by Peter L. Faber
Peter L. Faber is a partner with McDermott Will &
Emery LLP, New York.
The dissenting opinion in a new New York state
personal income tax decision offers a ray of hope for
practitioners who have long believed that the New
York State Department of Taxation and Finance’s
position regarding the statutory residence rules is
contrary to the statute.
New York, like most states imposing a personal
income tax, taxes residents on all of their worldwide
income, regardless of whether it has any connection
to New York. Nonresidents are taxed only on income
from New York sources.
A person who is legally domiciled in the state is
treated as a resident for that purpose. A person who
is not legally domiciled in the state is treated as a
resident for income tax purposes (but not for other
purposes, such as probate jurisdiction and service of
process) for a tax year if he maintains a ‘‘permanent
place of abode’’ in the state and is present in the
state for more than 183 days during the year. People
in that category are generally referred to as statutory residents.
A person’s legal domicile is generally defined as
the place that the person regards as his real and
permanent home. It is the place to which one returns
after absences.1 Determining domicile involves examining every aspect of a person’s life, including time
spent in the state, the size and nature of residential
properties, involvement in civic activities, proximity
of friends and family, club memberships, religious
affiliations, presence of favorite paintings and collections, presence of pets, and everything that makes
up one’s life. It is a subjective inquiry. The ultimate
question is the person’s state of mind, but that must
be proved by objective facts.
The statutory residence test was conceived of as
an objective surrogate for the domicile test. It was
intended to avoid the complex inquiry that goes into
determining a person’s domicile and to ensure that a
person who really lives in New York cannot avoid
resident status by arguing that his state of mind
places his primary loyalty elsewhere.
Unfortunately, the statutory residence test does
not achieve its objective. In my experience, the
application of that test, which involves the taxpayer
having to prove where he was every day of the year,
has proved to be much more complicated and expensive to administer for both the tax department and
taxpayers than has the domicile test.
The statutory residence test does
not achieve its objective. The
application of that test has proved
to be much more complicated and
expensive to administer for both
the tax department and taxpayers
than has the domicile test.
Recent cases have focused on the definition of permanent place of abode. If a person who is not domiciled in the state does not have a permanent place of
abode in the state, he can be present in the state
every day of the year and he will still not be a resident
for income tax purposes. The department has generally taken the position that a place is a permanent
place of abode if it is physically capable of being lived
in year-round without regard to the taxpayer’s actual
use of it. The courts have generally accepted the
department’s view, although that has led to some
strange results. In the recent case of the matter of
John Gaied v. New York State Tax Appeals Tribunal,
a divided court affirmed the Tax Appeals Tribunal’s
decision upholding the department’s position.2 Two of
2
1
Matter of Newcomb’s Estate, 192 N.Y. 238 (1908).
State Tax Notes, February 18, 2013
John Gaied v. New York State Tax Appeals Tribunal, App.
Div. 3d (3d Dep’t, Dec. 27, 2012).
477
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New York’s Statutory Residence Wars:
A Ray of Hope?
Special Report
Administration of Statute
The department has generally taken an expansive view of the statutory language.
The department views the word ‘‘permanent’’ as
relating to the nature of the residence and not the
taxpayer’s use of it. The only structural exclusion is
for ‘‘a mere camp or cottage, which is suitable and
3
Bill Jacket, L 1922, ch. 425.
Id.
Tamagni v. Tax Appeals Tribunal, 91 NY 2d 530, 673 NYS
2d 44, 695 NE 2d 1125 (1998) cert. denied, 525 U.S. 931
(1998). (For the decision, see Doc 98-15815 or 98 STN 99-22.)
6
Memorandum of Department of Taxation and Finance,
Bill Jacket, L 1954, ch. 99.
used only for vacations.’’7 A house or apartment that
is not a camp or cottage is treated as a permanent
place of abode even if it is in fact used only for
vacations. Moreover, an apartment occupied by a
student is excluded from the definition only if the
student is enrolled full time in an undergraduate
degree program. The department inexplicably has
excluded from the exception apartments occupied by
students attending graduate or professional schools.
