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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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New York State v. Obus : Clearing the Air on a New N.Y. Tax Case

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There has been a lot of buzz in recent days about a recent New York Division of Tax Appeals case addressing the New York residency status of a taxpayer who maintained a vacation home in New York state. The case, titled Matter of Obus (click here to read it), dealt with a New Jersey resident who worked in New York City and also maintained a vacation home in Northville, New York, a vacation community in Upstate New York. The case was also covered in a Wall Street Journal article that has sparked a lot of confusion about New York’s residency tests.

So here’s the deal: the taxpayer in this case lived in New Jersey but was also treated as a “statutory resident” of New York because, according to the judge, he met the two technical requirements of the law: (i) he spent more than 183 days in New York (obviously by virtue of his working in New York City most days of the week) and (ii) he maintained a “permanent place of abode” in New York. It’s the latter issue that sparked the debate in this case. The judge held that the taxpayer’s rarely-used vacation property constituted a “permanent place of abode” within the meaning of the law and, coupled with more than 183 days in New York, meant that the taxpayer qualified as a “statutory resident” of New York state.

A few thoughts from this corner:

First, the judge’s rationale is questionable, especially given developments in New York’s case law in this area over the past few years. I actually addressed this in significant detail in this article and this article. In the 2014 Gaied case that I handled, the New York Court of Appeals ruled that in order for a dwelling place to constitute a “permanent place of abode,” there must be evidence that the taxpayer actually used the place as a residence. Further, in reaching this conclusion, New York’s Court of Appeals looked at the legislative history, which made clear that the legislative intent behind the statutory residency rules was to basically make sure that people who really lived in New York were paying taxes as residents of New York. But does someone who has a rarely-used vacation home and commutes to work in the City really “live here”? Is it consistent with the intent underlying the law to treat this person as a full-on resident? Since the Gaied decision came out in 2014, we have questioned whether New York’s position in these vacation home cases was correct. So you can be assured that this is not the end of the story!

Second, the other clarification is more basic. A number of clients and friends who saw the Journal piece have reached out to me, wondering how a taxpayer who simply maintained vacation property in New York could be treated as a resident. But to be clear, this “statutory residency” status requires that, in addition to maintaining a permanent place of abode, the taxpayer actually be also physically present in the state of New York for more than 183 days. So taxpayers who legitimately live in another state and simply maintain a vacation home here won’t be taxed as residents just by virtue of having a vacation home here. They also have to meet (or, I guess, fail) the 183-day test.

Lastly, let’s not forget my continuing quest to stamp out the double taxation that arises in these dual-resident situations. As many of my readers know, we have two cases pending review before the U.S. Supreme Court where we argue that New York’s failure to provide a credit to statutory residents for all taxes paid to their home states violates the U.S. Constitution. A win in these cases could mean good news for the taxpayers in the Obus case. That said, the other interesting thing about the Obus case in this regard is that, in our experience, the state of New Jersey will actually allow a full resident tax credit for its residents who end up paying New York state taxes as a result of statutory resident classifications like this, so long as the income being taxed is not New Jersey sourced income. So when it’s all said and done, the taxpayers in Obus should be able to return home to New Jersey and seek a refund, at least for the taxes paid to New York. But they’ll still be out of pocket for the interest on the taxes; New Jersey won’t credit that.

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