Statutory Residence in New York State
In New York, residency for taxation purposes is inferred based on behaviors of an individual in any given tax year. Residency does not exclusively hinge on a person’s official “status” as either a NY state resident or nonresident. In other words, a taxpayer may be a “statutory” resident for tax purposes based on their actions. This is something many New Yorkers are not aware of. Recently, we’ve heard about New York residents flocking to other states in search of a more favorable tax environment. The case of Donald Trump was the most prominent example of this type of behavior. Those who move to distant states, like Florida, are not as likely to be declared statutory residents, under current rules.
But what about those who move to nearby states and regularly commute to New York for work during the year? As two recent cases show, there are situations in which those who thought they were beyond the reach of New York taxation receive rude surprises.
In this post, we will review the current New York statutory residence rules for income tax purposes. We will also summarize the status of two recent cases involving New York statutory residence. Those planning to relocate, in order to avoid New York income tax, should consult with an experienced tax attorney or CPA in order to avoid unpleasant and costly surprises.
Overview of Statutory Residence Rules
The rules for determining statutory residency in New York are set forth on a State website. Specifically, the New York State Department of Taxation and Finance (NYSDTF) website. Residency in New York, for tax purposes, is based on two different scenarios. The first is whether a person is domiciled in New York. The second is when a person isn’t domiciled in New York, but maintains a “permanent place of abode” in New York for at least 11 months during the year, and spends at least 184 days in the State.
In the second scenario, any part of a day counts as a day for purposes of determining if the 184 number of days requirement is met. The terms “domicile” and “permanent place of abode” have very specific definitions for determining statutory residency for New York taxation. Basically, a place of abode is a residence, owned or not, that is maintained by the person and suitable for year-round use.
As you can imagine, many people who relocate to a nearby state, such as Connecticut or New Jersey, may also own or rent a residence in New York after relocating. And many people may commute to New York after relocating to one of these nearby states. This means that many people may potentially fall under the second scenario of statutory residency for New York income tax purposes.
Burden on Taxpayers in Residency Audits
Importantly, if New York audits and argues that a given person met the test for statutory residency, the burden is on the taxpayer to disprove statutory residency. So, for instance, the burden would be on the taxpayer to clearly demonstrate that he or she was not present in New York for 184 days during a given tax year. This may seem a bit oppressive, but that is the way the system works. Given the budgetary issues faced by the State, this harsh system isn’t likely to change anytime in the near future.
Recent Cases Involving NY Statutory Residence
One case involved an individual named David Russekoff. The audit findings revealed that Russekoff owed millions of dollars in back taxes to New York. This happened AFTER Russekoff relocated to Connecticut with his wife. Apparently, Russekoff kept a residence in New York after moving and spent at least 184 days in the State during the audit period. Thus, New York claimed he was a statutory resident for the tax years and therefore liable for New York income taxes. Russekoff, a hedge fund manager, reportedly earned millions from capital gains during the years in question. Russekoff attempted to argue that he was not liable for New York taxes because his income was not NY source income. However, if he was indeed a statutory New York resident, the source of his income would not be consequential.
Another case also involved a hedge fund manager who relocated to a nearby state. Nelson Obus relocated to New Jersey, but kept what he called a “vacation house” in New York State. Obus also spent at least 184 days in New York during the years in question. Accordingly, Obus was also a statutory resident for New York income tax purposes. About the best that can be said of the Obus result was that his New York tax burden was far less than Russekoff’s burden, although it too, was still very sizable.
Contact MC&C for Additional Information
The rules for determining statutory residency for New York income tax purposes are complex. The summary given above is only a brief introduction. In the future, we will come back and discuss the rules in greater detail. For instance, we will discuss the concept of “domicile” in greater depth. At Mackay, Caswell & Callahan, P.C., we do the tough research for the benefit of our clients. If you should fall into a situation such as those described above, give us a call. We can help walk you through the residency rules and help ensure that you minimize your tax burden. Contact one of our top New York City tax attorneys today for more information.
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