In a significant recent decision, In the Matter of Nelson Obus et al. v. New York State Tax Appeals Tribunal, ___ NYS3d ___, 2022 NY Slip Op. 04206 (06/30/2022), the New York Supreme Court, Appellate Division, Third Department, reversed a previous Tax Appeals Tribunal decision concluding that a vacation home constituted a "permanent place of abode" for purposes of New York's 183-day statutory residence rule. This decision could have significant implications for individual taxpayers who are not "domiciled" in New York, but are present in New York on more than 183 days during the year (for work, for example) and own or maintain a vacation home located in New York that they use only sparingly.
As you may know, New York residents are taxed on all their income from all sources (subject to business income apportionment rules), while nonresidents are taxed only on New York-source income. For personal income tax purposes, an individual generally will be treated as a New York resident for any year in which:
1. he or she is "domiciled" (generally, the place which an individual intends to be his permanent home -- the place to which he intends to return whenever he may be absent) in New York, unless he or she did not maintain a "permanent place of abode" in New York during the year, maintained a permanent place of abode outside New York during the entire year and spent 30 days or less in New York during the year; or
2. he or she is not "domiciled" in New York, but maintains a "permanent place of abode" in New York and spends in the aggregate more than 183 days of the year in New York (the "statutory resident test").
New York's Tax Law does not define "permanent place of abode" for purposes of the statutory residence test, but the NYS Department of Taxation & Finance has defined a "permanent place of abode" in its regulations (NYCRR §105.20(e)(1)) as "a dwelling place of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer ... However, a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode." In the most recent iteration of its Nonresident Audit Guidelines published in 2014, the Tax Department expanded upon the regulatory definition by emphasizing, in its view, the two key elements of the definition -- the physical aspects of the dwelling and the nature of the relationship between the taxpayer and the dwelling. With regard to the former element, the Tax Department's view is that a dwelling is suitable for year-round use even if the taxpayer's use of it is limited, for example, to the summer months. "Suitability for year-round use turns on the physical attributes of the dwelling, that is, whether its construction and other features make it suitable for year-round use. "With regard to the latter element, the key concept, in the Tax Department's view, is the taxpayer's residential interest in the dwelling, but the Tax Department has not fully explained the practical contours of this concept, instead summarily concluding that a residence "owned and maintained by a taxpayer with unfettered access will generally be deemed to be a permanent place of abode regardless of how often the taxpayer actually uses it."
This position of the Tax Department was expressed following a NYS Tax Appeals Tribunal decision (In the Matter of John J. and Laura Barker, Docket No. 822324, 1/13/2011) upholding an Administrative Law Judge's determination that the taxpayers, who were domiciled in Connecticut, were New York residents for personal income tax purposes. In that case, Mr. Barker spent more than 183 days in New York in connection with his work, and while the Barkers' New York vacation home generally was used by them only during the summer months and only for a total of 15-20 days per year, it was deemed a "permanent place of abode" because it was equipped for year-round use and was, in fact, used far more frequently throughout the year by Mrs. Barker's parents. The fact that the Barkers may have used the home only for vacations did not alter its status as a "permanent place of abode" because it was "suitable for other uses than vacations, although it might be used by a person of considerable means only for activities which might be considered vacation purposes. "Thus, in the Tax Appeals Tribunal's view, the Barkers' relationship with the dwelling - their residential interest in it - and the fact that their relationship to the dwelling was limited to sporadic vacation use was irrelevant. The Tax Department's subsequently-revised Nonresident Audit Guidelines, however, did not address the Tax Appeals Tribunal's apparent disregard of this component of the definition of "permanent place of abode."
The Appellate Division's recent decision in the Obus case, on the other hand, focused squarely on this element of the definition. In Obus, the court disagreed with the Tax Appeals Tribunal's determination that the taxpayers' "residential interest" in their vacation property and their "right to reside in and maintain living arrangements" in that residence rendered it a "permanent place of abode. "In the court's view, the Tax Appeals Tribunal had unreasonably focused on the property's objective characteristics rather than the taxpayers' actual use of the property. While there were some objective facts tending to support the Tribunal's determination, including the taxpayers' "free and continuous access" to their vacation home, most of the facts demonstrated that the taxpayers' vacation home was not a "permanent place of abode." These facts included the taxpayers' use of their vacation home for no more than three weeks each year, the home was not used for access to Obus' job in New York City (it was more than a four-hour drive each way), an apartment attached to the dwelling was occupied by a year-round tenant who was informed in advance of each arrival by the taxpayers and the taxpayers did not keep personal effects in the vacation home, instead bringing with them what they needed for each of their visits. Citing several prior court decisions (including In the Matter of Evans v New York State Tax Appeals Tribunal, 199 A.D.2d at 842 (1993), and In the Matter of Gaied v New York State Tax Appeals Tribunal, 22 NY3d at 594 (2014)), the Appellate Division thus concluded that the taxpayers did not utilize the dwelling in a manner indicating that they had a residential interest in the property, and while the residence could have been used in a manner that would have rendered it a "permanent place of abode," it was not used in that manner by the taxpayers and they were not, therefore, New York statutory residents.
The Appellate Division's decision in Obus is a welcome clarification of the definition of "permanent place of abode," at least as applied to vacation homes, and should be of great interest to individuals who are not "domiciled" in New York, but own or maintain vacation homes in New York. On one hand, it hopefully will discourage the Tax Department's almost single-minded focus on a residence's suitability for year-round use in favor of a more balanced focus on both the physical characteristics of an individual taxpayer's vacation home and his or her residential interest in such dwelling. On the other hand, in view of the recent trend in working remotely, often from residences formerly used only for limited vacation purposes, it may present an opportunity for the Tax Department to assert that such vacation homes should now be properly deemed "permanent places of abode" under New York's statutory residence test.
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