New York Cuts Taxpayers Some Slack Through Residency Reevaluation Opportunity

New York has a reputation of being one of the most aggressive states with respect to asserting residency, taxing nonresidents as residents if there is the slightest level of activity in New York state. The Matter of Nelson Obus v. New York State Tax Appeals Tribunal, No. 533310 (N.Y. App. Div. June 30, 2022) case is the second taxpayer friendly case to come out of New York that limits the reach of the New York State Department of Taxation and Finance.

Historically, New York state has treated nonresident or part-year resident individuals as residents and taxed 100% of their income if they meet one of the following fact patterns¹:

• Individuals are domiciled in New York state even if they are out of the state for a period of time.
• Individuals are present for 183 or more days a year and also maintain a “place of abode” in the state. If these tests are met, then an individual is deemed a “statutory resident” and subject to New York tax on all income. For many years, the mere ownership of a home, apartment, or other sleeping quarters (in addition to meeting the days threshold) was sufficient to bring the individual into the ambit of taxation. The amount of use did not matter. In fact, New York litigated several cases and won on this singular point.

This expansive interpretation of what constituted a place of abode for purposes of the statutory resident standard changed in 2014 with a taxpayer victory in the Gaied² case. Gaied was a New Jersey resident who owned an apartment building in Staten Island, NY, where his elderly parents lived. Gaied would sleep over at his parents’ apartment if they needed his assistance. Gaied worked in Staten Island, so purportedly he met both the days threshold as well as the place of abode test. Gaied filed part-year or nonresident New York returns, was audited, and the Department of Taxation and Finance ruled that Gaied was a resident of New York. Gaied appealed to the New York State Tax Appeals Tribunal (“Court”), which looked at the legislative intent and determined that the actual use of the property was important to create an abode. Since Gaied did not extensively use the apartment building as his residence, he did not meet the second prong of the test and was therefore not a statutory New York resident.

Enter Obus. Obus was domiciled in New Jersey but worked in New York City, so he was present in New York for at least 183 days. However, he owned a home in upstate New York that he used two to three weeks a year as a vacation home. Obus filed part-year or nonresident New York returns, was audited, and the Department of Taxation and Finance determined Obus was a resident of New York. Obus appealed to the Court, and despite the vacation home being fully adequate to be a permanent place of abode, the Court ruled unanimously that Obus was not a statutory resident and could not be taxed because of his lack of use of the property as a residence. It is fully expected that New York will request an appeal to the New York State Court of Appeals, but the court does not have to accept it.

This decision appears to provide an opportunity for nonresident New York taxpayers who own or rent property in New York to reevaluate their New York state tax filing requirements. Considering the pandemic’s impact on where people live and work, maybe now more than ever there could be a winnable argument on residency in New York, both prospectively and retrospectively.

If you have questions on how this ruling could impact your situation, contact your KSM advisor or complete this form.

¹N.Y. Tax Law Sec. 605(b)

²In the Matter of John Gaied, Appellant, v. New York State Tax Appeals Tribunal, et al., Respondents., 22 NY3d 592 6 NE3d 1113 983 NYS2d 757 2014 NY Slip Op 01101, 02/18/2014