New York Issues Revised Nonresident Audit Guidelines and Proposes to Exclude Vacation Homes from 'Permanent Place of Abode'
Two recent developments in New York State personal income tax are noteworthy. The New York State Department of Taxation and Finance (“Department”) has revised its Nonresident Audit Guidelines, and legislation has been introduced to change the definition of a resident by changing the definition of “permanent place of abode” to exclude vacation homes.
Revised Nonresident Audit Guidelines
The Department just released a revised version of its Nonresident Audit Guidelines.1 First published in 1997, and revised in 2009, these provide guidance to the Department’s auditors for examining personal income tax returns on the issues of domicile (whether New York is the taxpayer’s home) and statutory residence (whether the taxpayer “maintains a permanent place of abode” and is present for more than 183 days). Both domiciliaries and statutory residents are residents for income tax purposes and therefore pay New York State income tax on all income. Nonresidents pay New York income tax only on income sourced in New York. Additionally, residents of New York City pay City income tax on all income (there is no City income tax imposed on nonresidents).
The revised Guidelines update the previous version with more recent authorities. They also add sections discussing foreign domicile and resident tax credits (a credit against New York income tax for tax paid to another state on the same income). Finally, they expand the discussion of statutory residence to reflect two controversial 2011 decisions that the Department won. In Matter of Barker, DTA No. 822324, the Tax Appeals Tribunal affirmed an administrative law judge’s determination that the taxpayers’ ability to use their New York vacation home throughout the year made it a permanent place of abode even though they used it only a few weekends a year. Their domicile was in Connecticut; because the husband worked in New York City and was present in the State more than 183 days, statutory residence was found in New York.
The second decision is Matter of Gaied, DTA No. 821727, in which the Tax Appeals Tribunal reversed its earlier decision to hold that the taxpayer maintained a permanent place of abode. He owned a multifamily home within two miles of his business, a 24-hour service station. His aging and dependent parents lived in one of the units, for which he paid all of the expenses, and he occasionally stayed overnight with them at their request, sleeping on a sofa. This was found to be a permanent place of abode and since the individual worked in the City more than 183 days in the year, he was found to be a statutory resident. The Guidelines do not mention it but another important fact in Gaied was that the taxpayer operated his rental activities from his parents’ apartment and kept a set of keys there which could be used in the event of an emergency. Thus his claim that he did not have access to the apartment whenever he wanted was rejected.
Both cases illustrate that the taxpayer need not spend the required 184 plus days — or indeed any days — at the permanent place of abode.2 The abode just needs to be available (e.g., not rented to someone else or under renovation) and in the same jurisdiction (State or City) where the days are spent. These two decisions provoked a firestorm of criticism and commentary. Concerns were voiced that the statute was being interpreted in a way that the Legislature had never intended, that the Barker decision would destroy the New York vacation home market and that the Gaied decision would treat as residents individuals who maintained dwellings in New York for their parents or children.
The discussion of Barker in the Guidelines is straightforward: if the abode is capable of being inhabited throughout the year and the individual can use it whenever he wants, it is a permanent place of abode regardless of how often it is used. The discussion of Gaied is more open-ended and it remains to be seen how far the Department intends to try to take this decision. In addressing the situation of parents’ acquiring and maintaining a residence in New York for a child to attend college, the Guidelines state, “In determining whether the residence is a PPA for the parents, the size of the apartment, whether personal items are kept there, and
the extent of use by the parents, would be important considerations.”
The Guidelines are intended to provide guidance to audit staff and have no legal force or effect. They are said to be “generally binding on audit staff who are expected to follow the rules and procedures outlined in the guidelines when conducting an audit.” How binding they are in practice is to some degree up to the individual auditor. However, they provide a basis for discussion with auditors and a window into the Department’s analysis of the issues discussed.
Proposed Change to Definition of Permanent Place of Abode
Speaking of Barker, there is legislation pending in the New York legislature that would reverse this decision prospectively.3 It would do this by excluding from the definition of a permanent place of abode “a dwelling that is owned, leased, or maintained by the individual or the individual's spouse where such dwelling is not used as the individual’s principal residence, is located more than fifty miles away from the individual's place of employment in this state and the individual stays overnight at such dwelling for no more than ninety days during the taxable year.” Noteworthy is the requirement that 90 nights be spent at the abode before it is found to be a permanent place of abode, because it imposes a requirement (absent from the current statute) that time be spent in the abode, and that the individual actually spend the night there.
An earlier version of the draft legislation would have prospectively changed the outcome of both Barker and Gaied, by deleting the 50-mile requirement. (Mr. Gaied’s place of business was only two miles from the abode.) The explanation for the proposed change is that “Despite the decisions in the New York Division of Tax Appeals, it is clear that it was never the Legislature’s intent to include or to classify as ‘residents’ those taxpayers who made limited use of vacation homes located in New York State or stayed occasionally particularly to take care of elderly parents.”
Whether this or any form of change to the definition of “permanent place of abode” will be enacted remains to be seen. Any reduction in scope of the definition will result in a commensurate reduction in tax revenues. Presumably this is what prompted the addition of the 50-mile requirement in the latest proposal.
1 The revised Guidelines, dated “June 2012” were posted to the Department’s website. They can be accessed at http://www.tax.ny.gov/pdf/2012/misc/nonresident_audit_guidelines_2012.pdf
2 An example: A and B are neighbors in New Jersey and commute together to jobs in the same office in New York City. A has a vacation home in upstate New York. A is a statutory resident and therefore pays New York State income tax on all her income. B is not a resident and pays New York State income tax only on income sourced in New York.
3 A 06266-C, S 03998-C.