Definition of Permanent Place of Abode
The regulations provide that a permanent place of
abode is ‘‘a dwelling place of a permanent nature
maintained by the taxpayer.’’8 Thus, in the department’s view, the word ‘‘permanent’’ relates to the
nature of the dwelling place and not the taxpayer’s
use of it. A house obviously qualifies. So does an
apartment or a condominium. It can also refer to
rooms or a part of a house. Furthermore, it is not
necessary that the taxpayer own or rent it. In The
Matter of John N. Evans, rooms in a rectory that the
taxpayer occupied under a consensual arrangement
with the church were held to be a permanent place of
abode because he contributed to the cost of maintenance, provided furniture, kept his personal belongings there, and basically lived there.9
An implication of the department’s position about
the nature of the permanence requirement is that
any solid structure of a residential nature can
qualify as a permanent place of abode even if it
clearly is not a significant residence of the taxpayer.
The problem is highlighted in connection with vacation homes. The department has drawn a line in the
sand here and indicated that a vacation home is a
permanent place of abode and therefore can result in
a nonresident being taxed as a resident even though
his use of the home is sporadic. The problem can be
illustrated by the example of a commuter who lives
in Connecticut, commutes to New York City every
day for work, goes home at night, and has a summer
home over the border in New York state. Even if the
summer home is used only sporadically and is by no
stretch of the imagination the taxpayer’s real residence, in the department’s view it will qualify as a
permanent place of abode. The result is that the
taxpayer will be a New York resident if his job
involves presence in New York City for more than
183 days during the year, which most jobs do. In
other words, there is no requirement that the presence in New York for purposes of the 183-day test
has anything to do with the permanent place of
abode that is located in New York.
4
5
478
7
620 NYCRR section 105.20(e)(1).
920 NYCRR section 105.20(e).
9
199 A.D. 2d 840 (3d Dep’t 1993).
8
State Tax Notes, February 18, 2013
(C) Tax Analysts 2013. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
the five judges dissented, however, and their opinion
is the first indication that at least some judges are
willing to dig beneath the surface to interpret the law
in light of the legislative intent. The case is likely to
be appealed to the court of appeals, the state’s highest court, and one hopes that that court will find the
dissenters’ views persuasive.
The statutory residence concept was added to the
law in 1922. Under former section 350(7) of the N.Y.
Tax Law, a person was treated as a resident if he
maintained a permanent place of abode in the state
and was present in the state for seven months or
more during the year. It is clear from the legislative
history that the provision’s purpose was to treat as
residents people who really were full-time residents
but who were taking the position that they were
domiciled outside the state. The Income Tax Bureau’s memorandum in support of the legislation
noted that ‘‘we have several cases of multimillionaires who actually maintain homes in New York and
spend ten months of every year in those homes
. . . but they . . . claim to be nonresidents.’’3 The new
provision was intended to tax as residents people
‘‘who, while really and [for] all intent and purposes
[are] residents of the state, have maintained a
voting residence elsewhere and insist on paying
taxes to us as nonresidents.’’4 As the New York State
Court of Appeals has noted, ‘‘The statute is intended
to discourage tax evasion by New York residents.’’5
Thus, the statutory residence test was conceived
of as a measure to prevent tax evasion by people who
really were New York residents but who were taking
the position that they should be treated as nonresidents because of some contacts outside the state,
such as owning a vacation home in Connecticut or
New Jersey. When the current rule that requires
presence in the state for more than 183 days during
the tax year was enacted in 1954, the department in
its memorandum of support said that the change
was necessary to address ‘‘many cases of avoidance
and evasion’’ of income taxes by people who really
were New York residents.6
Special Report
10
NYS Tribunal Tribunal, DTA No. 822324 (2011). (For the
decision, see Doc 2011-1276 or 2011 STT 16-18.)
State Tax Notes, February 18, 2013
a commuter becomes a resident of the state because
he spends a few isolated weekends at a vacation
home in the state is absurd.
The department’s focus on the permanence of the
structure rather than on the permanence of the
taxpayer’s use of the structure is misguided and
ignores the reason why the statutory residence test
was adopted by the State Legislature.
