New York’s highest court narrows class of statutory residents: good news for some out-of-state owners of residential property in New York

by DLA Piper

New York tax law provides that a person who is in New York state for more than 183 days (in whole or in part) in a year and maintains a permanent place of abode in New York is a statutory resident, subject to tax on all income, regardless of that person’s place of domicile.

On February 18, 2014, in John Gaied v. New York State Tax Appeals Tribunal, the New York Court of Appeals (New York’s highest court), held that a person who spends more than 183 days in New York can be treated as a statutory resident of New York only if that person maintains a permanent place of abode in New York in which he or she has residential interest.

All of the income of a statutory resident, whether New York source or not, is allocable to New York, so this decision has a potentially enormous impact on non-New Yorkers owning or thinking about purchasing residential property in New York.

New York’s long-standing policy has been to treat as a statutory resident any person who maintains a residence in New York, whether or not such person actually resides there, as long as that person had unfettered access to the property and is in New York for more than 183 days in a year.  The Court of Appeals in Gaied held, however, that “there is no rational basis” for a policy that does not “look beyond the physical aspects of the dwelling to inquire into the taxpayers’ subjective use of the premises.” (emphasis added.)

The only issue in Gaied was whether a taxpayer not domiciled in New York who was in New York for more than 183 days in a year was a statutory resident because he maintained a permanent place of abode in New York in which he did not reside.  Although the taxpayer lived and worked in New Jersey and maintained a New York residence for the benefit of his parents, he had unfettered access to that residence, stayed there occasionally overnight, used the address as a mailing address and for other purposes, and voted in New York in the year prior to those in issue.

The Tax Appeals Tribunal initially reversed the Administrative Law Judge’s decision on the basis that the petitioner “did not have living quarters at his parents’ apartment” and therefore should not be treated as having a permanent place of abode in New York.  However, on reargument, the Tribunal reversed its decision and sustained the deficiency, stating that its initial decision was “an improper departure from the language of the statute, regulations, and controlling precedent.”  The Tribunal’s decision was upheld by the New York Supreme Court Appellate Division (Third Department), but reversed by the Court of Appeals.

That the facts were not “clean” and the procedural history was unusual and yet the taxpayer still prevailed sends a strong message to the New York State Department of Taxation and Finance not to overreach in treating those who are not domiciled in New York as statutory residents.

In Gaied, the Court of Appeals indicated that its review was limited to whether the interpretation by the Tribunal comports with the meaning and intent of the relevant statutes.  The court focused on the legislative purpose of the statute – which it described as “to prevent tax evasion by New York residents.”  The Court also cited Matter of Tamagni v. Tax Appeals Trib. Of State of N.Y., 91 N.Y.2d 530, 535 (1998), in which the Court of Appeals had “explained that the statutory residence provision fulfils the significant function of taxing individuals who are ‘really and [for] all intents and purposes…residents of the state’ but ‘have maintained a voting residence elsewhere and insist on paying taxes to us as nonresidents.’”

The Gaied case does not provide clear guidance on how to determine if a person is a statutory resident, but it does expand the opportunity for taxpayers to establish that they are not statutory residents because they do not live in New York.

Indeed, this case leaves open the possibility that even those persons who are in New York more than 183 days out of the year and who spend time in a residence that is not their primary residence will not be treated as statutory residents for tax purposes because the goal of the statute is to fairly tax residents rather than to tax those who really reside elsewhere. 

It is necessary to note, however, that the burden of proof with regard to residency is on the taxpayer. If one is considering purchasing a residence in New York and will be in New York regularly, it is advisable to consult a tax lawyer about the potential consequences of the purchase and the types of record keeping that are important to protect one’s interests.

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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