NYS Offers a GILTI Exemption and Increases its Economic Nexus Threshold

On June 20, 2019, both the NYS Assembly and Senate passed bills that made significant changes to the state’s treatment of two hot tax issues: the taxation of global intangible low-taxed income (“GILTI”), and the state’s threshold for establishing economic nexus for sales tax purposes. According to the Senate and Assembly websites, the legislation was signed into law by Governor Cuomo on June 24th.

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A Pied-à-terre Tax in New York City?

According to a recent New York Times article, hedge-fund billionaire Kenneth C. Griffin purchased a $238 million apartment in January 2019 located at 220 Central Park South, making it the most expensive residential sale in United States history. Even in Manhattan, where huge real estate sales are downright routine, Griffin, founder and chief executive of the global investment firm Citadel, has managed to set a new record on an unfinished piece of property,  a purchase that surpassed the cost of the next most expensive purchase by more than $100 million.

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Changing State Tax Residency: The Most Powerful (and Common) Response to the TCJA?

2018 has been an amazing year for tax practitioners. Since the passage of the Tax Cuts and Jobs Act, practitioners have been scrambling to understand the implications of the federal tax overhaul and to begin work on implementing new strategies for clients. And though the legislation obviously occurred at the federal level, many SALT practitioners have been dealing with the dramatic fallout at the state level as well, since aspects of the federal tax reform have had complicating and unexpected ramifications for state tax purposes.

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Better Late than Never? New York Issues Guidance on Hedge Fund Deferred Compensation

For years we’ve been following a ticking income tax time bomb of sorts, dealing with a big 2017 issue for hedge fund managers receiving deferred income. We first started talking about this in 2013 (click here for the article) and followed-up on it a few times later (including here), wondering how states would react to all this. But up until last week, we’ve heard nothing from the New York tax department on the issue.

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What is considered a “Permanent Place of Abode?”

New Tribunal Case Offers Up a New Framework for Answering this Question

New York’s two-part test for statutory residency has been heavily litigated over the years, and one of the biggest issues has involved the determination as to whether a taxpayer maintained a “permanent place of abode.” In 2014, the State’s highest court in Gaied v. NYS Tax Appeals Tribunal struck down the Tax Department’s overly-broad interpretation of “permanent place of abode” in favor of a more sensible interpretation. In doing so, the High Court declared that in order for a place to constitute a permanent place of abode (“PPA”), “there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.” And later in the decision, the Court opined that to qualify as a PPA, “the taxpayer must, himself, have a residential interest in the property”

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A Closer Look at New York's Nonresident Allocation Guidelines: Audits of Flow-Through Entities and Their Owners

As practitioners who deal with New York income tax audits on a day-to-day basis, we often have a front row seat to new audit techniques and new areas of focus.  And in recent years, we have noticed a lot more audit activity in the partnership or flow-through entity area.  Most of this has centered around nonresident owners of flow-through entities, and more specifically the methodology in which these entities allocate income in and out of New York. As I have outlined before in some other articles (click here and here), often we can gain insight on trends like this by studying the audit guidelines that the Tax Department issues to its auditors.  The Tax Department’s Nonresident Audit Guidelines are more widely-known, and available on the Tax Department's website., Over the years, however, the Tax Department has also issued different iterations of its Nonresident Allocation Guidelines, with the most recent version being issued in June 2013.  But after about 17 focused minutes of Google searching (which is the maximum amount of time one should spend Googling something), I have not been able to find those guidelines anywhere on the Tax Department’s website, or on the Internet generally.  That is, of course, until now.

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Another Significant Development in the Statutory Residency Area!

There are always “traps” in the tax law, where taxpayers unwittingly walk into a tax problem that they didn’t see coming. In the residency area, some taxpayers often got trapped on a move-in or move-out situation, with the Tax Department taking the position that “statutory residency” trumps “domicile.” Thus, a taxpayer who didn’t move into New York until, say, August of a particular tax year still could be taxed as a full-year resident if he or she ran afoul of New York’s statutory residency test (i.e., the taxpayer maintained a permanent place of abode for almost the whole year and spent more than 183 days in the state). Indeed, the Nonresident Audit Guidelines (see page 64) contained a whole section about this.

