NY Amends “Part-Year” Residence Provision

On April 12, Governor Andrew Cuomo signed the New York State budget bill that contained a provision amending NY’s personal income tax as it relates to part-year residents. The new provision reverses the interpretation of the administrative law judge (“ALJ”) in the Sobotka case (Matter of Sobotka, No. 826286, [NY Div. Tax App. 2015]). The new law is effective immediately and applies to 2019 and thereafter. The Department may seek to enforce the new provision in current, pending income tax audits.  

In Sobotka, the taxpayer moved to New York in August and filed as a part-year resident; he was living in Texas from January to July. The Department asserted he was a full-year statutory resident due to days spent in New York during January to July, when he had corporate living quarters available for his use. The ALJ ruled against the State and held, in essence, that “part-year resident” means “part-year domiciliary” (i.e., you cannot count the pre-NYS domiciliary days and add them to the post-NYS domiciliary days to make it total more than 183 days). Therefore, a part-year resident taxpayer would need to be present in the State for more than 183 days during the non-resident period to be classified as a statutory resident. This legislation amends the New York tax law to provide that the 183-day test includes all the days in the year, both pre- and post-domicile change. The change, as enacted, is effective as of 2019.

This method of counting days can possibly lead to unfavorable outcomes. For example, a taxpayer domiciled in New York through July 31 who moves to Florida on August 1 and who maintains his/her old residence, or a summer home in the State, but who spends no other days in New York physically may, nevertheless, be considered a full-year resident as his/her 210 days in the state exceeds the 183 days permitted. 

A taxpayer contemplating a domicile change may already have been present in New York for 151 days as of end of May. (The Department has not specified whether or not to count full days outside of New York, such as for vacation or business travel.) In that event, in order to change domicile in 2019, the taxpayer appears to have two options under the new law: 

1. The taxpayer would need to depart prior to the end of June. If he/she maintained a permanent place of abode in the State, such as a legacy or vacation home, he/she could not return to the State for more than a couple days (e.g., if he/she moved on June 30, he/she could return for one day to max out at 182 days); or
2. If the taxpayer did spend a total more than 183 days in New York during the year—in any portion of the year, both pre- and post-domicile change—the taxpayer would need to sell all New York abodes and close on the sales prior to the end of November. Under New York’s “11-month” rule, a place of abode is not considered permanent unless it is maintained more than 11 months.  

One can imagine a scenario where a part-year resident taxpayer maintains the legacy residence, or a summer home in the Hamptons, and triggers full-year statutory residence status inadvertently by returning for visits to the State during his/her non-resident period, an activity that was previously permissible.