New York State and City Residency - Part 2
The analysis of domicile is bifurcated between the Guidelines and the bona fide authorities (i.e. statutes, case law and regulations). The auditors tend to apply the audit guidelines as if they were the actual law.
The statutes, regulations and case law indicate that an individual’s domicile is a matter of intent. A person’s intent is subjective and not easily determined by others. The Guidelines attempt to simplify the domicile analysis by using objective factors to evaluate an individual’s intent. The Guidelines are based upon the statutes, regulations and case law.
The Guidelines list five (5) primary factors to be considered by auditors when evaluating the location of a taxpayer’s domicile. The five (5) factors are:
- Home: This factor is analyzed in terms of size, value, purpose (e.g. primary home, vacation home, overnight stays, etc.). The surrender of a residence in one location that coincides with the acquisition of a residence in another location is only an “important indicator” of a change in domicile. Such an occurrence is not by itself determinative of the issue of a change in domicile.
- Time spent in various locations: This factor is the most objective of the factors as it is simply a measure of time.
- Location of “near and dear” items: This factor refers to property that is of special value to the taxpayer. Near and dear items need not be of great monetary value (e.g., report cards from school, pen pal letters, award certificates, diplomas, family pets). However some near and dear items may possess great economic value (e.g., art collections, wine collections, cars and boats, etc.).
- Location of active business involvement: The key to this factor is the word “active”. Passive activity is not the main focus of this factor. An individual may be actively involved in a New York business even if they are not physically located in New York.
- Location of family: This factor focuses on spouses and non-adult children. It is clear from the regulations that spouses may have different domiciles although the presumption is that they have the same domicile. The Guidelines instruct the auditors to refrain from examining the fifth (5th ) factor if the taxpayer’s domicile can be determined based on the first (1st) four (4) factors.
The Guidelines also mention “other factors” that are considered if it is not possible to determine domicile based upon the five (5) primary factors. The Guidelines indicate that in “virtually all” cases the “other factors” need not be reviewed by the auditor to determine domicile. These factors are:
- The address at which bank statements, bills, financial data and correspondence concerning other family members is primarily received.
- The physical location of the safe deposit boxes used for family records and valuables.
- Location of auto, boat, and airplane registration as well as the individual’s personal driver’s or operator’s license.
- The location of where the taxpayer is registered to vote and actually votes.
- Possession of a New York City parking tax exemption.
- Telephone service type and activity at various residences.
- The citation in wills, testaments and other legal documents that a particular location is to be considered the individuals place of domicile.
A taxpayer who is not domiciled in New York State or City but maintains a permanent place of abode in New York State or City (e.g., an apartment) and spends more than 183 days in New York State or City will be a resident for New York State or City income tax purposes. The most important exception is time spent in New York City or State solely for transportation purposes (e.g., passing through New York City in a car or bus or utilizing airports and bus and train terminals etc.)
Documentation Related to Statutory Residency Audits:
If you maintain a permanent place of abode in New York State or City you should proactively organize information that you plan to use if and when you are subjected to a Page 4 of 4 statutory residency audit by the Department. Start organizing now. Make certain to keep a daily diary of your whereabouts. In the event of an audit, the Department will evaluate whether your documentation supports the entries in your diary. The items on Exhibit A (below) may be helpful in documenting your daily presence or absence from New York City or State. There may be documents that are not listed on Exhibit A that would also be helpful. It could be worthwhile for you to consider whether there are any additional documents available to you that would be helpful.
Credit card receipts and statements.
EZ Pass records
Expense account records
ATM receipts (or bank statements)
Frequent flier club statements
Car service receipts
Corporate jet or helicopter log
The rules used to determine the location of a person’s domicile are quite subjective. While the rules related to statutory residency are more objective, they are highly dependent upon the quality and quantity of documentation maintained by a taxpayer. A good tax advisor should be able to help a taxpayer understand the strengths and weaknesses of their claimed residency status. Finally, if a taxpayer is being audited, a good taxpayer representative should be able to help ensure the best possible outcome.