How expensive is a New York City apartment? A lot more if your client is a resident.

By: The Attorneys of Tenenbaum Law, P.C.

Your client comes to you holding correspondence from the New York State Department of Taxation and Finance. It seems that New York City believes that your client should be taxed as a city resident. For many years, your client has lived on Long Island and worked in the city, with an apartment in the city to have available if he should have to stay late one day, or he and his wife want to go to a Broadway show. Is he really a NYC resident in the eyes of the government?

Another client drops by your office with correspondence about his taxes. He is in town for a few days from Florida; he has an apartment in the city, but he considers himself to be living in Florida now. The city has a different opinion, and it may be costly since his tax return shows he had a particularly good year.

It’s a busy day, and another client comes in complaining that the city wants him to pay a fortune in taxes. He has an apartment in the city and a house in the Hamptons. He only works a few days a week and spends as much time as possible out in the Hamptons. Can he really be taxed on all his income as a New York City resident?

While New York State has for many years sought to audit taxpayers with homes in New York and out of state, more recently New York City has been more aggressive in asserting that a taxpayer with an apartment in the city is a NYC resident. The rules and audit guidelines for determining whether someone is a NYC resident or domiciliary are the same as for determining whether someone is a resident or domiciliary of New York State, and the government relies on the same legal precedents.

In order to determine whether these taxpayers should be taxed as NYC residents, in each instance, the practitioner must examine all the facts closely. The city considers numerous factors and the burden of proof is on the taxpayer. The wise practitioner will advise his client about steps to take before a problem arises, and important records to maintain.

The basic rule is: if a person is (1) domiciled in the city; (2) has a permanent place of abode there; and (3) spends more than thirty days in the city; then he is a city resident, and all his income worldwide is subject to NYC tax. If he is not domiciled in the city, then the person can still be taxed as a statutory resident if he has a permanent place of abode in the city, and spends more than 183 days in the city. (There are particular rules for certain circumstances, such as for foreign residents and military personnel, which are beyond the scope of this article.)

If the taxpayer historically lived in the city and still has a residence there, the government may well challenge an assertion that the taxpayer is domiciled elsewhere. Domicile can be thought of as a person’s home, the place to which he intends to return when absent. The government tries to measure this emotional connection by looking at external indicia. Your client can protest vigorously that Florida is his real home; but if he cannot prove the facts to show that he changed his domicile to Florida, he will be subject to city tax.

In order to change domicile, the person must “leave and land,” that is, he must show that the city is no longer his domicile and that he has established a new domicile. The city looks at four major factors: home, that is, the nature and use of each dwelling; business involvement; time spent in each place; and items near and dear. If there is no definite conclusion based on those four factors, then the city will also look at a fifth factor, family connections.

It is helpful to document as much as possible of the taxpayer=s involvement and connection to the new domicile. The government will consider additional factors, such as membership in clubs, or location cited as the residence in a will or other papers. If the primary factors strongly weigh in favor of a certain domicile, however, these other indicia will not be sufficient to support a different conclusion.

Suppose the taxpayer can establish that he has, in fact, changed his domicile and he is no longer a domiciliary of New York City. The question now becomes whether he has a permanent place of abode in the city, and spends more than 183 days a year there. Your client may claim that he does not have a permanent place of abode; he sold his old apartment in the city and bought a new one simply for investment purposes. If, however, he uses it while he is holding it for investment, it may qualify for residency purposes as a permanent place of abode. Similarly, if he has a loft that he claims to use for business purposes, he may need to prove that the place does not have the amenities (such as the usual cooking or bathroom facilities) to constitute a permanent place of abode. Photographs may be helpful in meeting the burden of proof on this.

Without adequate records, it can be quite difficult to show that the taxpayer spent less than 183 days in the city. Any day not proven to be elsewhere may be attributed to the city. Taxpayers should keep careful, contemporaneous diaries. In calculating the 183 days, the city will count any portion of a day as a day spent in the city. Dinner in a restaurant in Queens has the same effect on day count as a full day in a midtown office. Fortunately, there is an exception for travel through the city on the way to another location.

For the client who lives on Long Island and has an apartment in the city for special occasions, assuming that his apartment is a permanent place of abode, the question turns on whether he spent 183 days in the city during the year in question. If he commuted five days a week to work in the city, he would likely be a statutory resident. It is not important whether he actually stayed in the apartment on many of the days he was in the city. Mere possession and unfettered access to the apartment is enough.

As the above shows, it is a good idea to advise your client to have good records, be aware of day count, and plan ahead, as these are key elements as to whether a taxpayer can prove, with your help, that he was not a domiciliary or resident as defined by the law.