Permanent Place of Abode Requires Actual Use of Property as Taxpayer’s Residence

by Cozen O'Connor
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The New York Court of Appeals reversed the decision of the Appellate Division of the New York Supreme Court and held that in order for an individual to have a “permanent place of abode” in New York for purposes of determining whether the individual is a statutory tax resident, there must be some basis to conclude that the property owned by the individual was actually used as the individual’s residence. Matter of Gaied v. New York State Tax Appeals Tribunal, et al., Docket No. 26 (N.Y. Ct. App. Feb. 18, 2014). While the decision is not binding in states other than New York, the analysis is pertinent in the myriad states, including Pennsylvania, that have a statutory definition of a resident for tax purposes that is the same or similar to that of New York.

During the years at issue, Gaied was a domiciliary of and owned a house in New Jersey. He owned and operated an auto repair shop on Staten Island, New York, to which he commuted daily from his home in New Jersey. In 1999, Gaied purchased a multifamily apartment building on Staten Island for two purposes: to provide a residence for his elderly parents; and to use as an investment property. Gaied moved his parents into one of the apartments, arranged for all of their utilities and paid all of the bills. While Gaied had keys to the apartment, he contended that he did not actually live there, did not have unfettered access to the apartment, did not keep any clothing or personal effects there, and did not have any sleeping accommodations there. He testified that he slept at the apartment only on occasion and only at the request of his parents to attend to their medical needs, at which time he slept on the coach. The other two apartments in the building were leased to unrelated tenants.

New York’s personal income tax statute provides that an individual is considered a resident for tax purposes even if not a domiciliary if the individual spent over 183 days in the state and maintained a permanent place of abode in the state. For the tax years at issue, Gaied filed personal income tax returns with New York as a nonresident. The New York State Department of Taxation and Finance subsequently issued assessments for additional tax based on its determination that Gaied was a resident of New York. Gaied challenged the assessments, arguing that while he spent more than 183 days in New York during each of the years at question due to the location of his business there, he did not maintain a permanent place of abode in the state because he did not actually live at the apartment building he owned in Staten Island. The assessment was upheld on appeal by an administrative law judge, and thereafter, by the New York Tax Appeals Tribunal and the Appellate Division. The tribunal concluded that where an individual has a property right to premises located in New York, such premises will be considered a permanent place of abode for tax purposes and no inquiry is required into the individual’s subjective use of the premises as a residence.

On appeal, the New York Court of Appeals’ review was limited to whether the tribunal’s interpretation of New York law comports with the meaning and intent of the statutes involved. The Court of Appeals held that there was no rational basis for the determination made by the tribunal in regard to what constitutes a permanent place of abode. The court pointed to the fact that the personal income tax statute provides nothing other than that the “permanent place of abode” must relate to the taxpayer and that the legislative history of the statute shows its purpose was to prevent tax evasion by rich New York residents that spent most of the year living in New York but claimed tax residence elsewhere. Accordingly, the court held that in order for an individual to have a permanent place of abode in New York, he must actually use the premises as his residence.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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