Recent New York Tax Tribunal Provides New Guidance on the Definition of a “Permanent Place of Abode”

New York tax law contains guidelines for determining who is a resident of New York State or New York City for personal income tax purposes.  One element of these guidelines applies to individuals who may be classified as “statutory residents” of New York State, and who are taxable as New York residents if they maintain a “permanent place of abode” in the state and spend more than 183 whole or part days in the state during such year.1   

The same rules apply in determining if an individual is a resident of New York City.  If an individual is deemed to be a statutory resident of New York for a given tax year, all the individual’s income, including wages, interest and investment income, will become subject to New York State/City personal income taxes, which can be quite costly in the aggregate.

Introduction

Although state regulations provide some guidance, there is no clear definition of the term “permanent place of abode” (PPA)” in the tax law.  The term has been broadly interpreted to include a part-time residence (such as a small rented apartment used occasionally when working late at the office), or having part-time access to a room at a church rectory (which the individual used as a part-time residence) and other uncommon situations where the use of a dwelling place in New York caused unsuspecting individuals to suddenly find themselves facing a residency-based tax examination.

Now, a recent decision by the New York Tax Appeals Tribunal, In the Matter of Leslie Mays, DTA No. 826546 (December 21, 2017), has provided some clarity in analyzing how the Department of Taxation and Finance (the Department) could determine if a person’s dwelling is a PPA for residency purposes. 

Background

In 2014, the New York Court of Appeals attempted to formulate a working definition of what it means to “maintain a permanent place of abode.” In a case captioned Matter of Gaied v. New York State Tax Appeals Trib.,2  Mr. Gaied lived in New Jersey, but owned an automotive repair business on Staten Island, New York.  He commuted daily to work.

Mr. Gaied purchased a multi-family apartment building on Staten Island, located in the same neighborhood as his business. His motivation for acquiring the building was two-fold: as a place for his elderly parents to live and as an investment property.

Mr. Gaied’s parents lived in a first-floor apartment and relied on him for their support—they were his dependents for tax purposes.  He never lived at their apartment and did not keep any clothing or other personal effects there.  However, he sometimes stayed overnight in the apartment to attend to his parents’ medical needs and on those occasions, he slept on a couch. 

For each of the tax years questioned by the taxing authority, Mr. Gaied filed nonresident income tax returns in New York.  After an audit, the Department issued a Notice of Deficiency indicating that Mr. Gaied owed an additional $253,062 in New York State and City income taxes. The Department determined that he was a "statutory resident" of New York within the meaning of the Tax Law3, because he spent over 183 days in New York City and maintained a "permanent place of abode" in the Staten Island property during those years.

Mr. Gaied sought a redetermination of the deficiency. He conceded that he was in New York City more than 183 days during each year at issue, but he challenged the determination that he maintained a "permanent place of abode" at the Staten Island property, since he would stay at the apartment only when his parents asked him to fulfill health needs.  He argued that there was no bed for him and he was forced to sleep on a couch. He also testified that he did not keep personal property in the apartment.  The Administrative Law Judge (ALJ) issued a determination sustaining the Notice and thereafter, Mr. Gaied filed an exception to appeal.

The Tax Appeals Tribunal initially reversed the ALJ's determination finding that Mr. Gaied did "not have living quarters at his parents’ apartment" and therefore, did not maintain a PPA.  The Department moved for re-argument, contending that the Tribunal's decision failed to consider precedent establishing that to be deemed a statutory resident under the Tax Law, a taxpayer need not actually reside in the permanent place of abode, but need only maintain it. 

The New York Court of Appeals ultimately reversed the Tax Appeals Tribunal based on a more direct approach toward defining what it means to maintain a “permanent place of abode,” ruling that Mr. Gaied was not a New York resident for income tax purposes. 

Specifically, the Court reached two conclusions. First, some basis had to exist to conclude that the dwelling was used as a residence; second, the taxpayer must have a “residential interest in the property”, i.e., the taxpayer must have living quarters at the place of abode. 

