NYS Residency Case Highlights Interplay of Domicile and Statutory Residency

Last month, husband and wife taxpayers prevailed in court on a NYS residency matter. The case is an interesting development in an area that is a big moneymaker for the State. At a minimum, the decision is important to note for taxpayers who claim a change in domicile during a tax year.

For their 2008 tax year, Mr. and Mrs. David Sobotka filed a NY part-year resident return, claiming they changed their domicile to NYS & NYC as of August 18, 2008. After some back and forth, the State agreed to this, but asserted that the taxpayers were statutory residents for their 2008 tax year.

What is the significance?

Putting statutory residency aside, if the taxpayers changed their domicile to NYS & NYC on August 18 2008, then income earned outside of the State from January 1, 2008 to August 17, 2008 would not be subject to NYS & NYC income tax.

If the taxpayers were also considered statutory residents for 2008, then all of the taxpayers’ income from 2008, regardless of where it was earned, would be subject to NYS & NYC tax.

The point is: Statutory residency is an all or nothing test for a particular tax year. One can’t be a statutory resident for a part of the year. In general, a taxpayer is a statutory resident if he

1. Maintains a permanent place of abode in NY; and
2. Spends more than 183 days in NY.

Here, the taxpayers were without question residents as of August 18, 2008. The issue was, for purposes meeting the statutory residency test, whether the more than 183 days had to be spent in the State during the non-domiciliary period, which was January 1, 2008 to August 17, 2008.

Looking at the legislative history of the residency statute, the court concluded yes. If the taxpayers could prove that they did not spend more than 183 days in NY from January 1, 2008 to August 17, 2008, they would not be considered residents during that period.

Keep in mind this decision came from an Administrative Law Judge. The decision is not binding, and the State could appeal. Stay tuned.

For more background on residency, visit our website.

Case: In re Sobotka, DTA No. 826286 (N.Y. Div. Tax App. 2015)

Submitted by Brad Polizzano on Fri, 09/11/2015 – 17:03