Four months after the Court of Appeals held in Matter of Gaied v. Tax Appeals Tribunal, 22 N.Y.3d 592 (2014) (discussed in the March 2014 issue of New York Tax Insights), that there was no rational basis for the Department’s position that an individual who maintains a dwelling in New York for others but does not reside in that dwelling nonetheless has a “permanent place of abode” in New York for statutory residency purposes, the Department has updated its personal income tax Nonresident Audit Guidelines (“Guidelines”).  The revisions to the Guidelines primarily address the Gaied decision, but also provide other guidance to auditors and to taxpayers.

Revisions Addressing the Gaied Decision.  Under New York’s “statutory residency” test, individuals who maintain a permanent place of abode in New York and spend more than 183 days in the State during a year are treated as residents for income tax purposes.  The Guidelines have customarily contained  a lengthy discussion regarding the statutory residency test.  The revised Guidelines now include a summary of Gaied, and state that the Court of Appeals concluded in the case that “for a taxpayer to be maintaining a permanent place of abode, he must have a ‘residential interest’ in the dwelling.”

The Department’s revised Guidelines state that the ruling in Gaied “is consistent with current Audit policy that the taxpayer must have a relationship to [a] dwelling for it to constitute a permanent place of abode.” However, the list of factors for an auditor to consider when determining whether a taxpayer has a sufficient relationship with a dwelling for it to be classified as a permanent place of abode no longer contains a factor examining “[w]hether the taxpayer has ownership or property rights in the dwelling.”

Borrowing language from the holding in Gaied, the revised Guidelines now state that a property may be classified as a permanent place of abode if the taxpayer has a “residential interest” in the property. The revised Guidelines also provide examples clarifying the circumstances in which the Department believes a taxpayer will have a residential interest in a property. Those examples indicate that the Department continues to focus primarily on a taxpayer’s ability to use a property as a dwelling space, rather than the taxpayer’s actual use of the property as a dwelling space. In one new example, an individual who listed her New York home for sale in connection with a change of domicile to Florida nonetheless is considered to maintain a permanent place of abode for statutory residency purposes when the listed home remains fully furnished and the taxpayer maintains “unfettered access” to the home, even if “she no longer resided there.” The Department justifies its conclusion on the basis that the taxpayer has the unrestricted ability to use the home “which had been her primary residence in the past and no one else is using [] as a residence currently.” (Emphasis in Guidelines.) However, if the taxpayer listing her home had “demonstrated that the contents of the home were moved to her Florida residence and the New York home was vacant,” the Department would not treat the listed home as a permanent place of abode for statutory residency purposes because “it would not be reasonable to expect her to use a vacant home.”

Other Revisions. The revised Guidelines also provide some new guidance unrelated to the Gaied decision. For example, with respect to the statutory residency requirement that a taxpayer spend more than 183 days in New York, the revised Guidelines now acknowledge that taxpayers do not always maintain a paper trail to substantiate their whereabouts on weekend days where they claim to have been in their state of domicile, and provide that auditors “should generally accept [a] taxpayer’s allegations” that he or she was not in New York on weekends “absent evidence to the contrary.”

Additional Insights

While the Guidelines state that “they have no legal force or effect” and are not precedential, they are nevertheless “generally binding on audit staff.” The new examples in the revised Guidelines indicate that the Department intends to take a narrow reading of the conclusions reached by the court in Gaied. The Court of Appeals stated in Gaied that the legislative history of the statutory residency test indicates that the test is intended “to prevent tax evasion by New York residents” (emphasis in decision), and highlighted language from the legislative history discussing taxpayers “who actually maintain homes in New York and spend ten months of every year in those homes . . . but . . . claim to be nonresidents.” (Emphasis added.) However, in two of the new examples in the revised Guidelines, the Department concludes that a property will be classified as a permanent place of abode even though the taxpayer does not actually reside in the property. The Department’s attempts to limit the reach of Gaied should not be particularly surprising.  Nonetheless, the reasoning of the Court of Appeals in the Gaied decision may give taxpayers reason to pause before accepting an auditor’s statutory residency assertion supported by the examples in the revised Guidelines.