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Push-Back On New York’s Mission to Tax Non-New Yorkers?


Across the Hudson

Last week, Governor Murphy of New Jersey staked out a position on New York City’s congestion pricing proposal, stating that it “can’t be ‘on the backs of New Jersey commuters.’”[i]

“Whether it’s how we’re taxed by our neighbors or this proposal for a congestion-pricing scheme that would be a huge burden on commuters,” the Governor continued, “we can’t have it both ways.”

Of course, the Governor was referring to New York’s taxation of New Jersey residents who are employed in New York and whose earnings are taxed in New York, for which the New Jersey residents claim a credit against their New Jersey income tax liability on such earnings.[ii]

Then there is New York’s version of the “convenience of the employer rule”[iii] under which a nonresident employee (a resident of New Jersey) whose assigned or primary office is in New York, but who spends a “normal workday” at their home office outside New York (in New Jersey), will nevertheless be treated as having worked in New York on that day.[iv]

The preceding week, Murphy had “praised a bipartisan proposal” in Trenton that promises to give New York a taste of its own medicine by taxing “New York-based commuters who work in New Jersey.”[v]

Query how New York will react to its neighbor’s activities. Query whether Connecticut will follow suit.

Closer to Home

In the meantime, New York will certainly continue its efforts to collect tax from any individual that it deems has “sufficient” nexus to the State.

In a recent decision, however, the Division’s argument – that Taxpayer was liable for income tax as a statutory resident of New York State and City – failed in part because the court found that Taxpayer did not have a residential interest in new of the residential properties in question.[vi]

Connection to NY

Taxpayer was issued a form W-2 for wages from his employment with the CA College where he taught online during the Year. Taxpayer was also issued a form W-2 for wages from the NY College for work as a professor in New York.

In addition, Taxpayer reported capital gain for the Year from the sale of real property in California.

During most of the Year, Taxpayer’s position at NY College was temporary, but it became permanent at the end of such year.

From January 1st through November 1st of the Year, when he was not in California with Spouse, Taxpayer rented an apartment located in New York City (the “Rental Apt”) when working at the NY College. Taxpayer described this apartment as a place for him to do his schoolwork, such as grading papers, and sleep; “[i]t had a small kitchenette and a really tiny bathroom.”

Between November 1st and December 3rd, Taxpayer stayed with a friend in Harlem who had a three-bedroom apartment.

On December 3 of the Year, Taxpayer closed on the purchase of an apartment located in New York City (the “New Apt”). The record established that Taxpayer made a deposit payment on this purchase on or about October 27, and that Taxpayer’s use of the New Apt as a residence began in January of the following tax year, following the completion of construction work on the property.

The Tax Return and Audit

Taxpayer and Spouse filed form IT-203 (New York State nonresident and part-year resident income tax return) for the tax year in question (the “Year”) as nonresidents. On form IT-203, Taxpayer marked the “no” box when asked “Did you or your spouse maintain living quarters in NYS?” for that year.[vii]

During the following year, the Division advised Taxpayer that their New York State tax return for the Year had been selected for audit.

In the first of several information document requests (“IDR”), the Division requested, among other things, the completion and return of a nonresident questionnaire, Taxpayer’s federal individual tax return, and information regarding Taxpayer’s relationship with three New York addresses, including the Rental Apt and the New Apt.

The Division subsequently requested the lease agreement, proof of the rental payments made, and information regarding where Taxpayer stayed after the lease of the Rental Apt ended until Taxpayer closed on the New Apt.

In yet another IDR, the Division asked Taxpayer for several more documents and information, including a chronological history of his residence and employment, credit card and bank statements, employment contracts, calendars for days claimed to be spent outside of New York, cellphone number, carrier and monthly bills or statements, and Taxpayer’s closing statement for the purchase of the New Apt in December of the Year.

Based on the information provided, the Division determined that Taxpayer spent 202 days in New York City during the Year. In reaching this determination, the Division relied on bank statements from Citibank, plane and train e-tickets, email of flight itineraries, Chase credit card statements, and T-Mobile cell phone statements.

The Division issued Taxpayer a notice of deficiency asserting additional New York State personal income tax due for the Year. The deficiency was premised upon the assertion that Taxpayer was a statutory resident of New York State and City for the Year.[viii]

The Division’s finding of statutory residence, in turn, was premised upon the position that the Rental Apt and New Apt were permanent places of abode that Taxpayer maintained during the Year.