Gaied
John Gaied was domiciled in New Jersey and
owned a multi-apartment house in New York City.
Unrelated tenants occupied the apartments in the
basement and on the second floor and the taxpayer’s
parents occupied the first-floor apartment. Gaied
paid all the expenses related to the first-floor apartment. His parents had no income and relied on him
for their support. He listed the New York address as
being the address to which notices for him in his
capacity as a landlord should be sent. As landlord, he
had the right to enter the apartment at any time to
do whatever work was required of him in that capacity.
Unrebutted testimony showed that Gaied had no
bed or bedroom at his parents’ apartment and that
he did not keep clothing or personal possessions
there. He occasionally spent nights there at his
parents’ request because of their health concerns
(each had a chronic illness). When he did so, he slept
on a couch.
Gaied argued that he maintained the residence
exclusively for his parents and that it was their
abode and not his.
The New York State Department of Taxation and
Finance argued that there is no requirement that a
taxpayer live in an abode for it to be considered a
permanent place of abode. It rejected Gaied’s assertion that his use of the premises was controlling,
contending that the critical points were that he had
a legal relationship to the property and paid for its
upkeep and that the property met the physical
requirements of a permanent place of abode. In
effect, the division argued that the statutory residence requirements are met when living quarters
are permanent, capable of year-round use, and paid
for by the taxpayer. That the taxpayer did not live
there and that others did so was irrelevant. Given
that approach, it is hard to see why the department
would not view residential property held for rent to
third parties to be the owner’s permanent place of
abode.
When the case first came before the tax appeals
tribunal, the tribunal decided that the property was
not the taxpayer’s principal place of abode and held
that he was not a statutory resident. The division
moved for reargument on the grounds that the
tribunal’s decision was inconsistent with precedents. In an unusual move, the tribunal granted
reargument and heard the case again. This time, it
479
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The recent case of John J. and Laura Barker is a
poster child for the absurdity of that result.10 Mr.
and Mrs. Barker lived in Connecticut. Mr. Barker
commuted to New York City, where he worked as an
investment manager for a financial services firm.
After failing to find an adequate rental for a place to
spend the summers, they bought a summer vacation
home in Napeague, N.Y., on Long Island.
The tax years at issue were 2002, 2003, and 2004.
In 2002 the taxpayers spent 18 days at the house; in
2003 they spent 16 days at the house; and in 2004
they spent 18 days at the house. Almost all that time
was during the summer. Thus, the house was clearly
not their principal residence or even a significant
residence. It would be absurd to suggest that they
really lived there or that their Connecticut home
was not their real residence. Nevertheless, the Napeague house was a decent-size house and was
clearly ‘‘permanent’’ in the physical sense of the
word. One could have lived there full time if one had
wanted to, although the Tax Appeals Tribunal noted
that Napeague is a summer community and that not
much goes on there during the off-season.
Mrs. Barker’s parents lived nearby and used the
house several days a week during the summer and
on many weekends during the rest of the year. Her
father operated a small fishing charter business that
listed the house as its address.
It was agreed that Mr. Barker had spent more
than 183 days in New York state and city in each of
the tax years, and it was also clear that the Barkers
were domiciled in Connecticut, so the only question
in the case was whether the Napeague house was a
‘‘permanent place of abode’’ within the meaning of
the statute. The tribunal said that it was well
established that a dwelling was a permanent place
of abode when ‘‘the residence is objectively suitable
for year round living and the taxpayer maintains
dominion and control over the dwelling.’’ It did not
qualify as a ‘‘camp or cottage’’ because it was suitable for year-round living. Accordingly, the Napeague house was held to be a permanent place of
abode, and the Barkers were held to be New York
residents.
The result in Barker illustrates the extent to
which the department and the tribunal have lost
sight of the reason for the statutory residence requirement. Mr. Barker was in New York state for
more than 183 days because of his job, not because
he owned residential property in the state. The
residential property was in no sense his real home.
