In Matter of John and Janine Zanetti, DTA No. 824337 (N.Y.S. Tax App. Trib., Feb. 13, 2014), the New York State Tax Appeals Tribunal affirmed the determination of an Administrative Law Judge that any part of a day spent in New York counts as a “day” when determining statutory residency for State personal income tax purposes.

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 Department’s regulations provide that a “presence within New York State for any part of a calendar day constitutes a day spent in New York State,” unless the presence is solely for the purpose of boarding an airplane or other conveyance, or solely while travelling through the State to a destination outside the State. 20 NYCRR 105.20(c).

The Zanettis maintained permanent dwellings in Florida and New York. In 2006, the Zanettis claimed Florida residence, and filed a joint New York nonresident tax return. After an audit, the Department issued a Notice of Deficiency, concluding that Mr. Zanetti was a New York resident under the statutory residency test. The Zanettis and the Department agreed that the Zanettis maintained a permanent place of abode in New York, and that Mr. Zanetti was present within the State for 167 entire days, and outside the State for 172 days.  The sole issue in dispute was whether the remaining 26 days of the year, during which Mr. Zanetti either arrived in or departed from New York by private jet and spent time in his New York dwelling, counted as New York days for purposes of the statutory residency test.

The Zanettis argued that under New York’s General Obligation Law, which is generally applicable to statutory construction, a “calendar day” consists of 24 hours, and since Mr. Zanetti was not in New York for a consecutive 24-hour period on any of the 26 disputed days, those days may not be treated as New York days.  Alternatively, they also argued that, based on the number of hours that Mr. Zanetti was out of New York over the 26 disputed days, Mr. Zanetti spent only 14 full days in the State in 2006 — fewer than the 16 days necessary to reach the threshold 183 New York days.  The ALJ rejected both of these arguments, concluding that Matter of Leach v. Chu, 150 A.D.2d 842 (3d Dep’t 1989), appeal dismissed, 74 N.Y.2d 839 (1989), which upheld the Department’s regulatory method of determining a New York day for statutory residency purposes, controlled in the matter.

The Tribunal has now affirmed the ALJ’s decision. The Tribunal rejected the Zanettis’ contention that the ALJ improperly relied on Matter of Leach. Instead, the Tribunal agreed that Matter of Leach directly addressed the validity of the Department’s regulation defining a “day” for statutory residency purposes. The lack of a citation in Leach to the General Obligation Law did not trump the general principle of stare decisis. Further, the Tribunal concluded that the definition of a “calendar day” under the General Obligation Law was intended to apply for purposes of filing periods and deadlines, and thus did not affect the conclusion that the Department’s regulation construing a “day” to include a partial day was both reasonable and consistent with the legislative intent.

Additional Insights

The Tribunal’s ruling is consistent with decades-old New York tax decisions upholding the Department’s regulation that treats a presence within New York for any part of a day as being counted as a New York day.  The validity of that regulation, however, has never been fully considered by the Court of Appeals, and the recent decision in Matter of John Gaied v. Tax App. Trib., 2014 NY Slip Op. 101 (N.Y. Ct. App. Feb. 18, 2014) (discussed in the March 2014 issue of New York Tax Insights) may indicate that the court is willing to scrutinize the Department’s and the Tribunal’s interpretation of the statutory residency test. In Gaied, the Court of Appeals concluded 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 court in Gaied relied on the legislative history to the statutory residency test, which indicates that the test is meant to tax as New York residents individuals who are for all “intents and purposes” residents of New York.  That legislative history could also lead the New York courts to now conclude that treating any part of a calendar day as a day for statutory residency purposes exceeds the intent and scope of the law.