Main Menu Main Content
Noonan’s Notes Blog

About This Blog

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.


Timothy Noonan 
Brandon Bourg 
Mario Caito
Ariele Doolittle
Joseph Endres
Daniel Kelly
Katherine Piazza McDonald
Elizabeth Pascal 
Emma Savino 
Joseph Tantillo
Craig Reilly
Andrew Wright 

Prospective Change on the Sobotka Issue: An Actual Amendment, NOT a Clarification

By on

Here at Noonan’s Notes Blog, we previously covered the substance of the Governor’s Proposed FY 2019 Budget here and the Final Budget here. On May 25, 2018, the New York State Department of Taxation and Finance (the “Department”) issued a Technical Memorandum—TSB-M-18(4)I—providing its summary of the personal income tax changes enacted in the final 2018-2019 budget. The TSB-M is available here.

Among other things, the TSB-M provides the Department’s explanation to the recent change in the law spurred by the 2015 Sobotka case. But before we jump into the Department’s explanation, a little background is in order. In the Sobotka case, an Administrative Law Judge in the Division of Tax Appeals ruled that in part-year domicile cases, only the portion of the year the taxpayer is not domiciled in New York should be considered when determining whether the “more than 183 days” test of statutory residency is met. We covered that win in a 2015 blog post and in a November 2015 State Tax Notes article.   In subsequent audits, however, the Department continued its pre-existing policy of counting total days a taxpayer was present in New York for the entire year to determine statutory residency, regardless of whether or not an individual was a part-year domiciliary. So, how to treat part-year domiciliaries for statutory residency purposes has been a continuing debate since the decision was issued in 2015.

Part O of the Governor’s proposed 2019 budget, which is available here and was released on January 16, 2018, included a “clarification” of Tax Law § 605(b) that provided that a taxpayer could be a resident of New York by being domiciled in New York or by maintaining a permanent place of abode and spending in excess of 183 full or part days in the state. This was designed as a Sobotka fix, and was proposed to be retroactive and applicable to all open tax years. Fast forward to March 31, 2018, when Governor Cuomo signed into law the Fiscal Year 2018-2019 Budget (available here). Part O was passed, but now it was no longer titled a “clarification;” instead, it was described as an act “to amend the tax law… in relation to the definition of resident...” And while the text of the legislation remained the same as in the Governor’s Proposal, the effective date was changed. Instead of being applicable to all open tax years, it only applies to tax years beginning on or after the effective April 2018 date.

The removal of the retroactive language is extremely meaningful, but it’s not clear from the Department’s explanation that they fully appreciate it. In the TSB-M, the Department still refers to the law change as a “clarification.” Of course, regardless of what the Department might think about the statutory residency rules prior to the law change, ultimately it is the province of the legislature to determine whether an amendment can be applied retroactively, as a “clarification,” or prospectively only.

So the “Sobotka” question for debate is whether the New York legislature intended to make the amendment to Tax Law § 605(b) prospective only. In other words, for years prior to 2019, does the Sobotka holding govern, so that most part-year domiciliaries cannot be full-year statutory residents, or was the amendment simply a clarification of longstanding Department policy? We think the law is clear that the legislature intended to change existing law and for it only to apply beginning January 1, 2019. And as noted above, it is important to note that it is the legislature’s intent, and not the Governor’s or Department’s intent, that is critical when determining the reach of legislation. The New York Court of Appeals has ruled that, unless the legislature’s preference for retroactivity is explicitly stated, legislation is presumed to have a prospective application[1] and statutory text is the clearest indicator of the legislature’s preference or intent.[2] The removal of retroactive language from the statutory text by the legislature is therefore extremely significant and illustrates that the law is intended to be an amendment going forward.

Thus, even if the Governor’s intention was to codify what the Department believed to be long-standing policy regarding the interpretation of the statutory residency rules, and even if the Department continues to call the Final Budget a “clarification,” the Legislature clearly thought otherwise. By explicitly removing the retroactive application of the amendment, the Legislature made clear that it believed it should only apply prospectively. Otherwise, its change to the Governor’s Proposal—changing it from a clarification to an amendment and removing the retrospective application— would be rendered meaningless.

But no need to sound any alarm bells yet. Despite what the TSB-M says, we’re not certain that the Department will continue to take an anti-Sobotka decision for year prior to the law change. Indeed, even the description in the TSB-M is a bit murky, as the explanation seems to contemplate that the Department views this as a substantive change in the law. Stay tuned for further updates.

[1] Matter of Gleason [Michael Vee, Ltd.], 96 N.Y.2d 117 (NY 2001). 

[2] Matter of Price Chopper Operating Co. v. NY Liquor Auth., 52 A.D.3d 924 (NY 3d Dep’t 2008) citing Majewski v. Broadalbin-Perth Cent. Sch. Dist., 231 A.D.2d 102 (NY 3d Dep’t 1997).  

Post a comment:

*All fields are required.

Attorney Advertising
Hodgson Russ LLP

Principal Address:
The Guaranty Building
140 Pearl Street, Suite 100
Buffalo, NY 14202
Tel: 716.856.4000
Stay Connected
RSS LinkedIn

About This Firm

Hodgson Russ attorneys facilitate the U.S. legal aspects of transactions around the world. We practice in every major area of law and use multidisciplinary work teams to serve the specific, often complex, needs of our clients, which include public and privately held businesses, governmental entities, nonprofit institutions, and individuals.