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Friday, July 12, 2013

NYS Residency and the Professional Athlete

by Brian Gordon, CPA

“This article originally appeared in the July 2013 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.”


Residency for state tax purposes has proven to be a very difficult concept to comprehend. This is quite understandable given all the factors state taxing authorities use to determine domicile, as well as related court decisions. While the issue is complicated enough for any taxpayer, it becomes especially confusing when residency rules are applied to the life of a professional athlete. What kinds of issues will tax professionals have to handle with clients employed by a team in a professional sports league?
New York state determines residency in one of two ways:
  • Domicile: People are residents of New York if they are domiciled there. In a legal sense, "domicile" simply means a person’s primary residence.
It's not a clearly defined issue: Domicile is an issue of intent. People can choose where they want to live, but they must choose and actually live there. (It is well settled that “[t]o effect a change in domicile, there must be an actual change in residence, coupled with an intention to abandon the former domicile and to acquire another” according to Matter of Ingle, Tax Appeals Tribunal, December 1, 2011, quoting Aetna Natl. Bank v. Kramer, 142 AD 444 [1911]). They must have the feeling that the new place is their “home”—a place that they will return to when they are absent. The burden is upon any person asserting a change of domicile to show that the necessary intention existed. There is no bright line test as in statutory resident (below). It requires an analysis of several factors to determine if the requisite intent was actually exhibited.
  • Statutory Resident: According to the law, someone would be a resident if he or she maintains a permanent place of abode (residence) in New York state, and is present in the state for more than 183 days. The same rule applies for New York City resident tax.
Someone could be a resident of two states for tax purposes, by being domiciled in one state, and a statutory resident in another. Good planning could help to avoid that troublesome situation.
Many states have the same or similar laws as New York. Because athletes travel so much, and they are not often in one location for the majority of the year, the primary issue generally is domicile—where they claim is their fixed and permanent home.
The typical audit question would be: Is the athlete domiciled at the primary location of the team that employs him or her (home field), or at an off-season residence in a different state or country?
To determine domicile, the New York audit guidelines require examination of five primary factors. There are also secondary and other factors which may or may not play an important role in domicile determination. This list is not in order of importance because the importance varies depending on the individual circumstances, as becomes clear in more detailed examination of the rules, below.
  • Home: Comparison of residences and how they are used—lifestyle.
  • Business: Location of business involvement or employment.
  • Time Spent: Amount of days spent at each state of residence.
  • Items Near and Dear:  Location of cherished possessions.
  • Family Ties: Relationship to close family members.
"Lifestyle," although not listed in the guidelines as a separate factor, permeates all of the factors. Domicile cases that have been heard in court have analyzed it in detail. Lifestyle can mean how people spend their time. What do you like to do, and with whom? What are your hobbies? At which of your residences to you carry out most of these activities?
The business factor is also important for athletes. Most people live near where they work. This can also be true for a professional athlete; however athletes have a different work pattern and lifestyle than most employees.
The athlete has the following work pattern and lifestyle:
  • The season—when they play for a good part of the year. During the season, they play half, or more, of their time at their team’s “home” city/state (home games), and the other portion visiting the cities of their opponents (away games). Many athletes will have a residence (or permanent place of abode) near their home team location.
  • Playoffs. If an athlete's team qualifies for the playoff tournament, the season is extended until the team is either eliminated or wins the championship. This again consists of home and away games.
  • A pre-season—where the team trains to get ready for the new season. This can be located in a state different from the “home” state.
  • An off-season—where athletes have no work responsibility for a few months. Many athletes will also have a residence in a state or country that is far from their home team location for the off-season. This off-season location may be where they grew up, or it may be a location that they chose as an adult.