Taxpayer then filed a timely petition with the Division of Tax Appeals.[ix]

The Administrative Law Judge[x]

The Administrative Law Judge (“ALJ”) noted that a New York resident for income tax purposes is an individual who is either: 1) domiciled in New York; or 2) not domiciled in New York but who maintains a “permanent place of abode” in New York and is physically present in New York for more than 183 days during the taxable year.

Permanent Place of Abode

The ALJ first considered whether Taxpayer’s Rental Apt was a permanent place of abode. The ALJ determined that it was such an abode because the dwelling itself was suitable for year-round habitation and Taxpayer had the right to occupy it as a residence. [xi]

Substantially All of the Taxable Year

Next, the ALJ examined whether Taxpayer maintained a permanent place of abode for “substantially all of the taxable year” in accordance with the Division’s regulations. The ALJ noted that the regulations define this phrase as “generally, the entire taxable year disregarding small portions of such year”[xii]. The ALJ further noted Division policy during the time in question that defined this phrase more precisely as a period in excess as of 11 months.[xiii]

The ALJ found that Taxpayer maintained the Rental Apt from January 1st until November 1st, that he purchased the New Apt on December 3rd, and maintained that apartment until December 31 of the Year. According to the ALJ, these two periods totaled 11 months exactly. However, the ALJ found no evidence in the record regarding Taxpayer’s living arrangement in New York during the November 2 through December 2 period.

The ALJ concluded that Taxpayer failed to show that he did not maintain a permanent place of abode in New York during that period. The ALJ thus determined that Taxpayer failed to show that he did not maintain a permanent place of abode for “substantially all” of 2014.

Number of Days

The ALJ then examined whether Taxpayer proved that he was present in New York for fewer than 184 days during the Year. The ALJ noted that, generally, any part of a day in New York counts as a New York day, with an exception for traveling through New York or entering New York solely to board a plane, train, bus, or ship. The ALJ found that Taxpayer’s own travel documents and bank statements showed that he was in New York State and City for 174 days in 2014.

The ALJ found an additional 28 days where New York City was the destination or origin of travel. Because Taxpayer was departing from or returning to his New York City permanent place of abode on such days, the ALJ determined that these travel days counted as New York days and did not fall within the narrow “traveling through” exception.

With that, the ALJ concluded that Taxpayer spent 202 days in New York State and City during the Year.

Arguments On Exception

The ALJ thus sustained the notice of deficiency, following which Taxpayer timely appealed the ALJ’s determination to the Tax Appeals Tribunal (“TAT”).[xiv]

Taxpayer asserted that he did not maintain a permanent place of abode in New York during the Year and that he spent only 173 days in New York during that year.

Taxpayer contended that he stayed with a friend after leaving the Rental Apt on November 1st and that he left New York for the year in mid-December.

In reference to the 28 days where New York City was the destination or origin of travel, Taxpayer contended, incorrectly, that such travel days – i.e., days on which he was present in two states – should not be considered New York days.

In opposition to Taxpayer’s exception, the Division contended that the ALJ’s determination was correct in all respects.

TAT’s Opinion

The TAT began by explaining that New York State and New York City impose personal income taxes on resident individuals, and that the State taxes nonresident individuals.[xv] Residents are taxed on their income from all sources.[xvi] Nonresidents are taxed only on their New York State source income.[xvii]

The TAT observed that New York City’s definitions of a resident individual were identical to New York State’s, except for the substitution of the term “city” for “state.” [xviii]

Statutory Residence

A New York State resident individual, the TAT continued, includes a person “who is domiciled in this state”.[xix] A resident individual also includes a so-called “statutory resident,” which was defined as a person who was not domiciled in New York State, but who (1) maintained a permanent place of abode in the state for substantially all of the taxable year; and who (2) spent at least 183 days in the state during the taxable year.[xx]

The question before the TAT was whether Taxpayer was a statutory resident during the Year

For statutory residency purposes, a permanent place of abode is “a dwelling place of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer . . .”.[xxi] Such a dwelling must have the physical characteristics ordinarily found in a dwelling suitable for year-round habitation.

Residential Interest

Additionally, the taxpayer must have a “residential interest” in the property.[xxii] Citing the recent Obus decision,[xxiii] the TAT stated that “[t]he taxpayer must have utilized the dwelling as [their] residence; maintaining a dwelling that could be a permanent place of abode is not enough to establish status as a statutory resident.”[xxiv]

Accordingly, a residential interest determination necessarily involves a subjective analysis of the taxpayer’s use of the dwelling, including the nature and duration of such use. Relying on well-established precedent, the TAT explained that a residential interest may include an informal arrangement,[xxv] and that “maintaining” a place of abode involves “doing whatever is necessary to continue one’s living arrangements in a particular place.”[xxvi]

Taxpayer’s rental of the Rental Apt, the TAT stated, was the maintenance of a permanent place of abode for statutory residency purposes. The record showed: that this apartment was suitable for use as a residence; that Taxpayer had a right to use it as a residence; and that he did so. Taxpayer thus maintained a permanent place of abode in New York City during the period January 1st through November 1st.

