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Domicile & Residency Law

New York rules outline what a taxpayer’s domicile, or true home, is.  In cases where a person has multiple properties, it can be challenging to determine domicile, but the Tax Department uses five factors to establish where a taxpayer’s domicile is located:

1. Home

A number of questions are used by auditors to determine whether the taxpayer behaves as though the non-New York residence is their home. For example, is one residence owned or   rented? What are the value and size differences between the New York home and the non-New York home? What actions did the taxpayer take to remove himself or herself from the old community? Has the taxpayer established roots in the new community? Where does the family spend holidays and special occasions?

2. Time

Timing is important in questions of domicile, and even if a taxpayer takes pains to spend less than six months in New York to avoid being deemed a statutory resident (more on this below), he or she may still have a domicile issue to resolve.

The domicile test focuses on a change in patterns more than just the number of days in and out of New York. But, if the taxpayer does not spend more time in their claimed home than in any other location, an auditor will ask questions. The time factor is sometimes less important for those who commute into New York for work, for example. Even if the taxpayer spent 250 days in New York, if they didn’t spend a single night in New York during a particular tax year, the 250 days will be less significant than other factors. Of course, excellent documentation, including credit card receipts, tollbooth receipts and other paperwork are generally required to prove day-to-day location for every single day in an audit period.

3. Active Business Involvement

If someone establishes a career in New York State, as well as a home, and takes an active role in decision-making in a business, that can be seen as an indication the domicile is in New York State. Even after retirement, if a taxpayer maintains close business connections in New York, this can be used to determine domicile in New York State.

4. Personal Items

The idea is that specific, treasured items are more likely to be kept in the residence which is considered “home.” Auditors will look at the location of items that are of value to the taxpayer, whether the value is monetary or sentimental.

5. Family

Auditors are supposed to consider only where a taxpayer’s spouse and minor children live. Sometimes the location of where the minor children attend school can be an important factor in a domicile test. Occasionally, however, the location of other family members like siblings and parents may be determinative in a change of domicile.

Even if a taxpayer is not domiciled in New York, he or she can still be taxed as a statutory resident. A taxpayer can be a resident if he or she qualifies as a statutory resident of New York State or New York City under section 605(b)(1)(B) of the New York Tax Law. A statutory resident is one who “is not domiciled in this state but maintains a permanent place of abode in New York State and spends in the aggregate more than 183 days of the taxable year in this state.” Those are two separate requirements: A statutory resident must both maintain a permanent place of abode (PPA) in New York and spend more than 183 days in New York.

The first requirement, maintenance of a PPA, has different parts. First, the place of abode must be a dwelling place, meaning it must be suitable for human habitation throughout the year. A rustic hunting camp lacking running water and heat, for example, would not qualify as a taxpayer’s PPA. Nor would a dwelling that is suitable for living but used only for vacation purposes, perhaps because it doesn’t have heat in the winter or year-round road access.15 And significant construction on an abode can also undermine the notion that it is a PPA. Photos, utility bills, construction documentation, and other materials could be used to prove all that.

Also, the taxpayer must maintain the place of abode as a residence for himself. Ownership or a property interest in the dwelling is irrelevant. For many years, taxpayers and the New York tax department have disagreed over what is required for a taxpayer to be considered maintaining a PPA in New York. New York’s highest appellate court recently addressed that issue in Matter of Gaied, 22 N.Y.3d 592 (2014), a groundbreaking case where Hodgson Russ represented the taxpayer. The Court in Gaied held that in order for a dwelling to constitute a PPA, the taxpayer must “use the place as a residence.”  The PPA must also be maintained for substantially all of the year, which the tax department has historically interpreted as a period exceeding 11 months. Some taxpayers rent out their place for a short time during a tax year, or their apartment is unavailable because of construction or other issues. Under the 11-month rule, those taxpayers probably would not meet the statutory residency test, although the department has recently called that into question as well.

The second requirement is often the most difficult and frustrating aspect of a residency audit. Any individual who maintains a permanent place of abode in New York must keep adequate records showing he or she did not spend more than 183 days in New York during the tax year. The taxpayer must show he or she was present in New York for less than 184 days, and “any part of a day” spent in New York is counted as a New York day. For example, if the taxpayer travels to New York on a Sunday night, works there Monday, and leaves Tuesday morning, this counts as 3 days in New York even though the taxpayer only worked for one day in New York. The burden of proof is on the taxpayer, and unidentified or undocumented days are counted as New York days.

Whether you have been subject to a New York residency audit, have questions about filing taxes or establishing residence in New York, contact the New York tax attorneys at Hodgson Russ LLP. Our team can handle multistate claims, audits, and a variety of tax issues. Contact us today for a consultation to discuss the specifics of your situation.