At the time of the decision, the plain language of the Court’s precedent in Gaied may have placated some of the tension between the Department and many tax practitioners regarding the definition of a PPA, the issue was recently reexamined in the Mays case.  The legal question in the Mays case was whether the taxpayer maintained a PPA in New York City during 2011. In 

Facts

January 2011, Leslie Mays moved into a furnished corporate apartment in New York City after accepting a position with Avon Products, Inc. (Avon).  Avon paid the rent for the apartment and other apartment expenses. The apartment was fully furnished and Ms. Mays had exclusive use of it for about four months. Her stay at this apartment was temporary in nature—until she could find suitable housing elsewhere—and her use of the apartment was contingent on her remaining an employee of Avon. In June, 2011, Mays moved into her fiancé’s apartment and lived there for the duration of the year.  Therefore, she had access to a dwelling in New York 

The Legal Argument

Ms. Mays asserted that the corporate apartment was not a PPA, because her stay there was temporary, i.e. not “permanent.” She also argued that even if the corporate apartment was a PPA, she did not “maintain” it, since Avon paid the rent and the other expenses of the apartment. Finally, she claimed that the combined stay at the corporate apartment and her fiancé’s apartment did not satisfy the requirement that a dwelling need be maintained for “substantially all of the taxable year” for it to qualify as a PPA.4

The Ruling

The Tribunal rejected all of May’s arguments, citing prior cases that refuted the arguments point-by-point.  The Tribunal upheld the ALJ’s decision and ruled against the taxpayer. 

Analysis

In all residency examinations, the taxpayer bears the burden of proof in demonstrating that a notice of deficiency is erroneous.  Therefore, the Mays decision now has current value for taxpayers who maintain duel residences, and for tax practitioners who provide professional advice to such taxpayers.  This is because the Mays decision now provides the framework used by the Tribunal to determine if a dwelling constitutes a PPA, and provides additional guidance for the term “residential interest” that figured so prominently in the Gaied decision.

The taxpayer in Mays was required to demonstrate that the corporate apartment did not qualify as a permanent place of abode.  In Mays, the Tribunal’s analysis followed a rather novel schematic to arrive at a decision.  First, the Tribunal examined whether the dwelling exhibited the physical characteristics normally available for year-round habitation.  If not, the dwelling wasn’t a permanent place of abode. If yes, the next question was whether the taxpayer had a legal right to occupy it as a residence.  If answered in the affirmative, and the taxpayer “exercised that right by enjoying their residential interest in the dwelling” (emphasis added), then the taxpayer maintained a permanent place of abode (contrary to Gaied, where the taxpayer owned a dwelling that didn’t qualify as a PPA because he did not use it as a residence).   However, if the taxpayer had no legal right to occupy the dwelling, factors indicating the taxpayer’s relationship to the abode were then analyzed, such as the physical aspects of the dwelling and the individual’s relationship to it, generally understood as the “permanence of the dwelling.” Next, if permanence was established, the Tribunal required an analysis of whether the taxpayer “maintained” the dwelling, meaning the taxpayer “did what was necessary to continue” their living arrangements in a PPA, or had a residential interest in it, then the conclusion should be that they maintained a PPA despite a lack of a legal right to occupy the dwelling. 

The Tribunal affirmed that the ALJ correctly determined that Leslie Mays maintained a PPA based on the above analysis: all that was required for Ms. Mays to be deemed to maintain the apartment was for her to do whatever was necessary to continue her living arrangements there, in particular that she maintained her employment with Avon, “from which the right to reside at the apartment arose; that she had exclusive use of the apartment for the duration of her stay, and that she was able to extend that stay by request [prior to moving into her fiancé’s apartment.”

The decision in Mays provides additional clarity and a more detailed framework of facts and circumstance to determine if a person who uses a dwelling in New York is maintaining a PPA. However, there’s no “once size fits all” definition under the New York residency statutes, regulations or cases.  Unfortunately, it’s unlikely that this decision will deter the Department from continuing to aggressively target individuals for residency examinations when they have access to an abode in New York.

For more information, please contact Corey Rosenthal, Principal, State and Local Tax Services, at Corey.Rosenthal@CohnReznick.com or at 646-625-5729.

¹See, New York Tax Law §605(b)(1)(B).
²See, 22 NY3rd 592 (February 18, 2014)
³Specifically, § 605(b)(1)(B).
⁴See, 20 N.Y.C.R.R §105.20.