Do you have a second home? If you have a primary residence outside New York State, but also own or use residential property in New York State, you may be subject to a residency audit. The same is true if you have a home within New York City and another home outside New York City. Residency audits can result in significant tax liability. That’s because taxpayers found to be New York State residents must pay New York State income tax on all income, regardless of where it is earned. Nonresidents pay tax to New York State on only New York State source income.
The issue of whether or not you are a New York resident for income tax purposes is complex. Even if you reside outside New York most of the time and just have a second home in the state, you could still be considered a NY resident. There are 2 tests for New York State residency and the key points to remember are as follows:
1.Where is your domicile – the one place you intend to have as your permanent home?
Auditors will look at a number of factors to determine your domicile. They will want to know information such as: What is the use, maintenance, value, and size of the New York State home as compared to that of the non-New York State home? Where do you conduct your business activities? Where is your family residing? Where do you keep special items? (photos, jewelry, pets, etc.) How much time do you spend in New York as compared to your out of state residences? Other factors like where you have a driver’s license, register to vote and have bank accounts, won’t help you, but can be held against you. Remember even if you do not spend significant time in the State, New York can still be considered your domicile.
2. If your domicile is not in New York, do you maintain a permanent place of abode and spend more than 183 days of the year in New York?
New York defines a permanent place of abode as a residence (building or structure in which a person can live) that is maintained by the taxpayer and is suitable for year-round use. It doesn’t matter whether you own the place and doesn’t matter whether you stay there when you come to New York. Even if others are using the place (relatives, renters, etc.), it could still be considered your abode under certain circumstances. Some of the key considerations are whether you have unfettered access to the place, that it’s suitable for use year-around, and it is habitable and being maintained for more than 11 months of the year. When it comes to counting days spent in New York State, generally the rule is that a partial day counts as a full day, with some limited exceptions.
3. Do you have documentation to prove your case?
A residency audit is very document intensive and personally invasive. Auditors can look at appointment calendars, credit cards, passports, phone bills and other documents to determine whether you have met either of the tests for New York residency. You must be prepared.
If you have received a residency audit questionnaire or notice, contact us for assistance.
To learn more about New York Residency Audits, download our free eBook.