The New York Supreme Court (Appellate Division) held that taxpayers who resided in New Jersey and owned a vacation home in upstate New York were not New York statutory residents because they did not use the home as their residence.1 In rejecting the Tax Appeals Tribunal’s conclusion that the vacation home was considered a permanent place of abode, the court noted the home was located more than four hours from New York City and could not be used to access the taxpayer’s regular employment location.
During the 2012 and 2013 tax years at issue, the taxpayers resided in New Jersey. One of the taxpayers annually spent more than 183 days in New York because he regularly commuted to New York City for his employment. He also spent approximately three weeks each year (generally by himself) in a vacation home that the taxpayers owned in Northville, New York, a four-hour drive from New York City. The Northville home, which had five bedrooms and three bathrooms, was suitable for year-round living.
In April 2016, following an audit, the New York Department of Taxation and Finance issued a notice of deficiency that the taxpayers owed additional income tax, plus interest and penalties, for the 2012 and 2013 tax years. The Department determined that the taxpayers were statutory residents of New York because the Northville home was a permanent place of abode and the 183-day time spent threshold in New York in each tax year at issue was met. The taxpayers sought review of the notice of deficiency by the New York Division of Tax Appeals. Following a hearing, the Administrative Law Judge denied the taxpayers’ petition and affirmed the notice of deficiency. The New York Tax Appeals Tribunal affirmed this decision and determined that the Northville home constituted a permanent place of abode because the taxpayers “had the right to reside in and maintained living arrangements at [the] Northville home and exercised that right, albeit sparingly, during the years at issue.” The taxpayers appealed the Tribunal’s decision to the New York Supreme Court’s Appellate Division.
New York residency determinations
Under New York personal income tax law, a “resident individual” is an individual “who maintains a permanent place of abode in [New York] and spends in the aggregate more than one hundred eighty-three days of the taxable year in [New York], whether or not domiciled in [New York] for any portion of the taxable year.”2 While the New York Tax Law does not define “permanent place of abode,” a regulation defines the term as a “dwelling place of a permanent nature maintained by the taxpayer.” The regulation excludes a “mere camp or cottage, which is suitable and used only for vacations” from the definition of “permanent place of abode.”3
Northville home was not a ‘permanent place of abode’
Because the taxpayers conceded that more than 183 days had been spent in New York during the tax years at issue, the court needed to consider whether the Tribunal’s determination that the Northville home constituted a permanent place of abode had a rational basis. The New York Court of Appeals has explained that the legislative intent underlying the residency statute is to discourage tax evasion by residents of New York.4 Specifically, this statute “fulfils the significant function of taxing individuals who are really and for all intents and purposes residents of the state but have maintained a voting residence elsewhere and insist on paying taxes to [New York] as nonresidents.”5 In applying the regulatory definition of “permanent place of abode,” New York courts perform a fact-intensive analysis to determine whether the taxpayers have a residential interest in the property. Taxpayers must utilize the dwelling as their residence, but “maintaining a dwelling that could be a permanent place of abode is not enough to establish status as a statutory residence.”6 Courts consider such factors as the nature and duration of use in determining the taxpayers’ residential interest.
In this case, the court explained that the Northville home was suitable for year-round living and was not a “mere camp or cottage” as provided in the regulation defining permanent place of abode. However, the fact that the home was not a “mere camp or cottage” does not necessarily mean that it was used as a permanent residence. The court noted that the regulation’s reference to a “mere camp or cottage” is just one example of a dwelling that does not constitute a permanent place of abode. According to the court, it was unreasonable for the Tribunal to focus solely on the objective characteristics of the home. Factors such as the taxpayers’ “free and continuous access” to the home supported the Tribunal’s conclusion, but the court determined the taxpayers were not in the targeted class of people intended to qualify as statutory residents. The taxpayers only used the home for three weeks each year for recreational activities. The Northville home was not used to access the taxpayer’s job in New York City because of the physical distance between Northville and New York City. A year-round tenant lived in an apartment attached to the home and was informed before the taxpayers arrived at the home. Also, the taxpayers did not keep personal effects in the home. Although the taxpayers could have used the home in a manner that demonstrated a residential interest, the taxpayers did not use the home as a permanent place of abode. In rejecting the Tribunal’s conclusion that the taxpayers were statutory residents, the court concluded the Tribunal’s finding was inconsistent with the legislative intent underlying the statute.
Residency cases are fact-specific and prevalent in many Northeastern states, with New York taking the lead in aggressively pursuing determinations that individuals with substantial ties to both New York and another state are New York residents. In this matter, the court analyzed the taxpayers’ use of a large “vacation home” used in upstate New York for recreational activities that had nothing to do with work activities consistently performed by one of the taxpayers in New York City, and determined that they were not statutory residents. The Northville home was a substantial dwelling with five bedrooms and three bathrooms that could be used as a permanent place of abode. After considering the objective characteristics of the home, the Tribunal concluded that the taxpayers had a residential interest in the home. However, the appellate court disagreed with the Tribunal and considered the taxpayers’ actual use of the property. This decision may support a limited “vacation home” exception from the residency / permanent place of abode definition that could benefit individuals who have a vacation home that they only use for a few weeks each year and is not related to, or designed for, their work activities. Due to the significant implications of this decision, the Department probably will appeal this case to the New York Court of Appeals, the state’s highest court.
In reaching its decision that the Northville home was not a permanent place of abode, the court noted that the home was way too far from New York City to be used as a residence for the taxpayer as a means to commute to work. This analysis presumes that the taxpayer commuting to New York City to work had to be physically present in the office, something that was much more likely in the 2012 and 2013 tax years at issue. The work model has substantially changed since the onset of the pandemic and many individuals are able to work remotely from their homes. Thus, in many cases, the distance of a home from a taxpayer’s work location may no longer be a relevant consideration in determining a permanent place of abode in today’s telecommuting world. On the other hand, given the advent of remote and hybrid working environments, it is conceivable that an individual in the taxpayer’s situation could manage work locations by telecommuting frequently enough from New Jersey so that the 183-day statutory resident threshold would not have been met even if days worked in the New York City office and time spent in the Northville vacation home were combined together.
1 Obus v. New York State Tax Appeals Tribunal, New York Supreme Court, Appellate Division, Third Department, No. 533310, June 30, 2022.
2 N.Y. Tax Law § 605(b)(1)(B).
3 N.Y. Comp. Codes R. & Regs. tit. 20, § 105.20(e)(1).
4 See Gaied v. New York State Tax Appeals Tribunal, 6 N.E.3d 1113, 1116 (N.Y. 2014); Tamagni v. Tax Appeals Tribunal, 695 N.E.2d 1125, 1128 (1998), cert. denied 525 U.S. 931 (1998).
5 Gaied, 6 N.E.3d at 1116 (internal quotation marks, brackets, ellipsis and citation omitted).
6 Citing Id. at 1116-1117.
Matthew DiDonato is a State and Local Tax (SALT) practice partner in the New York office and leads the Metro New York SALT practice. He has more than 18 years of public accounting, private industry and legal state and local tax experience.
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Arthur C.E. Burkard
Art Burkard is a managing director with Grant Thornton’s Metro New York/New England market territory State and Local Tax practice. Burkard was a law clerk with the New York State Tax Appeals Tribunal and has more than 21 years of public accounting experience at Grant Thornton, KPMG and Deloitte & Touche.
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Jamie C. Yesnowitz
Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
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