Morrison & Foerster LLP

The New York Appellate Division, First Department held that the U.S. Supreme Court’s 2015 decision in Comptroller v. Wynne does not render New York’s statutory residency scheme unconstitutional and upheld the dismissal of the complaint in Edelman v. Department of Taxation and Finance on June 26, 2018. 

Under New York law, individuals who are domiciled outside of New York may be taxable as statutory residents of New York if they maintain a permanent place of abode in New York and are present in the state more than 183 days during a year.  In 1997, the New York Court of Appeals (the state’s highest court) held that the risk of double taxation created by the scheme was not unconstitutional in Tamagni v. Tax Appeals Tribunal.  The Tamagni court quoted the U.S. Supreme Court case Goldberg v. Sweet for the proposition that the dormant Commerce Clause does not “protect state residents from their own state taxes.”  However, the U.S. Supreme Court in Wynne explicitly rejected that statement from Goldberg

Nevertheless, the Edelman court found Wynne distinguishable from Tamagni and refused to apply the internal consistency test to the facts of the case, in part because it reasoned that Wynne did not involve a situation where individuals were treated as domiciliaries in one state and statutory residents of another for income tax purposes and did not involve investment income.

A case involving similar legal issues is currently on appeal at the Third Department of the New York Appellate Division and is scheduled for argument in September.  The New York Court of Appeals eventually may have to resolve the question of whether the reasoning in Wynne, which applied the internal consistency test and held that Maryland’s residency-based income tax scheme violated the dormant Commerce Clause, conflicts with New York’s statutory residency scheme.

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