vacation days counted as working days?

Plain-English summary

Robert E. Clausi, a nonresident who worked for his employer both inside and outside New York, asked how his paid holidays, sick leave, and vacation days should be treated when allocating his wages to New York under the standard nonresident income-allocation rules.

The Department explained that a nonresident's New York adjusted gross income captures only items "derived from or connected with New York sources" (section 632(a)), and where employment is carried on partly within and partly without New York, section 632(c) requires apportionment under Department regulations. The governing regulation, 20 NYCRR 131.16, allocates a nonresident employee's compensation using a working-days ratio: New York working days divided by total working days everywhere. Critically, the regulation expressly excludes nonworking days from that calculation altogether - "no account is taken of nonworking days, including Saturdays, Sundays, holidays, days of absence because of illness or personal injury, vacation, or leave with or without pay."

Applying that rule, the Department characterized salary paid for paid holidays, sick days, and vacation as a form of "wage continuation" - compensation that really reflects work performed throughout the year on actual working days, just paid out on nonworking days. Because of that, the correct approach isn't to allocate those payments separately using some other method; instead, they're allocated using the exact same New York-to-total ratio that applies to the employee's regular working-day wages. The Department gave a concrete illustration: if two-thirds of an employee's actual working days were spent in New York, then two-thirds of his pay for nonworking (paid) days is likewise treated as New York-source income. The bottom-line direction to Clausi was that no separate accounting should be made for his paid nonworking days - they ride along with the regular working-day allocation ratio.

What this means for you

Nonresidents who split their working days between New York and other states

When you or your employer calculates your New York income allocation, paid holidays, sick leave, and vacation days should NOT be separately counted as either New York or non-New York working days - they're excluded from the ratio calculation and instead simply follow the same New York-to-total percentage that applies to your regular working-day wages.

Employers computing nonresident payroll allocation and withholding

Apply your employee's New York-to-total working-days ratio uniformly to their entire compensation, including pay for holidays, sick leave, and vacation - don't try to determine "where" a vacation day was spent or allocate paid leave using a separate methodology.

Accountants preparing nonresident New York returns for multi-state employees

Compute the working-days ratio using only actual working days (excluding weekends, holidays, illness, and vacation from both the numerator and denominator), then apply that same ratio to the employee's full compensation, including pay attributable to nonworking days - no separate line-item allocation for paid leave is needed or permitted.

Common questions

Q: I split my working days between New York and another state - do my paid vacation days count as New York or out-of-state days in the allocation formula?
A: Neither - paid nonworking days (vacation, sick leave, holidays) are excluded entirely from the working-days ratio. Instead, the pay for those days is allocated using the same New York-to-total percentage that applies to your regular working-day wages.

Q: If two-thirds of my actual working days were in New York, does that mean two-thirds of my vacation pay is also New York income?
A: Yes - that's exactly the allocation the Department directs: paid nonworking days are treated as wage continuation and follow the same ratio as your regular working-day compensation.

Q: Does this rule ever let an employee claim vacation or sick days as "worked outside New York" to reduce their New York allocation?
A: No - the regulation excludes ALL nonworking days, whether paid or unpaid, from the working-days count in either direction; only actual days worked (within or without New York) go into the ratio.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a81_3i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81 (3) I
Income Tax
May 26, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I810328A

On March 26, 1981, a Petition for Advisory Opinion was received from Robert E. Clausi, 3 Azalea
Terrace, Cos Cob, Connecticut 06807.
The issue raised is the proper treatment of paid holidays, sick leave and vacation days of a non­
resident who performs services for an employer both within and without New York, for purposes of the
Personal Income Tax imposed under Article 22 of the Tax Law.
The New York adjusted gross income of a non-resident individual, the starting point in determining
his tax due under Article 22 of the Tax Law, includes the net amount of items of income, gain, loss and
deduction entering into his federal adjusted gross income which are "derived from or connected with New
York Sources." Tax Law, §632(a).
Section 632(c) of the Tax Law provides that:
"If a business, trade, profession or occupation is carried on partly within and partly without this state,
as determined under regulations of the tax commission, the items of income, gain, loss and deduction
derived from or connected with New York sources shall be determined by apportionment and
allocation under such regulations."
The Regulations issued in accordance with the foregoing provide, in relevant part, that
"If a nonresident employee ... performs services for his employer both within and without the State,
his income derived from New York sources includes that proportion of his total compensation for
services rendered as an employee which the total number of working days employed within the State
bears to the total number of working days employed both within and without the State. The items
of gain, loss and deduction (other than deductions entering into the New York itemized deduction)
of the employee attributable to his employment, derived from or connected with New York sources,
are similarly determined. However, any allowance claimed for days worked outside of the State must
be based upon the performance of services which of necessity - as distinguished from convenience ­
obligate the employee to out-of-state duties in the service of his employer. In making the a/location
provided for in this section, no account is taken of nonworking days, including Saturdays, Sundays,
holidays, days of absence because of illness or personal injury, vacation, or leave with or without
pay." 20 NYCRR 131.16.
Salary paid for non-working days is a form of wage continuation wherein payment is made in respect
of work performed throughout the year on working days. It is therefore appropriate to treat, for example, 2/3
of the payment for non-working days as derived from New York sources where 2/3 of the individual's
working days were spent in New York.
Accordingly, in making the allocation of Petitioner's wages and salary income to New York State
no account is to be taken of paid, non-working days.
DATED: May 22, 1981

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR