Sometime during 2014, Florida’s population will surpass New York’s. Florida newcomers include winter-weary New Yorkers who have opted for the Florida sun and sandy beaches at the rate of 50,000 a year (The New York Times, 12-26-13). One of the advantages of doing so is the lack of a Florida state income tax.
In recent years, it has become increasingly popular for some of the wealthier retiring New Yorkers as well as celebrities such as Martha Stewart, Alec Baldwin and Derek Jeter to maintain some New York presence in the form of maintaining a New York residence or continuing some business interests in the state.
This is the area that the New York Department of Taxation and Finance (the “Department”) has aggressively pursued when determining whether you are considered a New York resident. This is not just a New York-Florida issue; it affects New Yorkers moving to other states as well. Those who work in New York and who maintain an apartment in NYC, but live outside of its borders may also have state and city residency issues.
The distinction between New York residency and non-residency is important since NY residents are taxed on their worldwide income. Non-residents, on the other hand, can only be taxed on income that is derived from, or associated with New York sources. This is in accordance with the U.S. Constitution which prevents a state from taxing a non-resident’s income unless it has some connection to that state.
Historically, two tests have been employed by the Department to determine whether a taxpayer is a New York resident – the statutory residency test and the domicile test. The statutory residency test considers a taxpayer to be a New York resident if he or she maintains a permanent place of abode and spends more than 183 days in the state. A permanent place of abode is any leased or owned property maintained by the taxpayer for more than 11 months out of the year that is habitable for year-round use, with cooking and bathroom facilities. It should also be noted that “spends” does not necessarily mean living or sleeping in New York. Partial days occupied with shopping, traveling, working and playing all count as full days towards the 183 day benchmark. For years, state auditors have relentlessly applied these black-and-white criteria to non-residents in assessing NYS residency and thereby, taxing them on their worldwide income.
However, in February 2014, an important court case ruled in favor of taxpayers in concluding that it is not enough just to maintain a New York residence. As the case states, “there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence” (Gaied vs. New York State Tax Appeals Tribunal, “Gaied”). These findings will make it increasingly difficult for the Department to assert New York residency on a statutory basis.
The domicile test is more subjective and looks to an individual’s intent as to where they wish to live. It examines the taxpayer’s lifestyle or habit of life. The burden is upon any individual that declares a change of domicile to show that the necessary intention existed.
To aid in this determination, the Department has outlined five primary factors in its 2012 NYS Non-resident Audit Guidelines (the “Guidelines”). State auditors are to consider these factors together in analyzing whether a dwelling is a domicile. There are other factors that the Guidelines have identified as subordinate to the primary factors and, in most cases will not be reviewed during a domicile audit unless the primary factors prove inconclusive.
Since the domicile test examines family circumstances, it can become invasive but, due to the Gaied case it is likely to become the focus of more residency audits in the years to come. So, if you’ve had your fill of New York winters and a Florida relocation beckons, or if you are simply contemplating a move out of New York, but will maintain some presence there, it would be prudent to do some planning to ensure that it is clear as to where you intend to be domiciled.
Or, to put it more simply, make sure that your home is where your heart is.
The Domicile Test – The Five Primary Factors
1. Home – When more than one residence is maintained, a comparison of the residences is made. The state compares the size, value and nature of use (lifestyle); the most important being the nature of use. Auditors are directed to look at what type of life the resident is leading. Is the focus of the resident’s life — family, friends, holidays, social engagements, sports? Where do those activities take place? Home refers not only to the family residence, but also ties to the community. It is also important to note that the sale of a primary residence under the IRS gain exclusion rules does not always correspond to a change of domicile. In fact, the taxpayer may even be a non-resident in the year of sale.
2. Business Involvement – Where you work or actively participate in a New York trade, business, occupation or profession is important in determining domicile. Cases have been decided in favor of the Department where the taxpayer presumably moved to Florida, yet continued to play an active role in his New York business. The lines are blurred further when a taxpayer maintains an apartment near one’s job (say, NYC) and uses it like a hotel, while being domiciled in the suburbs where the focus of his/her life is.
3. Items Near and Dear – This refers to important tangible items that most people would want to have with them in their home such as family photos, collectible items, family heirlooms, documents, trophies and awards and valuable artwork. While the monetary value of these items is important, the sentimental value is considered as well.
4. Time – This is an evaluation of the time spent at each location. This could be a major factor if a significant amount of time is spent in New York, but is usually considered within the context of the other primary factors.
5. Family – An audit analysis of family connections will normally be limited to the immediate family – the individual, the spouse or partner (in recognition of modern lifestyles and living arrangements) and any minor children. Where minor children attend school can be one of the most important factors in determining where someone is domiciled since the quality of schools is an important consideration in deciding where to live.
The Domicile Test – Other Factors
- Mailing addresses of bank statements, bills and other family business
- Physical location of safe deposit boxes
- State in which vehicles, boats and aircraft are registered
- State of issue of drivers’ licenses
- State in which taxpayers are registered to vote
- An analysis of telephone services at each residence
For more information on Residency Requirements or another area of accounting, please contact Victor C. Belgiorno at 516-861-3704 or or Bob Jahelka at 516-861-3707 or .