Major Decision on NY Statutory Residence Issued by Court of Appeals
In a decision that can be read as a broad rebuke of the Department of Taxation and Finance, and with the evocation of legislative history as a basis, the New York Court of Appeals has held that the subjective living arrangements of a taxpayer govern the meaning of the “permanent place of abode” provision. The decision finds further that there was “no rational basis” for the Department of Taxation’s position that property rights plus suitability and unfettered access alone equate to a “permanent place of abode.”
John Gaied lived in New Jersey and operated two automotive repair shops in Staten Island in 1999, when he bought a three-unit apartment building as an investment and as a residence for his elderly parents in the same neighborhood as his businesses. On occasion, he stayed overnight at the apartment to care for his elderly father. In 2006, after an audit, the State Department of Taxation and Finance determined he was a statutory resident of New York under Tax Law § 605(b)(1)(B), which applies to a non-resident who "maintains a permanent place of abode in this state” and is physically present in New York for more than 183 days. Mr. Gaied challenged the assessment, pointedly arguing that he did not “maintain a permanent place of abode” within the meaning and intent of the statute.
The lower court (Matter of Gaied v New York State Tax Appeals Trib. 2012 NY Slip Op 09108 [101 AD3d 1492] December 27, 2012 Appellate Division, Third Department ) had held that where a taxpayer has a property right to the subject premises, it is not necessary or appropriate to consider the taxpayer's subjective use of the premises. The Court of Appeals decision instead pointedly reversed, and held that a taxpayer’s subjective use of the premises, including the degree to which a taxpayer maintains “living arrangements” in a particular premises is the appropriate, and key, inquiry. The Court held that the taxpayer from a subjective standpoint, “must, himself, have a residential interest in the property.”
The Court’s rationale was unusual: it referred to the legislative intent of the “statutory residence” provision of the Tax Law (the provision was originally added to the Tax Law in 1922; the 183-day rule subsequently enacted in 1954). The Court held that the “statutory residence” provision was intended to prevent tax evasion by New York residents – in essence, the purpose of the provision was to prevent an actual resident from claiming domicile elsewhere and then avoiding the resident income tax by the expedient of spending 183 days outside of the State.
Accordingly, the focus is not solely on the physical maintenance of the premises, but, as a matter of statutory construction, also includes reference to the taxpayer’s subjective, personal “residential interest” in the place of abode. In the end, the case was remanded to the jurisdiction of the Tax Appeals Tribunal for further proceedings – and interpretation of the statutory residence provision in accordance with its legislative history. The Court’s decision, perhaps ironically, furthers the Department of Taxation and Finance’s broader and more subjective interpretation of the “permanent place of abode” provision as explained in 2012 revisions of the Nonresident Audit Guidelines that focused more on the taxpayer’s relationship to the abode.
“While the case was remanded, and therefore has yet to reach its final disposition,” Tim Noonan of Hodgson Russ, the attorney for the taxpayer, said about the expected proceedings on remand of the case, “since Mr. Gaied did not have living quarters at his parents’ apartment, he did not maintain a permanent place of abode in New York. That factual finding is still valid, and was never changed or overturned by the Tribunal. So I would hope the remaining proceedings will be merely perfunctory.”