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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.


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A Huge Win in Obus

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Big news on the residency front!

For years we’ve been battling the New York tax department on the scope of its statutory-residency test, and yesterday brought a huge victory in that fight.  In Matter of Nelson Obus et al., v New York State Tax Appeals Tribunal, the court ruled that a seldom-used vacation home in New York cannot be considered a “permanent place of abode” for statutory residency purposes. Click here for the decision.

We here at the Noonan’s Notes blog don’t like to gloat, and we’d never say “I told you so.” But, well, we kinda did!  Indeed, this debate has been brewing for years. In a similar case our firm litigated more than a decade ago, the Tax Appeals Tribunal in Barker held that a vacation home can constitute as a permanent place of abode under the statutory residency test, even if it was barely used; all that was required was a review of the objective aspects of the abode. If the taxpayer owned or controlled it and it was suitable for someone to use, that was all that mattered, even if the taxpayer barely ever used it.

That never sat well, and it never seemed right. So a few years later, our firm litigated the Gaied case, in which New York’s Court of Appeals employed an analysis that seemed at odds with Barker, holding that “in order for an individual to qualify as a statutory resident, there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.” In Gaied, the court looked to the purpose of statutory residence in the first place, noting that the statutory provisions were really designed to tax people who “really are residents” and, more specifically, that in order for a dwelling to constitute a permanent place of an abode under the statutory residency test, there must be some evidence that the dwelling was utilized by the taxpayer as a residence.

Now that was more like it! So with the win in Gaied, it was definitely time to give the Barker issue a second look, and that’s where Mr. Obus comes in. He lived in New Jersey but worked in New York City and maintained a vacation home upstate. And while he spent more than 183 days in New York City for work, he only used his vacation home for 3 weeks a year, it was four hours from where he worked, and he and his wife didn’t keep things there. And even though the place was large and definitely suitable for year-round use, the court discarded any sort of objective test to determine whether the place was a permanent place of abode for the taxpayer. Instead, since the case involved something so fact-specific as residency, an inquiry into the subjective aspects of the taxpayer’s use of the abode was required, just as the Court of Appeals directed in the Gaied case:“[t]he taxpayer must have utilized the dwelling as his or her residence; maintaining a dwelling that could be a permanent place of abode is not enough to establish status as a statutory resident.”

This is what we’ve been arguing for years, and I have receipts (here and here)!  To be sure, though, the Obus court’s focus on the subjective aspects of a taxpayer’s abode and the purpose of the statutory residence test in the first place—to tax people who really are residents—is a major development, and will definitely have an impact not only on how vacation-home cases are handled, but on any statutory residency case where the subjective facts may suggest the taxpayer really isn’t living their life as New York resident. Now the question will have to be, as the Obus court directed, whether a taxpayer falls within “the purview of the target class of taxpayers who were intended to qualify as statutory residents.” And who is that? The Gaied court told us that the test is designed to capture people who are, for all intents and purposes, residents of the state, i.e., people who really live in New York. So I think we should all saddle up for many more interesting statutory residency cases in the future!

Lastly, a process note: The court decision was unanimous, which means that there is no right of appeal. The state can still file an appeal (it has 30 days to do so), but the Court of Appeals doesn’t have to take the case. 

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