Hitting You Where You Live: The Hidden Tax Perils of New York’s Residency Rules

U.S. citizens are taxed on all income, regardless of where that income is earned.  New York State takes a similar approach to taxing its residents’ income.  In addition, New York subjects nonresidents to taxation generic cialis buy online on certain categories of income sourced to New York.  The state aggressively pursues taxpayers who have “resident” attributes while declaring a “nonresident” filing status.  Consequently, certain nonresident taxpayers must take care not to run afoul of the complex rules New York uses to determine residency for tax purposes.

Three determining factors

Section 605(b) of Article 22 of New York State’s Tax Law defines who is a resident of New York based on three main characteristics:

  •  Domicile
  • Maintenance of a permanent place of abode
  • Number of days spent in the state each year.

After years of litigation, the following definitions are now incorporated in the tax regulations:

  • Domicile:  “the place which an individual intends to be such individual’s permanent home – the place to which such individual intends to return whenever such individual may be absent”
  • Permanent Place of Abode:  “dwelling place permanently maintained by the taxpayer, whether or not owned by him, and will generally include a dwelling place owned or leased by his or her spouse.  A dwelling which only contains bachelor quarters and does not contain facilities ordinarily found in a dwelling such as facilities for cooking, bathing, etc., will generally not be deemed a permanent place of abode.

A common instance in which careful planning is required involves New York nonresident taxpayers who have a second residence in New York State while working in New York State.  To avoid classification as a New York State statutory resident, taxpayers must be vigilant in keeping detailed records to show that, while not “domiciled” in New York, they did not spend more than 183 days in New York State.

The 2011 New York State Tax Appeals decision in the “Puccio” case has far-reaching implications.  The case illustrates how New York State pursues taxpayers in enforcing regulations and that, with very few exceptions, any part of a calendar day spent in New York is considered a full day for tax purposes.

Nonresident filers have the right to allocate their income based on days worked in New York State and would generally file Form IT-203-B to inform New York State of this allocation.  This calculation takes into account not only weekend days not worked, but also sick, vacation and other nonworking days.  However, a difficult issue arises when employees work from home and attempt to allocate those days as out of New York.  Under the rules, unless the employer obligates the employee to perform those services out of state for the employer’s benefit – where the duties cannot be performed at the employer’s place of business – those days are not considered out of state or nonworking days.

Residency and retirement

New York State residents planning to retire in another state generally must review a short checklist to determine whether a change in domicile exists for tax purposes – and can stand up to an audit.  The New York State “Nonresident Audit Guidelines” publication cites factors that are considered in reviewing a change of domicile.  Some of the factors which are typically weighted more heavily than others include:

  • Do the taxpayers continue to have active involvement in businesses in New York?
  • How much actual time is spent in New York each year?
  • What is the location of items that the taxpayers hold “near and dear”?
  • What are the taxpayers’ family connections in New York and elsewhere?

The same publication also cites a number of nonfactors in considering domicile.  These include:

  • Place of interment
  • Location where taxpayer’s will is probated
  • Location of bank accounts
  • Place where individual income tax returns are filed

Finally, several factors are considered to definitively show intention to effect a change in domicile, particularly when coupled with an actual acquisition of a new residence:

  • Sale of old residence
  • Cancellation of voter registration in old state
  • Cancellation of  checking/savings accounts in old state combined with opening accounts – including safe deposit rental agreements – in new state
  • Transfer of tangible personal property of significant value to new residence
  • Establishment of new affiliations with religious institutions in new community
  • Cancellation of auto registration in old state in favor of new state

The Bottom Line

Due to the multifaceted nature of the New York resident vs. nonresident issue, taxpayers should seek counsel when contemplating a decision to either change their domicile or acquire a second residence.  Your AKM CPA can help you plan ahead to take the right steps to protect yourself from unnecessary tax liability.

This entry was posted in News.