In contrast, the New Apt was not a permanent place of abode for Taxpayer during any part of the Year. The TAT noted that a taxpayer must use a dwelling as a residence for the dwelling to be considered a permanent place of abode for statutory residency purposes. The TAT observed that Taxpayer did not reside in the New Apt until the following year. Thus, the TAT disagreed with the ALJ’s conclusion that Taxpayer maintained a permanent place of abode in New York for the period December 3 through December 31.

The TAT also disagreed with the ALJ’s conclusion that, by Taxpayer’s failure to detail his living arrangements in New York during the time between the end of his Rental Apt rental and the closing of the New Apt purchase – i.e., November 2 through December 2 – Taxpayer failed to meet his burden to prove that he did not maintain a permanent place of abode in New York during that time.[xxvii]

The TAT conceded that, although the record lacked specifics concerning Taxpayer’s living arrangements during this period, the facts that were present weighed in Taxpayer’s favor. First, it appeared that Taxpayer stayed with a friend. He thus did not have a legal right to occupy the dwelling. Under such circumstances, the TAT stated, one would consider a variety of factors to determine whether an individual has a residential interest in the dwelling, including the nature and duration of the use. Taxpayer’s living arrangement with his friend was brief and clearly temporary, considering that Taxpayer had begun the process of purchasing the New Apt prior to this period by paying a contract deposit.

Thus, the TAT concluded that Taxpayer’s living arrangement during this period did not constitute the maintenance of a permanent place of abode.

As noted, the TAT continued, an individual must maintain a permanent place of abode for “substantially all of the taxable year” to be considered a statutory resident. The regulations define this phrase as “generally, the entire taxable year disregarding small portions of such year.”[xxviii]

In its nonresident audit guidelines in effect for the Year, the Division interpreted this phrase to mean more than eleven months.[xxix] Moreover, the guidelines advised that residency periods at multiple abodes may be aggregated to ascertain whether the “substantially all of the taxable year” requirement has been met.

The Division’s guidelines, the TAT stated, were instructive but because Taxpayer maintained a permanent place of abode in New York only for the period January 1st through November 1st – a period of 10 months and 1 day – the “substantially all of the taxable year” requirement was not satisfied.

With that, the TAT concluded that Taxpayer was not a statutory resident of New York for the Year, and the ALJ’s determination was reversed.

Recap for 2022

The first question when determining whether a taxpayer maintained a permanent place of abode is whether the dwelling exhibits the physical characteristics ordinarily found in a dwelling suitable for year-round habitation.

If the dwelling is suitable for year-round habitation, the next inquiry is whether the taxpayer has a legal right to occupy that dwelling as a residence. If the taxpayer has a right to occupy the dwelling and has exercised that right by enjoying their residential interest in the dwelling, the taxpayer has maintained a permanent place of abode.

The taxpayer may also have a permanent place of abode where the taxpayer does not have such a “legal right” but nevertheless has a residential interest in the abode and has done whatever is necessary to continue their living arrangement at the abode.

In either case, one must then ascertain whether the taxpayer maintained the abode for substantially all of the year.

Beginning with tax year 2022, as stated earlier, Division policy defines “substantially all of the year” to generally mean a period exceeding 10 months. It is imperative to note that this “10-month rule” will be applied only in tax years where a taxpayer either acquires or disposes of their residence in New York.

Thus, a taxpayer who works in New York throughout the year and initially begins owning an apartment in Manhattan in March of that year generally will not be deemed a statutory resident on account of spending more than 183 days in New York during that year because the taxpayer did not maintain the abode for substantially all (more than 10 months of) the year in which the acquisition occurred.[xxx]

Likewise, if the taxpayer disposes of their New York permanent place of abode before November of a year in which the taxpayer was in New York for more than 183 days, the taxpayer will not be treated as a statutory resident for such year.

Sounds great, right?

But where was the taxpayer domiciled during that year?

Although the statutory residence test is applied to a taxable year during which a taxpayer has changed domicile from or to New York, the benefit of the “substantially all the year rule” will be for naught if the taxpayer remains domiciled in New York.

