Taxpayer Wins New York State Residency Appeal

By Editorial 26 February, 2014

The New York Court of Appeals, the highest court in the state, has decided that – contrary to New York's current "statutory resident" test – there must be evidence that a property has been used as a taxpayer's residence for that individual to qualify as a statutory resident of the state.

In Gaied v New York, the State Tax Appeals Tribunal decided on February 18 to side with the appellant Mr Gaied's argument that the standard to be applied when determining whether a person "maintains a permanent place of abode," for the purposes of determining residency in NY, should "turn on whether he maintained living arrangements for himself to reside at the dwelling."

During the relevant time period, Gaied lived in New Jersey. He owned an automotive service and repair business on Staten Island, New York, and commuted daily to work – a distance of about 28 miles. In 1999, he purchased an apartment building on Staten Island It was his parents who lived in the building, and Gaied only stayed in their apartment on occasion to attend to their medical needs. He leased the other two apartments in the building to tenants.

For each of the tax years in question, 2001 to 2003, Gaied filed nonresident income tax returns in New York. The New York Department of Taxation and Finance later issued a notice of deficiency for an additional USD253,062 in state and city income taxes, plus interest, determining that the petitioner owed New York taxes.

In an earlier ruling, the Tax Appeals Tribunal sustained the deficiency, concluding that in order to qualify as a statutory resident under the New York tax code, a taxpayer need not actually dwell in the permanent place of abode but need only maintain it.

Hodgson Russ, the law firm that argued Gaied's case, explained the Court of Appeals's ruling in favor of their client:

"For years, the Tax Department has broadly interpreted its residency rules so that an individual who maintained some connection with property in New York could be taxed as a resident of New York if they also spent more than 183 days here. In the Department's view, it didn't matter whether a taxpayer actually lived or resided in the state in any fashion – all that was required was that they maintained an abode."

"But as the Court of Appeals pointed out in its decision, this test, known as "statutory residency," was originally intended to discourage tax evasion by people who are "really and [for] all intents and purposes . . . residents of the state," i.e. people who really live here. Thus, in no uncertain terms, the court held that in order for an individual to qualify as a resident under this test, there must be some basis to conclude that the taxpayer maintained a dwelling in the state that was used as the taxpayer's residence."

"Stated another way, the court said the abode in question must relate to the taxpayer, and that the taxpayer himself must have a residential interest in the place. This result should affect many open cases as well as help restore the "statutory residency" test to its original intention; that is, to tax those persons (and only those persons) who really live in New York."

Commenting on the outcome, the firm said: "it's hard to overstate the significance of the court's decision, especially considering how often New York asserts resident tax treatment against individuals who clearly live in other states. This result should affect many open cases as well as help restore the 'statutory residency' test to its original intention; that is, to tax those persons (and only those persons) who really live in New York."

Tags: Individuals | Court | Compliance | Tax | Business | Tax Compliance | Law | Real-estate | United States | Standards | Individual Income Tax | Expats | Tax |


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