Another NYS residency case, another taxpayer loss, and a seemingly expanding interpretation of the NYS statutory residency provisions.
Last week the NY Tax Appeals Tribunal released its decision for Matter of John Gaied. Before delving into the facts, I feel compelled to note the case’s dizzying procedural history.
The taxpayer appealed to the Tax Appeals Tribunal after losing before the Administrative Law Judge, and successfully had the ALJ determination overturned. NY’s Division of Taxation must have been rather unhappy with that outcome, because the Division subsequently filed a motion for reargument. As noted in Foley v. Roche:
A motion for reargument is designed to afford a party an opportunity to establish that the court overlooked or misapprehended the relevant facts, or misapplied any controlling principle of law.
If a court grants a motion for reagrument, it is essentially
succumbing to political forces admitting it somehow messed up on the first go around. To the surprise of many, the Tribunal granted the motion, the parties re-presented their arguments, and then the Tribunal decided to vacate its decision overturning the ALJ, ultimately sustaining the ALJ’s determination in favor of NYS.
Yes, it takes either a unique set of facts or a striking misinterpretation of the law to generate such vacillation. The main issue in the case was whether Mr. Gaied was considered a NYS statutory resident for the 2001, 2002, and 2003 tax years. As a reminder:
A taxpayer is considered a NYS statutory resident if she (1) maintains a permanent place of abode in New York; AND (2) spends more than 183 days of the taxable year in New York, unless such individual is in active service in the armed forces of the United States.
Like in the recently decided Barker case, the issue further narrowed to whether Mr. Gaied maintained a permanent place of abode in NYS. Also like in Barker, the abode in question, a residential unit owned by the taxpayer in Staten Island, NY, was allegedly occupied by the taxpayer’s parents during the periods in question.
The taxpayer put in long hours at the auto service station he owned in Staten Island, NY, located a mere two miles from the Staten Island residence. The taxpayer also owned and allegedly lived in his primary residence in Old Bridge, New Jersey, a 30 to 45 minute drive from the service station.
If you know anything about NYS residency cases, you can see where this is heading: The taxpayer had significant non-NY source income and filed a nonresident return, NYS noticed the taxpayer owns a NY residence in close proximity to his job, the taxpayer insisted that he rarely or never stayed at the residence, etc., etc., etc.
So why did the taxpayer lose? Keep in mind there are two components to the “maintains a permanent place of abode” analysis: (a) maintenance; and (b) permanence.
The taxpayer “maintained” the Staten Island, NY residence, held the court, because he (i) owned the property and paid expenses for the property’s upkeep; (ii) maintained an apartment for his parents and paid for all of his parent’s household expenses, including the utility and telephone bills, which were in his name, and (iii) listed the Staten Island residence as his address for notices to be sent to the landlord in the apartment leases at the address.
The court reviewed its analysis of the permanent place of abode standard applied in other recent cases, declared that its previous Gaied decision was made “in error and is hereby reversed,” and essentially re-established the objective test applied in Barker: “[W]here a taxpayer has a property right to the subject premises, it is neither necessary nor appropriate to look beyond the physical aspects of the dwelling place to inquire into the taxpayer’s subjective use of the premises….”
The property in question “clearly” met the attributes of a “permanent” place of abode to the court, because the apartment the taxpayer’s parents lived in was fully furnished, and because the taxpayer stayed there overnight on occasion. It seems rather clear that so long as the landlord taxpayer does not rent out a furnished apartment year-round and may occasionally use it, the taxpayer has a losing case on the “permanence” point.
Bottom line: A taxpayer who files a NYS nonresident tax return, owns a “secondary” residential unit in NYS, and has significant non-NY source income, beware. Beware of receiving a letter in the mail that begins with: “Dear Taxpayer: Your NYS tax return has been selected for audit.” A taxpayer who maintains detailed documentation clearly demonstrating year-round use of the “secondary” residence by unrelated parties may, just may, stand a chance.