There are no guarantees in life, but a teacher who takes a new job in a new location probably changed domicile. A professional athlete’s life is generally not as stable as that of a teacher. Athletes rarely get to choose which team they play for, or how long they play for that team. An average career is less than five years, according to various studies. A player may be on two or three different teams during that time. Taking a new job in a new city (going to a new team) would just be the beginning of a domicile analysis. All other factors would have to be analyzed to determine if an athlete intended to make this new location a fixed and permanent home.
There was a case in New Jersey, Matter of Samuelsson, where the athlete, a hockey player, prevailed in his claim of a change of domicile from New Jersey to Florida, when he changed teams from Philadelphia to Tampa Bay (Tax Court of New Jersey Kjell And Vicki Samuelsson, Docket No. 003615-2004).
There was also a case in New York, Matter of Meminger, in which a basketball player was found not to have changed domicile when he changed teams from New York to Atlanta (New York State Tax Commission - File No. 24810).
New York and New Jersey have the same basic residency laws. It all depends on the individual facts. Most of the court cases on athletes’ residency are very old, as the more recent audits have been resolved without going to court.
Let’s look at another factor: time spent at each location. This is also generally a very important factor because you usually spend most of your time at your primary residence. Although this seems like common sense, it is not necessarily the case for professional athletes.
Because of the length of a professional sports season, players may spend more time in their team’s home state than in any other location; however, their lifestyle may indicate more of a fixed and permanent association with their off-season home. On the other hand, it may not. Each person’s situation is different.
Home: Are homes owned or rented? What is the size and value? Which one does the athlete intend to be a permanent home? How does an athlete use a home? Is it furnished and decorated as a permanent home, or more of a temporary residence?
Family: Who are the athletes' close family members? Are they married? Do they have children? Where do they primarily reside? Where do their children go to school?
Near and dear items: Where do the athletes keep their prized possessions— for example, Super Bowl rings or Olympic medals? These may be monetarily valuable items, or items with only sentimental value.
All of these factors will help to determine where the domicile is—the place that an athlete's actions point to as the intended permanent home.
This does not mean that athletes must stay at a location for 30 years or any other defined period of time. The requirement is only that at the time that they move there, or at any other future time, they decide that this is the place that they intend to make their primary home. It becomes the focus of their life with regard to family, friends, leisure activities—lifestyle—and that the residents intend that home to be a permanent home, "with the range of sentiment, feeling and permanent association with it." (As described in Matter of Bodfish v. Gallman.)
Allocation of Income: Another state tax issue for athletes to be concerned with is allocation of income. After a residence in a state is chosen or determined, the athlete must pay tax to all other states in which they perform—that is by playing in a regular season game, playoff game, pre-season game, practice, or any other team meeting or team responsibility. The same applies to other team members, such as managers, coaches and trainers.
For all of these issues mentioned—domicile, statutory residence and income allocation—knowing the amount of time spent in each state or country is important. In the event of a state tax audit, tax auditors will request detailed records of an athlete's whereabouts each day of the year. It’s a burdensome task for an athlete to prove, particularly in the off-season, because there's no team schedule to rely on. It is also valuable during the season if games are missed due to injury, because the team schedule may not be applicable to you during the injury.
Athletes and their tax advisors must give very careful consideration to the above-mentioned factors to determine which state they are a resident of for state tax purposes, and which states they must report income to as a nonresident. As with any other tax issue, for best results it is best to be prepared for an audit before it happens.
Meanwhile, the way athletes are taxed remains subject to debate, as noted in a pair of "Tax Compass" articles in the April Tax Stringer.
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For a free phone consultation on this or any other tax issue or concern please call
Brian Gordon, CPA at (516) 510-6041 or email at bgord520@gmail.com.

Brian Gordon, CPA, is a state and local tax consultant in private practice. Previously, he was with the NYSDTF for more than 30 years, most recently as a District Audit Manager in Manhattan and Brooklyn, where he was involved in many residency audits of professional athletes. He is a member of the NYSSCPA New York, Multistate & Local Taxation Committee and writes and speaks on various tax issues. He can be reached at 516-510-6041 or bgord520@gmail.com. He also posts a monthly blog at http://gordonstate.blogspot.com.

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