In a closely watched case, the Court of Appeals reversed the Appellate Division and held that a New Jersey resident’s ownership and maintenance of a Staten Island residential property occupied by his parents, without more, did not turn the property into his “permanent place of abode” for statutory residency purposes. Matter of John Gaied v. Tax App. Trib., 2014 NY Slip Op. 1101 (N.Y. Ct. App. Feb. 18, 2014).
Background. Pursuant to Tax Law § 601(b)(1)(B), an individual who “maintains a permanent place of abode” in the State and spends more than 183 days in the State during the year is a “statutory resident,” and is taxable as a resident. The regulations define a permanent place of abode as “a dwelling place of a permanent nature maintained by the taxpayer.” 20 NYCRR § 105.20(e)(1). Similar rules apply under the New York City resident income tax.
Mr. Gaied was domiciled in New Jersey and worked in Staten Island. Following an audit, the Department determined that Mr. Gaied was a State and City statutory resident because he spent more than 183 days in New York, and because he allegedly owned and maintained a permanent place of abode in Staten Island. The Tax Appeals Tribunal initially held that the multifamily Staten Island residence occupied by Mr. Gaied’s parents (and also partially leased to tenants) was not being occupied by Mr. Gaied, and therefore was not his permanent place of abode. The Tribunal subsequently granted the Department’s motion for reargument and then reversed its decision, holding that the Staten Island property was in fact Mr. Gaied’s permanent place of abode. Matter of John Gaied, DTA No. 821727 (N.Y.S. Tax App. Trib., June 16, 2011). The Tribunal concluded that “where a taxpayer has a property right to the subject premises, it is neither necessary nor appropriate to look beyond the physical aspects of the dwelling place to inquire into the taxpayer’s subjective use of the premises.” In other words, the Tribunal determined that it did not matter whether Mr. Gaied actually used the abode as his residence.
On appeal by Mr. Gaied, the Appellate Division, with two justices dissenting, upheld the Tribunal’s decision. Matter of John Gaied v. Tax App. Trib., 101 A.D. 3d 1492 (3d Dep’t 2012). The Appellate Division did not adopt the Tribunal’s conclusion, however, that ownership and maintenance of a dwelling alone was determinative of a permanent place of abode, regardless of the use of the dwelling by the taxpayer. The Appellate Division instead examined a number of factors that may be relevant in determining whether a taxpayer maintained a dwelling as a “permanent place of abode,” and noted that “a contrary conclusion would have been reasonable based upon the evidence presented.” Nevertheless, the Appellate Division applied a deferential standard of review, holding that it was “constrained to confirm [the Tribunal’s decision], since [its] review is limited and the Tribunal’s determination [was] supported by the record.”
Court of Appeals decision. The Court of Appeals reversed the Appellate Division decision, holding that there was “no rational basis” for the Tribunal’s interpretation of the phrase “maintains a permanent place of abode” to mean that a taxpayer need not “reside” in the permanent place of abode (“there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence”). Citing its decision in Matter of Tamagni v. Tax App. Trib., 91 N.Y.2d 530 (1998), cert. denied, 525 U.S. 931 (1998), the Court of Appeals found that the legislative history of the statutory resident statute clearly indicated that it was intended “to discourage tax evasion by New York residents” (emphasis in original). The Court held that the legislative purpose of preventing tax evasion, as well as the regulations themselves, clearly indicated that “in order for a taxpayer to have maintained a permanent place of abode in New York, the taxpayer must, himself, have a residential interest in the property.”
Additional Insights
The Gaied case has been controversial, as evidenced by the fact that a Commissioner of the Tax Appeals Tribunal dissented from the Tribunal’s decision against the taxpayer, and two justices of the Appellate Division dissented from the Appellate Division’s decision (which gave the taxpayer the ability to appeal the matter to the Court of Appeals “as of right” pursuant to C.P.L.R. § 5601(a)). The Court of Appeals has taken the welcome step of providing much needed clarity to what it means to “maintain a permanent place of abode,” but questions remain in situations where a taxpayer may occasionally reside in the abode. While it unequivocally (and, we believe, correctly) rejected the Department’s argument that the taxpayer’s use of the premises as a residence is irrelevant so long as the taxpayer owns and maintains the property, the Court did not address what factors should be examined when determining whether a dwelling is maintained as a permanent place of abode. As a result, while it will provide relief to individuals that own residential premises in New York solely for use by family members or for lease to others, the decision is likely not the final word on what constitutes a permanent place of abode.
