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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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Breaking Up Is Hard to Do: New York Report on High-Income Nonresidents in the New York Economy

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Breaking up is hard to do. Or so the old Neil Sedaka song goes. And a new report from the New York City Comptroller’s Office suggests that when it comes to the love affair between New York City and the country’s highest-income earners, the song rings true.

Although a number of recent articles and summaries argue that New Yorkers, and other residents in high-tax jurisdictions, are fleeing their states at record paces, several others argue that tax flight is nothing more than a myth created by Atlas Shrugged-waiving fiscal conservatives. But regardless of which side you take on the tax migration issue, a new analysis released on September 6, 2016 by the Budget Bureau of the New York City Comptroller’s Office suggests that if New Yorker’s are dumping the Empire State, it hasn’t been a clean break.

The Comptroller’s Report argues that over the last decade, the share of the nation’s highest-income earners who reported at least some income in New York State has grown substantially, fueled in large part by a sharp increase in the number of high-earning nonresidents reporting income to the state. The report, according to the Comptroller’s Office, is the first to “empirically document[] the expanding presence of high-income nonresidents in the New York economy,” and while the impact of this report remains to be seen, chances are New York may act more like a jaded ex-lover than a once-suitor turned loyal friend.

The Comptroller’s Report, entitled “The Increasing Concentration of High-Income Nonresidents in the New York Economy,” contains a slew of facts of figures that should leave tax practitioners and taxpayers with two main takeaways. First, the Comptroller sees a growing presence of high-income earners in New York State. And second, this growth has been driven in large part by nonresident taxpayers. For example, the Comptroller’s Report concludes that in 2013, over 43 percent of all taxpayers in the country who made $10 million or more reported at least some income to New York State (an increase of more that 10 percent from 2001). And according to the report, a large portion of these high-income taxpayers are nonresidents earning income in the state and city. In 2014, for example, more than half of New York taxpayers who earned $720,000 or more in total income did not legally reside in New York State. As a whole, the report notes that nonresidents earned more than $90 billion in New York State income in 2014.

So what will all these new facts and figures lead to? And what are the takeaways for taxpayers?

Well, for starters, since issuing the report, New York City Comptroller Scott M. Stringer has suggested that “[t]he growing concentration of New York-sourced income in the hands of people who do not call New York home raises numerous questions about tax policy, transparency, and the long-term impact on the local economy and the character of the community.” Moreover, the Comptroller notes that “the changing nature of our economy demands that we begin to think about how to ensure everyone who pays taxes in the Empire State is treated fairly.” This sounds well and good. But the Comptroller’s statements may be particularly interesting (or perhaps troubling) to nonresidents earning income in New York City.

This is because unlike New York State nonresidents, who are taxed on any income that is derived from or connected to New York sources, nonresidents earning income in New York City are not required to pay New York City personal income tax, which is imposed only on residents. In other words, the city tax is basically an all-or-nothing proposition (residents pay on everything; nonresidents pay on nothing). And of the $90 billion that the Comptroller indicates was earned by nonresidents in 2014, the report estimates that about $68 billion was earned in New York City. Thus, with the report concluding that there is such a concentration of high-income taxpayers in New York City, and with the Comptroller questioning how to ensure everyone is treated fairly, one wonders whether the legislature could begin to see a tax on New York City nonresidents as the simplest fix.

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