A taxpayer who works in New York and moves outside of New York may become a residency audit target, particularly if the taxpayer does not immediately sell the New York residence upon the move. With the real estate market what it is today, it’s not uncommon to move out of a home before selling it. As a result, NYS may assert the taxpayer is a NYS resident even if the NY home is no longer occupied by the taxpayer. The downside to this, of course, is that as a NYS resident a taxpayer is subject to NYS income tax on worldwide income.
As I’ve written before, taxpayers have faced large NYS tax bills under these circumstances. Often the heart of the issue is whether the taxpayer “maintains a permanent place of abode.” In a few recent decisions, the NYS Tax Appeals Tribunal has broadly interpreted the term “maintains.” These decisions beg the question: If I continue to own a residence in NY but move outside the state, what can I do to shield myself from NYS residency status going forward?
One apparent answer: Give up the keys because you are legally bound to do so.
In a recent advisory opinion issued by the New York State Department of Taxation and Finance, the department stated that because the taxpayers were legally bound to turn over all keys to their NYS residence to the real estate agent, the taxpayers did not “maintain” a permanent place of abode.
The advisory opinion quotes a recent tribunal decision:
Where 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 taxpayers seeking the advisory opinion presented a seemingly compelling set of facts. Vehicle registrations, drivers’ licences, voter registrations, back accounts, etc. were moved from New York to Connecticut. The taxpayers also moved all personal items to Connecticut. Upon moving out of the home, the taxpayers spent two months extensively renovating the NY home to make it more attractive to prospective buyers.
Applied to the tribunal’s interpretation above, those facts alone apparently are not enough to show the taxpayers did not maintain a permanent place of abode. What made the difference for these taxpayers, according to NYS, were the terms of the listing agreement for the NY home with the real estate agent.
In the listing agreement, the taxpayers agreed to not live in the apartment while the house remained up for sale. The intent of the provision had nothing to do with residency issues. It had everything to do with ensuring the agent could show the house to a prospective buyer at a moment’s notice. The “key”: The taxpayers turned over all residence keys to the real estate agent.
Keep in mind this is merely an advisory opinion. In other words, we are told how the state’s tax department views the issue under this particular set of facts. Although the state may not take such a taxpayer-favorable position if the taxpayers do not turn over the keys, it doesn’t mean the tribunal would not as well.
The bottom line is that we now have some favorable guidance for taxpayers who may be subject to statutory residency. For taxpayers who commute into NY to work but have significant non-NY source income, it’s certainly good to know.