by Brian Gordon, CPA
This article originally appeared in the December 2019 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.
A case concerning New York State statutory residency for the years 2012 and 2013 was recently decided by an Administrative Law Judge (ALJ) in the matter of Nelson Obus. This case reveals specifics of the law surrounding statutory residency, and how that law can potentially trip up taxpayers.
There are two ways an individual can be a resident for NYS tax purposes.
1. You can be domiciled in NYS.
In simple terms, this is your primary residence; your home base.
2. You can be a Statutory Resident.
A statutory resident is someone that is generally domiciled in a state other than New York, but they:
a. Maintain a permanent place of abode in New York, and
b, Spend more than 183 days in New York.
-Any part of a day counts as a day. Technically, even a few minutes counts as a day.
To be clear, you do not have to use the place of abode. The day count of more than 183 days means days in NYS – not days at the abode.
The case of Mr. Obus involves only Statutory Residency. He is domiciled in New Jersey and he maintains a permanent place of abode in New York.
What does it mean to maintain a permanent place of abode?
A permanent place of abode is a residence that is suitable for year-round use, meaning it must have heat for winter use, and it generally must have cooking facilities. According to NYS regulations, an unheated cabin that is only suitable to be used for vacations does not qualify.
The residence in question does not have to be owned by you. It may be leased, or by any other means you have a legal right to use it as your own residence.
The term “maintaining a permanent place of abode” means to do whatever is necessary to continue your use of the residence. This can be as basic as paying the mortgage or rent.
The relevant facts in the Obus case is that:
Mr. Obus is domiciled in New Jersey.
He works in Manhattan (NYC) and spent more than 183 days per year in NYC.
Mr. Obus owns a residence in the Adirondacks in northern New York State, about 200 miles from NYC. His residence has 5 bedrooms and 3 bathrooms. It also has a small attached apartment which has a year-round tenant who pays $200 per month. Mr. Obus used this residence for vacations, spending no more than 21 days there per year. He spent a short period of time there in the summer and again in the winter.
The NYS Tax Department’s position was that:
He maintained a permanent place of abode in NYS.
He spent more than 183 days in NYS. It does not matter that almost all of these days were in NYC, more than 200 miles from his NYS residence. The way the Tax Department sees it, he clearly meets the requirements for statutory residency.
The representatives for Mr. Obus argued that the facts in this case are similar to the facts in Gaied v. New York State Tax Appeals Tribunal. Mr. Gaied owned a four family residence. One apartment was occupied by Gaied’s parents, and Mr. Gaied would stay there occasionally. Since this multi-family rental property was maintained for the tenants use, this was not found to be a permanent place of abode for Mr. Gaied. He did not have a residential interest in the property. He was a landlord.
The Obus case is not the same. The small apartment that was rented in the Obus house did not encumber the main residence which was maintained for Mr. Obus and was available whenever he would want to use it. This argument that the residence was maintained for the tenants use was rejected by the ALJ.
The second argument made by the representatives was that this was a vacation home only, and that the regulations (mentioned above) excludes a vacation home from the definition of permanent place of abode. Again, this argument was rejected. This home is not an unheated cabin. It is a 5 bedroom home that is suitable for year-round use, and was in fact used in summer and winter. This same argument was made and rejected in the (Matter of Barker Tax Appeals Tribunal, January 13, 2011).
Interestingly, the Barker case also involved a residence which was a far distance (about 100 miles) from where the petitioner spent most of his NYS days. It was found in Barker that the distance from the residence in question is not a factor. If there is a qualifying residence in NYS, and there are over 183 days spent in NYS, the person is a resident. It does not matter if the days spent in NYS are near the residence or not. The issue of days spent within a certain radius of the residence has been brought to the NYS legislature, but there has been no change in the law.
This case resulted in dual residence for Mr. Obus. He is a resident of New Jersey because he is domiciled there. He is a statutory resident of NYS due to the laws described above. As a result, his intangible income (interest, dividends, capital gains) is taxed by both states. Resident credits are allowed only for income sourced to a particular state. Intangible income has no source, thereby creating the double taxation. Representatives for Mr. Obus argued that this type of double taxation is unconstitutional. This argument has been rejected by the Court of Appeals in the (Matter of Tamagni v Tax Appeals Trib. (91 NY2d 530 [1998]), wherein the statute was upheld as constitutional.
There is certainly a question of fairness or equity in a case like this. Should a house that is used only for vacations result in residency for the owner? Should days spent in NYC cause an individual to be a NYS resident when their house is 200 miles away? The resulting tax for this audit was $526,000 plus interest and penalty which would bring the total to around $1 million. There are numerous taxpayers forced to pay similar amounts due to these statutory residency laws. It is not likely that NYS would change these laws and give up this type of revenue.