New York State and New York City have for many years been very proactive with regard to auditing individuals who claim they are no longer a New York State or New York City resident.  The Pandemic has accelerated the pace of individuals leaving the state and city.  The effect of the Pandemic was that many individuals began working remotely from the suburbs. The increase in crime and homelessness also resulted in many individuals having second thoughts about returning to New York.  

New York State and New York City have two sets of residency rules.  One is subjective, which is the Domicile Rule.  The other is objective, which is the Statutory Resident Rule.  New Jersey and Connecticut have similar residency rules.  Everything in this memo with regard to New York State residency rules applies to New York City as well.

Domicile Rule

The domicile rule revolves around one question – where does the taxpayer consider “home”, based on various factors:

  • The value of their residence compared to other residences that they have
  • For example, the taxpayer has a home in Florida valued at $200,000.  The taxpayer has a residence in Manhattan valued at $2,000,000.
  • Days spent in New York
  • The location of their business
  • The location of their family, especially minor children
  • The location of friends and organizations they frequent
  • The location of their prized possessions
  • The state of record for their Wills
  • The state in which their autos are registered

Many cases are not straight forward, as an individual may have several residences and spend time in all of them.  In addition, individuals may have long absences from New York, which is prevalent with regard to the Pandemic.  Long absences from New York does not necessarily result in a change of residency.  The taxpayer has to prove that they left New York and established residency in another state.  In other words, you need a clean exit and you have to stick the landing.  The best way to prove change of residency is to sell your historical residence in New York.  Do not buy or rent another house or apartment in New York of a lesser value because your exit will not be clean.  In addition, you need to prove that you have established a domicile in another state.  To prove this, see the aforementioned items noted above in the Domicile Rule.

Statutory Resident Rule

If you have a permanent place of abode in New York and spend more than 183 days in the state, you will be taxed as a New York state resident.

A “permanent place of abode” is a house or apartment you own or lease or is made available to you.  Therefore, if you are domiciled in Connecticut but have a pied-a-terre in New York, your day count is crucial.  Any length of time in New York is considered a full day in New York.  Airport and hospital visits are not counted.

A recently issued unanimous decision by New York Appellate Division has changed the definition of a “permanent place of abode”.  The facts of the case are a New Jersey resident owned a year-round house in upstate New York.  He used the house only for summer and winter vacations.  He also worked in New York City and was in New York more than 183 days.  

Under the prevailing rules he was a statutory resident of New York State.   He spent more than 183 days in the state and owned a permanent place of abode in New York, which made him a statutory resident.  The Appellate Division ruled that he was not a statutory resident because the house was only used for vacations.  In addition, the Appellate Division reasoned that he could not commute to his job in New York City from his house in upstate New York.

The decision represents a major change in the definition of a “permanent place of abode”.  This could be helpful to non-New York State residents who own vacation homes in New York State.  This decision is only binding on lower courts. Therefore it is left open whether New York State will litigate this further.

Substantiation and Residency Audits

Taxpayers should maintain a calendar with substantiation for days not in New York.  The New York auditors assume that you are a resident and it is up to you to prove otherwise.  You are guilty and need to prove your innocence.  There are several apps that are useful in maintaining your records, including TaxDay, TaxBird and Monaeo.

The state and city auditors are very experienced at tracing an individual’s whereabouts.  Consider the fact that they will check EZ Pass, the GPS on your phone(s) as well as paper records.  They will interview your building’s doormen as well as your domestic staff.

The New York State Department of Taxation and Finance has initiated a major new desk audit program.  Over 100,000 taxpayers have received an inquiry letter requesting more information regarding their residency status.  Taxpayers receiving this letter have either changed their New York State residency or reported less income sourced to New York State.  This letter is the first step towards a full-blown field audit.  If you receive these inquiries, contact your tax advisor.  Do not answer the inquiry on your own.

Individuals who are considering leaving New York because of the high taxes and/or are tired of the quality of life issues, need to speak to experienced tax professionals.  We at Perlson LLC are experienced in these matters and can assist you in making the right decisions.  Contact your tax professional at Perlson LLC at (516) 541-0022 if you have any questions.

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