By The Attorneys of Tenenbaum Law, P.C.
As published in Nassau Lawyer, Journal of the Nassau County Bar Association, 61 Nassau Lawyer 7 (March, 2012).
Recent cases have addressed issues relating to whether a taxpayer should be taxed as a New York State or New York City resident, providing clarification for some areas and perhaps confusion for others.
A non-resident is taxed on income derived from NYS sources, while a resident is subject to NYS tax on his worldwide income. The law provides two avenues for an individual to be treated as a NYS resident: if the person is domiciled in New York State; or, if not domiciled in New York State, the person can be considered a statutory resident if he maintains a permanent place of abode in New York State and also is present in New York State for more than 183 days. The same qualifications apply when considering whether or not an individual is a New York City resident, substituting “City” for “State” as appropriate.
A taxpayer may have many residences, but only one domicile, defined as the place to which the taxpayer would normally return, or his “home”, with all the implications of that word. Where there is a change of domicile, the burden of proof rests on the party asserting the change; and the old domicile continues until a new domicile is established. In the typical case, the taxpayer has the burden to prove, by clear and convincing evidence, that he has changed his domicile from New York to another state; or in a NYC residency matter, from New York City to another location in New York State. The overarching consideration is the comparative strength of the taxpayer’s ties with both places, to prove that he has abandoned the old and established the new domicile.
The NYS Tax Appeals Tribunal has issued two recent opinions on the issue of domicile, in both cases affirming the opinion of the Administrative Law Judge.
Abandon the old. In Matter of Ingle, the taxpayer moved from New York to Tennessee in 2004. There was no dispute that Robin Ingle changed her domicile in 2004. The issue was whether her domicile changed at the end of March or at the end of June. The date was critical, because the taxpayer received approximately two million dollars in late April which would be subject to NY tax if she were a NY resident during that time.
The Tribunal held that she did not meet her burden of proof regarding her abandonment of the NY domicile. By keeping furniture and other items in the apartment, and extending the lease until she was able to move her things out, she held on to the NY domicile. The Tribunal emphasized that her pattern of life did not change, as she continued to travel for work and return to the New York apartment during the months following her claimed move at the end of March.
Taxpayers and practitioners often focus on the mechanics of moving into the new place, for example by buying furniture, or by making formal declarations of a change. One lesson to be drawn from Ingle is to make sure that sufficient attention is paid to abandoning the old location. Waiting a few months until her boyfriend had the time to help empty her apartment in New York cost Robin Ingle over $250,000 in tax.
Balancing the old and the new. In Matter of Taylor, the taxpayer, Eileen Taylor, moved from New York to London, England for her work at Deutsche Bank. At the first opportunity, after five years of residing in London, Taylor applied for and became a British citizen. The taxpayer’s position was that she changed her domicile and made England her home during the audit years, before she was a British citizen.
It is difficult to quantify the abstract concept of whether a taxpayer has truly changed his domicile, and in an effort to do so, the State has devised five major factors and numerous other factors to review. It could be argued that Taylor met her burden of proof on each of the five primary factors: home, active business involvement, “near and dear”, time, and family. Her home in London was more valuable than her residences in NY, and had costly renovations. Her work was based in London and she was employed full-time. Her most treasured possession, her grandmother’s ring, was kept in London. She spent more time in London than in New York. She was unmarried and close to her godchildren who lived in London.
The Tribunal, however, emphasized Taylor’s continued ties to New York. Importantly, even though she worked in England, her employment contracts considered New York to be her “home location”, and she was entitled to various benefits from that designation. The Tribunal concluded that, on balance, the taxpayer had not proven that she abandoned her NY domicile and established the London domicile during the years at audit.
Notably, Taylor did not have any traditional family ties to London, and regularly visited friends and family when she traveled to New York. It is conceivable that the decision would have been different if Taylor had met and married a Brit and had children in London. The Taylor case highlights the difficulty of proving that the New York domicile has been relinquished, while maintaining connections to New York – especially for a single taxpayer.
Statutory Residency While the question of domicile looks at the taxpayer’s “home”, the elements of statutory residency focus on whether the taxpayer maintains a permanent place of abode in the State, and whether he spent more than 183 days in the State. These elements would seem to be straightforward but as the discussion below shows, the answers are not so simple.
In general, a house or apartment “maintained” by the taxpayer may be a permanent place of abode, whether or not owned by the taxpayer, if it is available for substantially all of the year. Two recent opinions have involved the interaction of maintenance, ownership and the taxpayer’s access to the place.
Owning and maintaining a property may have unintended consequences. In Matter of Gaied, the taxpayer owned a multi-family building on Staten Island lived in by family members and third parties. The taxpayer was domiciled in New Jersey and spent over 183 days in NYC, due to his business on Staten Island. The crucial issue was whether the Staten Island premises would be considered a permanent place of abode for the taxpayer.
The focus was on the first floor apartment maintained by the taxpayer, where the taxpayer’s elderly, ill parents resided. The parents did not pay rent and the taxpayer paid for the utilities. The taxpayer stayed overnight occasionally when his parents needed his assistance; he did not have a bedroom but rather stayed on the couch. The Tribunal determined that the taxpayer’s use of the property was not at issue. Of importance was that the taxpayer maintained and owned the property, and had access to the property. The Tribunal upheld the Administrative Law Judge’s determination that it was “incredible” for the taxpayer to assert that he did not have unfettered access to his parents’ apartment, especially since he kept a set of keys there for all the apartments in the building, for emergency purposes.
The Gaied case illustrates the difficulties in determining whether a taxpayer has a permanent place of abode for statutory residency purposes, when the taxpayer owns and maintains the house or apartment for other family members. This could affect taxpayers who purchase or rent an apartment for a son or daughter after college, or those seeking to assist their elderly parents, as in Gaied. The issue is significant, as the State may impose penalties on taxpayers who fail to note on their tax return that they maintain premises in New York.
When moving out, give up your keys. In an advisory opinion, the Office of Counsel at the NYS Department of Taxation and Finance was faced with the question of whether a taxpayer’s NYC apartment was a permanent place of abode for the taxpayer, after he moved to Connecticut and put the apartment on the market. The taxpayer entered into a contract with the listing agent which required him to hand over his keys, and which prohibited him from accessing his apartment while it was for sale. One week before the closing, the taxpayer was allowed to re-enter the apartment to clear out remaining items.
Office of Counsel determined that the taxpayer’s lack of access would support a finding that it was not a permanent place of abode. The advisory opinion distinguished the Gaied case, noting that in Gaied, the taxpayer had unfettered access to the apartment he owned and maintained. It is unclear whether Office of Counsel would have reached the same conclusion if the contract with the listing agent had not been as explicit regarding access by the taxpayer.
As the above review of recent cases shows, taxpayers and practitioners need to be aware of the pitfalls involved in changing domicile, or in purchasing or renting a NYS or NYC residence. Without adequate planning, and careful attention to the law and factual details, taxpayers may find that their New York residence is more costly than they had anticipated.