The New York State Department of Taxation and Finance (the Department) has backed off from an aggressive position that it has been taking in cases involving New York residence issues.
Under New York law, a person who is not domiciled in the state can be treated as a resident for income tax purposes (and, hence, taxed on all of his or her worldwide income) for a taxable year if the person maintains a “permanent place of abode” in the state and is in the state for more than 183 days during the year. This is known as the statutory residence rule. New York City has an identical rule for purposes of taxing individuals as city residents.
The Department has historically taken the position that a house or apartment is a “permanent place of abode” if it is capable of being lived in as a regular residence even though the taxpayer does not so use it. This has presented a significant problem for people who live in the Connecticut and New Jersey suburbs of New York City and work in the city and keep a small apartment that they use occasionally when they work late or attend the theater. The Department has been treating them as residents because the apartment was a “permanent place of abode” even if they used it for only a few nights a year and their presence in the city for more than 183 days was a result of their jobs and had no relationship to the apartment. Similarly, out-of-state residents who commute to New York jobs and keep a vacation home in New York State have been held to be income tax residents even though they only use the vacation home for a few weeks each year.
The Court of Appeals, New York’s highest court, held recently that a person must actually use a dwelling as a residence for it to constitute a “permanent place of abode”. Matter of Gaied v. New York State Tax Appeals Tribunal, 22 N.Y.3d 592 (2014) (see prior coverage here). The taxpayer in that case lived in New Jersey but owned a house in New York City in which his parents lived. He spent a few nights a year in the house when his parents asked him to come over to help with medical problems. When he did so, he slept on a couch in the living room. He kept no personal effects in the house. The Court held, over the Department’s objections, that the purpose of the statutory residence test was to treat as residents people who really lived in New York but claimed that they were domiciled outside the state for the purpose of avoiding taxes. Mr. Gaied, in contrast, really lived in New Jersey, and the New York house could in no sense be viewed as his real residence.
The Department responded to the Gaied case by revising the internal guidelines that it gives to [...]