By: The Attorneys of Tenenbaum Law, P.C.
The general rule is that a taxpayer may be considered to be a resident, and subject to tax on his worldwide income, if he falls within one of two categories: either he is domiciled in New York; or he/she is domiciled elsewhere and is a statutory resident of New York. To be a statutory resident, a taxpayer must maintain a permanent place of abode within the State for substantially all of the year, and be present in the State for more than 183 days of the year.
New tests consider physical attributes separately from the taxpayer’s relationship with the dwelling: Recent litigation has examined what it means to “maintain” a place in New York, and also when a dwelling would be considered a “permanent place of abode”. The cases have led to many questions and few answers. The new guidelines make it clear that the determination of “maintaining a permanent place of abode” is a two-prong test, consisting of physical attributes, and taxpayer’s relationship to the dwelling. The second prong is further broken down into seven factors to be evaluated. Both prongs must be satisfied for a finding that a taxpayer maintains a permanent place of abode within the meaning of the statute.
In the Barker case, the taxpayer argued that his summer home was not suitable for his and his family’s year-round use, and therefore did not meet the legal standard for a permanent place of abode. The NYS Tax Tribunal disagreed, holding that the physical nature of the summer home was the critical issue, not whether it was physically suitable for the taxpayer. The Tribunal determined that since the summer home could be used all year, it met the physical requirements to be a permanent place of abode. Consistent with the Barker court, the guidelines now delineate that the physical attributes are to be evaluated separately from the taxpayer’s relationship with the dwelling.
Look at the whole picture: In the Gaied case, the Tribunal determined that the taxpayer maintained a permanent place of abode and was a statutory resident, where he owned the Staten Island apartment lived in by his parents, and paid all the utilities, even though he rarely stayed overnight and did so only at the request of his elderly parents for medical reasons. Practitioners have been concerned that, based on Gaied, the Department would consider ownership to be paramount in determining that a dwelling is a permanent place of abode, to the exclusion of other factors. The 2012 guidelines explain that the Department’s position is that the Gaied case involved a combination of facts and circumstances, not simply ownership; and that the permanent place of abode finding is based on a totality of the situation.
In fact, the guidelines specifically provide that despite an ownership right in the dwelling, the taxpayer would not be considered to have the necessary relationship with the dwelling if it is used exclusively by others.
The seven factors of the relationship to the dwelling: The auditors are instructed to weigh all seven factors in order to reach a conclusion. The factors are: 1. Does the taxpayer own the dwelling? 2. Does he have a legal right to the abode? 3. Does the taxpayer contribute money or otherwise help to maintain the dwelling? 4. What is his relationship with others in the dwelling, for example family members? 5. Does he use the address for business or governmental purposes, such as voting or car registration? 6. Does he keep personal items there or have his own space? 7. Does he use the dwelling or have access?
While no one factor is determinative, the factors do not have equal weight. For example, if a taxpayer pays all the expenses and has unfettered access, the place may be considered a permanent place of abode, even if the taxpayer does not use the address for voting or receiving mail.
Some guidance on the college apartment: The guidelines go further and address a frequent concern of taxpayers, as to whether an apartment purchased by parents for a child in college would be considered a permanent place of abode to the parents. According to the guidelines, if the apartment is used “primarily” by the child, it might not be a residence for the parents.
To use the example of parents who buy and maintain an apartment for use by their college student child, a closer look at the seven factors would be needed to determine the parents’ relationship to the apartment. Relevant facts would include whether the parents keep some clothes in the apartment or how often they use a “spare” bedroom. The Department specifically acknowledges the common sense argument that the size of the apartment should be considered.
Now that the factors are elucidated, practitioners can instruct taxpayers regarding documenting the relationship to the dwelling, so as to be prepared if there is an audit.
Moving abroad? It’s not always a change of domicile: Another notable update to the guidelines is the addition of a section on change of domicile where the taxpayer claims to have moved to a foreign country. There are four factors to consider: whether the taxpayer is a permanent resident of the foreign country; whether the taxpayer has retained a NY residence, and how often he comes to visit NY; the nature and extent of the taxpayer’s NY business interests; and whether he files tax returns as a resident of the foreign country. The guidelines specifically note that the taxpayer’s decision to become a citizen of the foreign country should not be considered in the domicile determination.
There is also a new detailed discussion of the resident credit for taxes paid to other states and to other governmental entities such as Canadian provinces. The guidelines examine the type of income subject to the credit, limitations on the amount of the credit, and other circumstances which affect when the credit will be allowed.
While it remains to be seen how the guidelines will be put into practice by the auditors, the guidelines address many of the issues that have been discussed and debated for the past few years. With more clarity for the Department’s policies, practitioners and taxpayers have a better chance of making sure that they do not inadvertently fall afoul of the residency pitfalls.