State personal income tax issues related to residency and domicile, because of their fact-dependent nature, are often the subject of controversy and litigation. Taxpayers have a fresh win in this area to celebrate. The New York Supreme Court, Appellate Division, Third Department, in In the Matter of Obus et al. v. New York State Tax Appeals Tribunal, N.Y. Sup.Ct. App.Div. Third Dept. Dkt. No. 533320 (June 30, 2022), reversed a Tax Appeals Tribunal decision, holding that a rarely used vacation home in New York was not a “permanent place of abode” for purposes of the New York state personal income tax.
The petitioners received a notice of deficiency from the New York Department of Taxation and Finance (Department), imposing additional personal income taxes, penalties, and interest for the 2012 and 2013 tax years. The deficiency was based upon the Department’s determination that the petitioners were “statutory residents” of New York during those years due to their ownership of a vacation home in New York, and the petitioners’ presence in New York for more than 183 days per year.
The facts of the case were largely undisputed. The petitioners were domiciled in New Jersey and owned a vacation home in Northville, NY (Vacation Home). The Vacation Home was furnished and had year-round climate control and utilities. While Mr. Obus worked in New York City, he commuted there from his home in New Jersey. Because Mr. Obus worked in New York City, he was in New York for more than 183 days a year. The central issue of the case was whether the Vacation Home was a “permanent place of abode” for the petitioners, making them liable for tax as New York residents. New York law provides that ”(a) nondomiciliary may be considered a New York resident for income tax purposes if he or she maintains a permanent place of abode in this state and spends in excess of 183 days of the year here … .” Id. (citing Tax Law §605(b)(1)(B)).
The court noted that the legislative intent underlying the “permanent pace of abode” concept is to discourage tax evasion by New York residents by taxing individuals who are “really and for all intents and purposes residents of the state but have maintained a voting residence elsewhere and insist on paying taxes as nonresidents.” Id. To qualify as a “permanent place of abode,” there must be some basis to conclude that the dwelling is utilized as the taxpayer’s residence. Id. (citing N.Y. St. Dept. of Taxation and Fin. Advisory Op. No. TSB-A-18(3)(l)). While “permanent place of abode” is not defined by statute, the Department’s regulations define it as “a dwelling place of a permanent nature maintained by the taxpayer. … However, a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode … .” 20 NYCRR 105.20(e)(1). The court reasoned that even though the Vacation Home was not “a mere camp or cottage,” that fact alone was not dispositive as to whether the Vacation Home was a “permanent place of abode.” The reference to “mere camp of cottage” is just one example where a dwelling will not be a “permanent place of abode.” Id. In fact, the court criticized the Tax Appeals Tribunal for focusing solely on the objective characteristics of the Vacation Home.
While conducting the “permanent place of abode” analysis, the court recognized that “it is imperative to consider a variety of factors, including the nature and duration of use (), which inherently involves a subjective analysis of the taxpayers’ use.” Id. (citations omitted). Further, the court noted that there must be a showing that the taxpayer has a residential interest in the property, and that the taxpayer must have utilized the dwelling as his or her residence; merely maintaining a dwelling that could be a “permanent place of abode” is not enough. Id.
The court found that while the Tax Appeals Tribunal had several objective facts that supported a determination of a “permanent place of abode,” including the petitioners’ “free and continuous access” to the Vacation Home, the totality of the facts dictated that the petitioners did not fall within “the purview of the target class of taxpayers who were intended to qualify as statutory residents.” Id. Of particular importance were the facts that petitioners kept no belongings at the Vacation Home, that Mr. Obus did not commute to his job from the Vacation Home (a four-hour drive), and that petitioners spent a maximum of three weeks at the Vacation Home a year. Concluding, the court reasoned that while the Vacation Home could have been used in such a manner to make it a “permanent place of abode” under the tax laws, the petitioners did not use it in that way.
The result of this case contrasts sharply with previous decisions of the Tax Appeals Tribunal, notably the decision of In the Matter of Barker, N.Y. Tax Appeals Tribunal, Dkt. No. 822324 (January 13, 2011). In the Barker case, the petitioners were domiciled in Connecticut and owned a vacation home in New York. The parents of one of the petitioners lived in the vacation house year-round. Mr. Barker commuted from Connecticut to his workplace in New York City, causing him to spend over 183 days in New York during the year. The decision in Barker focused on the objective characteristics of the dwelling, and the tribunal found that it was a “permanent place of abode” even though the petitioners rarely used the vacation home. The Obus court, in stark contrast, rejected the approach of only focusing on the objective characteristics of the dwelling, while conducting the analysis.
The main takeaway from this decision is that facts detailing the actual use of a dwelling are more important than facts detailing the characteristics of the dwelling. While this case involved a vacation home, the court’s focus on actual use will be applicable in other residency and domicile cases. While a victory for taxpayers, this case reaffirms how important facts and circumstances are in residency and domicile determinations and underscores the necessity of thorough planning.