NY Court of Appeals Sides with Taxpayer in Residency Case

Earlier this week, New York’s highest court in Matter of Gaied reversed an appeals court decision addressing whether a taxpayer was considered a “statutory” resident for income tax purposes.

This time, the taxpayer emerged victorious.

The Gaied case has received a lot of attention from taxpayers, practitioners, and State representatives since the case was first decided against the taxpayer by an Administrative Law Judge in 2009.

John Gaied owned a residential building with several units in Staten Island. In one of the units lived his parents. During the years in question, Mr. Gaied occasionally spent the night on his parents’ couch at their request to attend to their medical needs.

Throughout this time, Mr. Gaied owned a home in New Jersey and regularly commuted to his auto repair business in Staten Island.

If Mr. Gaied were considered a “statutory” resident for the years in question, he would be subject to paying New York taxes on all his income. He clearly met one of the two prongs to the “statutory” resident test by spending more than 183 days in New York each year while working at his business. The issue in Gaied was whether he also maintained a permanent place of abode in the State, the second prong to the “statutory” resident test.

The Court of Appeals felt the Appellate Division’s definition for maintaining a permanent place of abode was too broad to capture Mr. Gaied’s situation:

The Tax Tribunal has interpreted “maintains a permanent place of abode” to mean that a taxpayer need not “reside” in the dwelling, but only maintain it, to qualify as a “statutory resident” under Tax Law § 605(b)(1)(B). . . . We conclude there is no rational basis for that interpretation. Notably, nowhere in the statute does it provide anything other than the “permanent place of abode” must relate to the taxpayer. The legislative history of the statute, to prevent tax evasion by New York residents, as well as the regulations, support the view that in order for a taxpayer to have maintained a permanent place of abode in New York, the taxpayer must, himself, have a residential interest in the property.

John Gaied’s investment property and business were a mere two miles apart. One could understand the State’s skepticism of his testimony regarding how often he stayed with his parents. Clearly, the Court of Appeals found him credible, and decided his use of the apartment did not rise to the level required to deem it his permanent place of abode.

The NYS Department of Taxation and Finance has taken a factor-type approach to evaluate whether a dwelling is a permanent place of abode. See this article for more on the subject, and consider how the new Gaied decision may impact the weighing of the Department’s various factors.

Submitted by Brad Polizzano on Fri, 02/21/2014 – 13:54