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On February 18, 2014, the New York Court of Appeals unanimously reversed a decision of the New York State Tax Appeals Tribunal, reducing the likelihood that out-of-state residents who own residential real estate in New York State will have to pay New York income tax.
The Court’s decision in Matter of Gaied v. NYS Tax Appeals Tribunal rejected the determination of the NYS Tax Appeals Tribunal that there was “no requirement that the taxpayer actually dwell in an abode, but simply that he maintain it” when determining whether the taxpayer maintained a permanent place of abode.
Under the New York Tax Law, New York State may impose its personal income tax on the worldwide income of an individual who is domiciled in another state if the individual: (i) maintains a permanent place of abode in New York for substantially all of the tax year; and (ii) spends more than 183 days in the state. With regard to the first prong of the test, the New York State Department of Taxation and Finance had long asserted that a taxpayer does not have to actually dwell in the abode in order to be taxed as a statutory resident.t’s decision in Matter of Gaied v. NYS Tax Appeals Tribunal rejected the determination of the NYS Tax Appeals Tribunal that there was “no requirement that the taxpayer actually dwell in an abode, but simply that he maintain it” when determining whether the taxpayer maintained a permanent place of abode.
The Court of Appeals rejected this interpretation as irrational and held that, in order to qualify as a permanent place of abode, “there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.”
In 1999, John Gaied purchased a multi-family residential building in Staten Island, which was located a few miles from where he worked. He purchased the multi-family residential building as an investment and as a place for his parents to live. From 2001 to 2003, he paid the expenses of the apartment for his parents and the telephone number was in his name.
Gaied, however, listed his residence in New Jersey and filed non-resident income tax returns in New York State and New York City from 2001 to 2003. He claimed did not live in the Staten Island apartment, but that his parents lived there and he financially supported them.
The New York State Department of Taxation and Finance disagreed with that reasoning, and when the state audited Gaied in 2008, it claimed that he was a “statutory resident” of New York, and as such owed New York $253,062 for unpaid income taxes. Gaied appealed to the courts, and his case has since highlighted the complicated residency definitions in the New York state tax law.
The court stated that the legislative history of the statute, to prevent tax evasion by New York residents, as well as the regulations, support the view that in order for a taxpayer to have maintained a permanent place of abode in New York, the taxpayer must, himself, have a residential interest in the property.
The court also noted that “Tax Law does not define ‘permanent place of abode,’” and that regulations have defined the term as “a dwelling place of a permanent nature maintained by the taxpayer.” The application of how this applies is at the discretion of tax officials.
Residency laws are particularly relevant in New
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York, where many property owners own multiple residences, or live outside the state and commute in for work each day.