The New York State Tax Appeals Tribunal has affirmed the decision of an Administrative Law Judge that a furnished apartment provided to an employee by her new employer for her exclusive temporary use constituted a permanent place of abode for New York statutory residency purposes. Matter of Leslie Mays, DTA No. 826546 (N.Y.S. Tax App. Trib., Dec. 21, 2017).

Facts. Petitioner Leslie Mays was hired in October 2010 to take the position of Vice President, Diversity and Inclusion at a company with offices in New York, and was scheduled to start in her new position on January 4, 2011. Her offer of employment was for an indefinite duration.

As part of her employment transition, Ms. Mays participated in her employer’s relocation program, through which her employer procured an apartment for her exclusive use in late January 2011 (the “temporary apartment”). The temporary apartment was located in New York City, was fully furnished, and had one bedroom, a bathroom, a living/ dining room, and a kitchen. Ms. Mays was not aware of any lease for the temporary apartment, and she planned to stay at the temporary apartment until she could find suitable permanent housing either within or outside of New York.

Under the original arrangement reached by Ms. Mays and her employer, Ms. Mays was to stay at the temporary apartment for 90 days or approximately until the end of April 2011. However, the employer’s relocation manager subsequently extended Ms. Mays’ stay until the end of May, allowing Ms. Mays to remain in the temporary apartment until she could move into her fiancé’s apartment on June 1, 2011. In total, Ms. Mays resided at the temporary apartment and her fiancé’s apartment for 11 months and three days during 2011.

Following an audit, the Department concluded that Ms. Mays was subject to New York State and City personal income tax and negligence penalties as a New York resident in 2011 on the basis that she was domiciled in New York City or, alternatively, was a statutory resident of New York City. However, during proceedings before an ALJ at the New York State Division of Tax Appeals, the Department conceded that Ms. Mays was not domiciled in New York City in 2011.

The Tax Law. For New York State and City purposes, an individual not domiciled in New York will be subject to personal income tax as a statutory resident if she “maintains a permanent place of abode for substantially all of the taxable year” in New York and “spends in the aggregate more than one hundred eighty-three days of the taxable year” in New York. Tax Law § 605(b)(1)(B); Admin. Code § 11-1705(b)(1)(B); 20 NYCRR § 105.20(a)(2). The Department’s regulations define a permanent place of abode as “a dwelling place of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer.” 20 NYCRR § 105.20(e)(1) (emphasis added).

The ALJ Decision. The ALJ had upheld the Department’s tax and negligence penalties assessment against Ms. Mays. As there was no dispute that Ms. Mays was present in New York City for more than 183 days in 2011, the sole issue was whether Ms. Mays had maintained a permanent place of abode in New York City. The ALJ concluded that the temporary apartment constituted a permanent place of abode and, between the time spent at the temporary apartment and her fiancé’s apartment, Ms. Mays had a permanent place of abode in New York City for substantially all of 2011.

The Tribunal Decision. The Tribunal affirmed the ALJ’s determination in full. Much of the analysis focused on whether the temporary apartment constituted a permanent place of abode, even though Ms. Mays did not have a lease to the apartment and thus did not have any legal right to it.

The Tribunal found Ms. Mays’s facts similar to those in a prior Tribunal decision, Matter of John M. Evans, DTA No. 806515 (N.Y.S. Tax App. Trib., June 18, 1992), confirmed, 199 A.D.2d 840 (3d Dep’t, 1993). In the Evans case, the taxpayer was invited to reside with a friend at a church rectory in Manhattan. While the taxpayer did not have any legal right to reside at the rectory, the taxpayer and his friend shared common living expenses such as food and housekeeping, and the taxpayer had a key and unfettered access to the dwelling — facts that supported the Tribunal’s conclusion that the rectory constituted a permanent place of abode of the taxpayer for statutory residency purposes.

Using the framework outlined in the Evans case, the Tribunal examined the facts surrounding Ms. Mays’ relationship with the temporary apartment to conclude that the apartment constituted a permanent place of abode even though she had no legal right to the apartment, which “was provided on a temporary basis as a benefit” of Ms. Mays’ employment. The Tribunal focused on the fact that the temporary apartment “had all the characteristics of a [permanent] dwelling,” she “resided at and had unfettered access to the [temporary] apartment,” and she was allowed to extend her stay at the temporary apartment until she was able to move in to her fiancé’s apartment. On a related point, the Tribunal also concluded that, even without a lease in her name, Ms. Mays nevertheless “maintained” the temporary apartment, on the basis that she did what she needed to do “in order to continue her living arrangements there” — specifically, she stayed employed at the same employer.

Next, the Tribunal concluded that, between the time Ms. Mays spent at the temporary apartment and her fiancé’s apartment, she maintained a permanent place of abode in New York for “substantially all of the taxable year.” Although the phrase “substantially all of the taxable year” is not defined by New York statutes or regulations, the Department’s audit guidelines have interpreted the phrase to mean a period of time in excess of 11 months. In this case, Ms. Mays stayed at the temporary apartment and her fiancé’s apartment for a total of 11 months and three days in 2011, and the Tribunal agreed that such time period constituted “substantially all” of 2011.

Finally, the Tribunal rejected Ms. Mays’ argument that negligence penalties should be abated on the basis that she relied on her accountant to prepare her 2011 tax returns. The Tribunal agreed with the ALJ that Ms. Mays had a nondelegable duty to properly prepare and file her returns, and reliance on her accountant was insufficient to represent ordinary business care and prudence in carrying out such duty.

ADDITIONAL INSIGHTS

The Tribunal’s decision highlights regulatory changes that have increased the risk that individuals staying in New York dwellings for a temporary duration may nevertheless be classified as statutory residents. In 2008, language stating that “a place of abode . . . is not deemed permanent if it is maintained only during a temporary stay for the accomplishment of a particular purpose” was removed from the regulations. See Amendments to the Definition of Permanent Place of Abode in the Personal Income Tax Regulations, TSB-M-09(2)I (N.Y.S. Dep’t of Taxation & Fin., Jan. 16, 2009). A footnote to the Tribunal decision agreed with the Department’s argument that the removal of such language from the regulations rendered the intentionally “limited duration” of Ms. Mays’ stay in the temporary apartment irrelevant.