Some second home owners could avoid New York income tax under court ruling
A new court ruling is good news for Hamptons real estate owners who work in New York but have their full-time residence in another state. This could mean that they will no longer be subject to paying New York State income tax on their worldwide income.
Nelson Obus, a hedge fund manager who lives in New Jersey and works in New York, brought the case, which was decided last month. The court ruled that his ownership of a vacation home in Fulton County, New York, did not qualify New York State as a resident for income tax purposes.
Tax lawyer Yvonne Cort, a partner at Capell Barnett Matalon & Schoenfeld LLP in Jericho, has been following the case and thinks the court’s decision is significant for taxpayers. She explained that New York State law provides two ways to define individuals as residents of the state: First, they are domiciled in New York, “meaning it really is your home. This is where you live, this is where your heart is. Second, they are considered “statutory residents” because they have “a permanent place of residence” in the state for a substantial portion of the tax year and spend more than 183 days in the state. State every year.
In Nelson Obus, et al. v New York State Tax Appeals Tribunal et al., where Obus lives and how many days he spends in New York were not in issue.
“No one disputes that their home is in New Jersey,” Cort said. “He commutes to work in New York, so no one disputes that he’s in the state longer than 183 days. So it’s a question of whether his vacation home in upstate New York counts as permanent residence.
Cort said the longstanding interpretation by the courts and the New York State Department of Finance examines the characteristics of a permanent place of residence: can it be used year-round? Does it have a kitchen and bathroom? Does the occupant own it and maintain it?
“Under those rules, applying that to this case, he lost at the lower level,” she said.
But Obus appealed, arguing that it is only a holiday home and that he is there only two or three weeks a year. He keeps no personal effects there and it is a four-hour journey from his place of work.
When his case reached the Appeals Division of the New York State Supreme Court, Third Department, the judges overturned the tax court’s decision – a victory for Obus.
“They said, let’s look at the legislative intent of the act,” Cort said. “The Statutory Residents Act was really for people who were trying to evade taxes, who were really spending a lot of time in the state.”
She said what she found striking was that the judges said treating her vacation home as a permanent place of residence is inconsistent with the legislative intent underlying the law.
“This is truly a major decision in favor of taxpayers,” Cort said, though she pointed out that the state’s 30-day window to appeal the decision is still open. “They could go up one more level and see if it reverses on appeal, but right now it’s really a pretty remarkable case.”
Cort noted that income from New York, such as rental property in New York, is taxable for out-of-state residents. But out-of-state residents aren’t subject to New York State taxes on their worldwide income from elsewhere – which is why Obus didn’t want to be considered a New York resident despite the fact that worked there and owned a vacation property there.
This court ruling is of no benefit to people who have a place in New York and a place in the Hamptons, Cort acknowledged. But someone who lives in Connecticut or New Jersey, owns a home in the Hamptons, and also spends more than 183 days in New York State for work will likely be affected.
The 183-day rule includes any part of the day, so commuting to work in Manhattan for a few hours before returning home to spend the night in Connecticut or New Jersey is still considered a day in the New York State counting towards this 183-day threshold. .
“It’s meticulous with that number of days,” Cort said. “You need to keep track of where you are every day of the year.”
Before this case is decided, a rarely used Hamptons home could make someone who lives in another state a statutory New York resident. “But with this case now, there’s the possibility that if they’re only there for a few weeks a year, they won’t be taxed as a legal resident,” Cort said. “It can make a difference if someone chooses to buy a place in the Hamptons or rent, because if they’re only renting something for the summer, they won’t be taxed as a legal resident.”
She pointed out that every situation is fact-sensitive, so a Hamptons owner making the same claim as Obus might not succeed. Using a house for more than three weeks per year, a shorter distance to the owner’s workplace, and keeping personal belongings in the house can all influence the outcome.