And you thought it would be easy.


[i] https://www.bloomberg.com/news/articles/2022-09-08/murphy-says-nyc-congestion-pricing-can-t-burden-n-j-taxpayers .

[ii] In effect shifting tax dollars away from New Jersey and to New York.

According to U.S. Representative Josh Gottheimer, “about 400,000 New Jerseyans work in New York City and pay as much as $3.7 billion a year in New York taxes.” https://www.bloomberg.com/news/articles/2022-09-08/murphy-says-nyc-congestion-pricing-can-t-burden-n-j-taxpayers .

[iii] 20 NYCRR 132.18.

[iv] That is unless the nonresident employee can demonstrate that their home office is a bona fide employer office.

[v]  https://www.bloomberg.com/news/articles/2022-09-08/murphy-says-nyc-congestion-pricing-can-t-burden-n-j-taxpayers .

[vi] Tax Appeals Tribunal, In the Matter of Pilaro (August 18, 2022).

[vii] Drives me nuts. Such a simple question. Bad way to start an audit.

The instructions read for the Year as follows: “If you or your spouse had living quarters available for your use in New York State during any part of 2014 (whether or not you personally used those living quarters for any part of the year), mark an X in the Yes box and complete Schedule B on Form IT‑203‑B.”

[viii] Taxpayer filed New York State resident income tax returns, forms IT-201, for the two tax years immediately following the Year.

[ix] The notice of deficiency gives a taxpayer 90 days to protest the asserted deficiency. Tax Law Sec. 2006.

[x] DTA NO. 829204.

[xi] The ALJ rejected Taxpayer’s argument that his New York stay during the year at issue was temporary because his job was temporary. The ALJ noted that the Division’s regulations formerly had an exception to the definition of permanent place of abode if the dwelling was for “a temporary stay for the accomplishment of a particular purpose.” The ALJ found, however, that the regulation was amended and the relevant language deleted effective 2009.

[xii] 20 NYCRR 105.20 [a] [2].

[xiii] Earlier this year, this period was shortened to more than 10 months. See my post regarding a change in the guidelines: https://www.taxslaw.com/2022/01/revised-nonresident-audit-guidelines-for-new-york-statutory-residence/ .

[xiv] A taxpayer has 30 days from an ALJ’s determination to appeal such determination to the TAT. 20 NYCRR 3000.17.

[xv] Tax Law § 601 [a] – [c], [e]; Administrative Code of the City of New York §§ 11-1701, 11-1902.

[xvi] Tax Law § 611 [a]; Administrative Code of the City of New York § 11-1711 [a].

[xvii] Tax Law § 631 [a].

[xviii] Tax Law former § 1305 [a]; Administrative Code of the City of New York former § 11-1705 [b] [1]. The Division’s income tax regulations are applicable to the City’s income tax. 20 NYCRR 290.2.

[xix] Tax Law § 605 [b] [1] [A].

[xx] Tax Law former § 605 [b] [1] [B]; 20 NYCRR 105.20 [a] [2].

[xxi] 20 NYCRR 105.20 [e] [1].

[xxii] Matter of Gaied v New York State Tax Appeals Trib., 22 NY3d 592, 598 [2014].

[xxiii] See my post regarding Obus at: https://www.taxslaw.com/2022/07/statutory-residence-in-new-york-time-to-rethink-the-permanent-place-of-abode-test/ .

[xxiv] Matter of Obus v New York State Tax Appeals Trib., _AD3d_, 2022 Slip Op 533310 [3d Dept 2022] citing Matter of Gaied v New York State Tax Appeals Trib., 22 NY3d at 598

[xxv] Matter of Evans v Tax Appeals Trib. of State of N.Y., 199 AD2d 840 [3d Dept 1993].

[xxvi] Matter of Mays, Tax Appeals Tribunal, December 21, 2017

[xxvii] Significantly, the Division did not take the position that Taxpayer maintained a permanent place of abode in New York during the November 2- December 2 period. Rather, it argued that Taxpayer failed to establish that he did not maintain such an abode.

[xxviii] 20 NYCRR 105.20 [a] [2]

[xxix] See 2014 Nonresident Audit Guidelines, State of New York – Department of Taxation and Finance, Income Franchise.

[xxx] By contrast, a taxpayer who rents out his NYC apartment for a few months each summer will still be determined to be maintaining a permanent place of abode in New York for substantially all of the year since that rental did not occur during the year of acquisition or disposition and it is available for use on a regular, continuing basis but for occasional or brief absences including short term rentals.

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The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the Firm.



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