In August 2012, the New York State Department of Taxation and Finance (“Department”) issued an advisory opinion further defining “permanent place of abode” for personal income tax purposes.1
This definition is often critical to determining whether a person is a resident for New York State and City personal income tax purposes. A resident pays New York State (and where applicable, New York City) income tax on all income, but a non-resident pays New York State income tax only on income sourced in the State. A resident is an individual who is either domiciled in New York, or maintains a permanent place of abode and is in the State (or City) more than 183 days. It is not necessary that the person be in the permanent place of abode for 183 days. The person only has to be in the State or City and maintain a permanent place of abode there.
This was brought home in last year’s Tax Appeals Tribunal decision in Matter of Barker, DTA No. 822324 (2011). Although the taxpayers used their vacation home on Long Island for only a few weeks a year, it was available to them all year; since the husband was present in New York City for his employment for more than 183 days a year, they were determined to be residents for New York State tax purposes and owed tax on all income, not just on compensation for services performed in New York. Another recent case discussing permanent place of abode that received a lot of attention2 was Matter of Gaied, DTA No. 821727 (Tax Appeals Tribunal, 2011), in which the Tax Appeals Tribunal reversed its earlier decision and held that a permanent place of abode was maintained where the individual let his elderly parents live in the residence and occasionally stayed overnight there when they requested that he do so, sleeping on the sofa. As stated, whether there is a permanent place of abode is often a critical factor in determining residence for income tax.
The recent ruling considered whether an individual domiciled in New Jersey who worked in New York (and therefore was here more than 183 days a year) maintained a permanent place of abode because he was a member of a private member-owned residential club in New York City. Under the terms of the membership, he had a one-eighth undivided interest as a tenant-in-common, and had a priority right to use the residence for 45 days a year. Members had the right to use the residence for additional days on a first-come, first served basis, subject to other members’ priority rights to use a residence for 45 days. The ruling concluded that membership in the club was not the maintenance of a permanent place of abode, based on a two-part analysis.
First, in order to be a permanent place of abode, the residence must be maintained for substantially all of the tax year, which, as explained below, the Department has generally defined to be 11 months. Second, the individual generally must have free and continuous access to the residence in order for it to be a permanent place of abode. The ruling discussed cases involving roommates and similar arrangements where a permanent place of abode was found even though the individual was not on the lease and had “no legal right or relationship to the property.” However, the person contributed to household expenses and had exclusive use of his own room, provided his own furnishings and personal effects, regularly used the residence for a long-standing period of time, and had unlimited access to his room and other rooms in the residence.
The ruling also discussed situations where there was no permanent place of abode because the person did not have free and continuous access, but instead stayed in the apartment on a non-continuous basis with the permission of the permanent resident before each visit.
The 11-month rule is an internal guideline of the Department’s that is not found in a statute or regulation; it is contained in the Department’s Nonresident Audit Guidelines. It defines the requirement of Tax Regulation (20 NYCRR) section 105.20 that a permanent place of abode must be maintained for “substantially all of the tax year” in order for the individual to be a resident. The 11-month rule was discussed in a prior ruling3 where an individual with a residence in New York donated the use of that home to charity for three months of the year. The ruling concluded that the individual did not maintain a permanent place of abode because the three-month gap caused the use to fall short of 11 months. However, the ruling made clear that the 11-month rule is a “general rule rather than an absolute rule.” It held that generally a lease by an individual to a third party for a period of one month or more in a taxable year would cause the individual not to be deemed a resident. However, concluded the ruling, “even if the individual leases his or her house for a period of one month or more, the individual may be deemed to maintain a permanent place of abode for substantially all of the taxable year if the individual enters into such leases year after year on a recurring basis.” In other words, you rely on the 11-month rule at your peril. The most recent (2012) version of the Nonresident Audit Guidelines states that the rule “will generally be applied by Audit in those years where a taxpayer either acquires or disposes of a residence.”4
The advisory opinion concerning the residential club is helpful in understanding the Department’s view of permanent place of abode because it discusses the 11-month rule and cases determining whether there was “free and continuous” access to the dwelling. However, an advisory opinion is binding only on the taxpayer that requested it and is limited to its facts.5 The facts of this advisory opinion are very limited: the right to occupy was limited to 45 days, with the right to further terms subject to availability. The ruling is helpful in understanding that the Department does not automatically equate membership in such a club with maintaining a permanent place of abode, but it is hard to predict what the outer limits of such a membership might be. How long a term would fit within the ruling? Under what circumstances could multiple memberships fit within the ruling? What if the individual owned three one-quarter interests in different clubs so that she had a guaranteed right to stay for nine months (albeit in three different places), with a right to extend in all of them based on availability? Would the likelihood of extension be a factor, as long as it was not certain? The answers to these questions will turn on the particular facts of the cases in which they are presented, and await further development.