If the Barkers had rented a hotel room for the
isolated weekends that they spent in Napeague, a
question would never have been raised. To say that
Special Report
The dissenting opinion, in
contrast, focused on the
Legislature’s reasons for enacting
the statutory residence rule: to
prevent people who really lived in
New York from claiming
nonresident status.
The dissenting opinion, in contrast, focused on the
Legislature’s reasons for enacting the statutory residence rule: to prevent people who really lived in New
York from claiming nonresident status because of
other residential facilities maintained outside the
state. Quoting from an earlier decision, the dissent
said that claiming a permanent place of abode involved ‘‘doing whatever is necessary to continue one’s
living arrangements in a particular dwelling place.’’11
The dissent noted that the record established that
Gaied bought the property both as a place for his
parents to live and as an investment and not for his
own residential use. Gaied stayed overnight at the
apartment only occasionally and only when his
parents requested because his father needed help
because of a medical condition. It noted that Gaied
had no bed at the apartment and kept no personal
effects there. The record supported the infrequency
11
Matter of L. El-Tersli v. Commissioner of Taxation and
Finance, 14 App. Div. 3d 808, 810 (3d Dep’t 2005).
480
of his overnight stays. The other apartments in the
building were used exclusively for rental purposes.
The dissent concluded by stating that the purposes of the statutory residence rule required a
conclusion that the Staten Island apartment was not
Gaied’s permanent place of abode.
Conclusion
The dissenting judges in Gaied got it right. They
focused on the reasons why the Legislature adopted
the statutory residence rule and concluded that
Gaied’s apartment was not his permanent place of
abode because it was not used, and was not intended
to be used, by him for residential purposes. The
Court of Appeals should reverse the Appellate Division’s decision.
The same reasoning should apply to the vacation
home situation. It is ironic that a person who is
domiciled outside New York and is in New York for
more than 183 days during the tax year because of
his job should be treated as a resident for income tax
purposes merely because of the occasional use of a
vacation home. That is the opposite of the situation
that the Legislature had in mind when it enacted
the statutory residence rules. The Legislature was
concerned about people who really lived in New
York, had a vacation home in Connecticut or New
Jersey, and argued that they were domiciled in the
state of the vacation home and, hence, were not New
York residents. Although Mr. Barker used his New
York vacation home several weeks a year, the reasoning in that case could apply to a situation in
which a person had a vacation home in New York but
never set foot in it. It is absurd to suggest that a
person whose presence in New York was attributable
entirely to his job should be taxed as a resident
merely because he owned property in New York that
could have been used for residential purposes.
The department’s reading of the
statute is illogical and inconsistent
with the legislative design.
Department representatives with whom I have
discussed this question have indicated that they
believe that the statutory language requires them to
take the position that they have. They are wrong.
There is no reason why the words ‘‘permanent place
of abode’’ should not be treated as a single expression so that a person would not be held to be a
statutory resident unless he occupied the property
as a ‘‘place of abode’’ on a ‘‘permanent basis.’’ The
department’s reading of the statute is illogical and
inconsistent with the legislative design. If the department does not abandon its position voluntarily,
the Court of Appeals should make it do so.
✰
State Tax Notes, February 18, 2013
(C) Tax Analysts 2013. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
found, by a 2-1 vote, that Gaied was indeed a
statutory resident and that the New York City
apartment was his permanent place of abode.
Gaied appealed to the Appellate Division, Third
Department. On December 27, 2012, the Appellate
Division affirmed the tax appeals tribunal decision
by a 3-2 vote. The striking aspect of the case is not
that the court affirmed the tribunal’s decision but
that the court was divided. This may represent the
first breach in the armor of the department’s interpretation of the permanent place of abode requirement, and it offers hope to other taxpayers challenging the department’s position.
The majority opinion reasoned that the tribunal’s
determination was supported by substantial evidence and therefore must be upheld. It noted that
Gaied was a registered voter in New York, maintained a telephone and listed the utilities at the
apartment in his own name, paid all the expenses of
the apartment, and occasionally slept there. It said
that Gaied ‘‘failed to establish that he kept the
apartment exclusively for his parents.’’ That he
obviously did not keep the apartment for his own
residential purposes apparently was of no moment
to the court.