Guess what? We may have closed this trap! 

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Out-of-State Attorney Not Subject to New York State Income Tax

https://www.hodgsonruss.com/practices-State_Local_Tax.htmlWe have all heard the jokes. “How many lawyers does it take to screw in a light bulb?” “Why won’t sharks attack lawyers?” “What’s the difference between an accountant and a lawyer?” Or, “How many lawyer jokes are there?” Well, actually, the last one’s easy. Only three. The rest are true stories.

But despite the general public’s lampooning of attorneys, New York State taxpayers might have found a lawyer they can celebrate (in addition, of course, to their friends at Hodgson Russ). Meet Patrick J. Carr, a retired New York State attorney living in Florida. Last month, a state administrative law judge (ALJ) ruled that Mr. Carr did not have to pay a $68,000 tax bill for services rendered in Florida. Mr. Carr was a member of the New York and New Jersey state bars and was admitted pro hac vice in Florida (for non-lawyer readers, “pro hac vice” is a fancy Latin way of saying that an attorney who has not been admitted to practice in a certain jurisdiction is permitted to help litigate a particular case in that state). And although Mr. Carr did not perform any services or maintain any office in the state, New York attempted to tax his income solely because of his New York law license. Are you starting to root for Mr. Carr? Thankfully, however, ALJ Barbara Russo dismissed the state’s position and announced that “merely holding a license to practice in New York is not the equivalent of carrying on a profession in New York state.” So why did New York think that it had the right to tax Mr. Carr?

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Come What May: The Power of Testimony in Domicile Cases

One of the more interesting aspects I’ve seen in residency cases in my practice is the importance and understanding of a taxpayer’s intent in the overall analysis. That’s part of what makes residency cases so unique. There are likely very few situations in federal or state tax law where what is kicking around in somebody’s mind is critical to the determination of the tax issue. But the domicile test—which looks to discover where a taxpayer has his permanent or primary home—turns on the notion that the taxpayer’s intent can be a deciding factor. This can make the audit process really difficult. How do you prove to an auditor what your client was thinking? You can point to objective facts; you can point to case law; but how do you get into someone’s head? And more importantly, how do you convince an auditor to do the same?

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The Supreme Court Declares Maryland Resident Tax Credit Structure Unconstitutional Because It Leads to Double Tax

On May 18, 2015, the U.S. Supreme Court declared Maryland's resident tax credit structure unconstitutional because it subjected income earned outside the state to potential double taxation. The Supreme Court concluded in a 5 to 4 decision in Comptroller of the Treasury of Maryland v. Wynne that this structure impermissibly favored income earned within Maryland over income earned outside the state. According to the court, this effectively created a tariff that violated the dormant Commerce Clause of the U.S. Constitution. 

Here's a quick review of the facts of the case. Brian and Karen Wynne are Maryland residents. Like most states, Maryland taxes residents on their worldwide income regardless of its source. In other words, Maryland residents can pay tax on income earned outside Maryland. In 2006, Brian Wynne owned stock in a Subchapter S corporation that operated and earned income in other states. In fact, the S corporation filed income tax returns in 39 states. The Wynnes reported the income that flowed through to them from the S corporation on their Maryland income tax returns but also claimed an income tax credit for taxes paid to other states. Almost every state tax code contains a similar credit. These credits are designed to avoid double taxation and to allow for the proper allocation of the tax burden to the jurisdiction where the income was earned.

The problem in the case arose because Maryland imposed two taxes, a state tax and a county tax. Despite imposing two taxes, the Maryland credit for taxes paid to other states only applied to the state tax, not the county tax. Thus, the Wynnes ended up being double taxed on the S corporation income. They paid tax to the states where the income was earned, and they paid the Maryland county tax on the same income. According to the Supreme Court, this scheme violated the dormant Commerce Clause of U.S. Constitution. 

This case is notable for several reasons:

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