New York has high taxes, so some taxpayers try to change their residency to avoid them. New York residents are required to pay state tax on all worldwide income; while non-residents are only subject to tax on income allocable to New York, such as wages earned for services provided within the State, rents from property located within the State, or income attributable to a New York trade or business. As a result, many with investments outside New York look to move to a lower tax state. You may think this is just a matter of changing your mailing address and driver’s license, but it is much more complicated. How does New York determine whether you are a state resident for income tax purposes?
There are 2 tests for residency in New York: the domicile test and the statutory residency test. The domicile test looks at where is your true, fixed, permanent home. The statutory residency test focuses on whether you maintain a permanent place of abode in New York; and whether you spend more than 183 days in the state. If you meet either of these tests, you will be considered a New York resident for income tax purposes.
For purposes of this blog, we will only cover the domicile test. How does New York determine where is your true, fixed, permanent home?
A taxpayer may have more than one house but only one “domicile.” So, if you are a snowbird living in New York and Florida, only one of those homes will be your domicile. Once you have a domicile and you want to move to a new one, you must prove you abandoned your old domicile and established a new one. In case of an audit, the burden of proof rests with the party asserting the change which must be supported by evidence that is clear and convincing. Typically, it’s the taxpayer who wants to argue he or she is no longer domiciled in New York in order to take advantage of lower taxes in another state so he or she has the burden of proof.
New York looks to five primary factors in evaluating a claim of a change of domicile.
- Home: The auditor will compare the use and maintenance, value, and size of the New York State home to that of the non-New York State home as well as look at other considerations.
- Business Activities: The auditor will inquire into your continued employment or active participation in New York State companies.
- Time: The third primary factor involves an analysis of the time you spent in New York as compared to the time spent at your out of state residence. Note that an auditor may examine your personal travel diaries, appointment calendars, passports, credit cards, and phone bills.
- Near and Dear: The auditor wants to know where you keep family heirlooms, works of art, collections of books or stamps, jewelry, pets, and items of sentimental value such as photo albums.
- Family: The fifth primary factor, family connections, focuses on where your spouse and children reside and where your minor children attend school.
Additional factors may be relevant, but only after the auditor first examines the five primary factors listed above. Secondary factors include where you have your mailing address, driver’s license, voter registration, auto registration, bank accounts, etc. Where the primary factors indicate a New York domicile, these other factors should be reviewed, but are not considered to carry the weight and significance of the primary factors. For situations in which domicile remains unclear, an analysis of these other factors will be considered.
It should be noted that there are two exceptions when a taxpayer will not be taxed as a resident for personal income tax purposes, even though domiciled in New York.
Taxpayers who (1) do not have a permanent place of abode in New York and (2) spent fewer than 30 days in New York will not be considered a resident for income tax purposes.
A taxpayer who (1) is in a foreign country for at least 450 of any 548 consecutive day period and (2) neither he nor his family spends more than 90 days in New York will not be treated as a resident for income tax purposes. This exception typically applies when New York residents are positioned in overseas offices of their multinational employers.
As mentioned above, there are 2 tests for residency so even if the domicile test determines you are not domiciled in New York, you may still be considered a resident if you meet the statutory residency test. For more information on the statutory residency test, download our free eBook – Surviving A New York State Residency Audit.