New York State Residency: What's New in 2015?

By: Brian Gordon, CPA

“This article originally appeared in the June 2015 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.”

In 2015, the topic of interest for New York State residency is what effect—if any—the important events of last year had on audit policy. Last year, 2014, was an interesting year in the New York residency arena. The focus was a Court of Appeals decision in the case of Gaied v. New York State Tax Appeals Tribunal.

The Gaied Case

In this case, the Court of Appeals determined that a residence owned and financially maintained by Gaied (i.e., the son and owner of the property) but occupied by his parents as their primary residence was not considered his permanent place of abode. It has been long established in cases such as Matter of Evans that ownership is not the determining factor in cases related to abode. Though Gaied visited his parents and occasionally stayed as an overnight guest, he was not considered a New York resident because he did not have a residential interest in the property. For all intents and purposes, it was his parents’ home. The term “residential interest” was coined by the Court of Appeals in this case.

Last year, there was much talk about the effect the Gaied decision would have on audits: Would there be a significant change in audit policy? What does the term residential interest really mean? If one has an apartment in New York City but uses it only a few days per year, does that constitute a residential interest? Would it be considered a permanent place of abode? If a parent rents an apartment for a child who goes to college in New York City, could that be considered the parent’s residence?

According to the New York State Department of Taxation, the Gaied decision does not alter the department’s procedures with respect to the amount of usage of an abode, as long as it is used as a residence, regardless of how infrequently. In fact, Department of Taxation representatives have stated that they agree with the findings in Gaied, based upon the facts of the case as accepted by the court; the department’s issue was involved more with determining what the facts actually were. So, what effect—if any—has Gaied had on current audits?

Implications for Audits

In order to understand current procedure, it is helpful to look at a case that has similarity with Gaied that the Tax Department won. Many readers of this publication probably remember the case of Barker, which was lost by the taxpayer at the Tax Appeals Tribunal. In Barker, although the Barkers used the abode in question only for limited vacation purposes, the relevant similarity to Gaied is that the abode was used quite often by the wife’s parents—to the extent that, when the Barkers wanted to use the abode, they had to check whether the parents were currently using it. 

The difference in these two cases is a technicality, but it is significant enough for these cases to have different outcomes. In Gaied, the abode in question was the parents’ full-time residence. In Barker, the parents had another abode that was their primary home—that is, their domicile. The significant facts were that the abode was owned by the Barkers and used for vacations. Although the use was limited, they (as owners) had the authority to use it whenever they wanted to, and they “allowed” the parents to use it quite often.

In current audits, auditors are considering the differences in the Gaied and Barker cases. The relevant questions are as follows: Whose residence is it really? If one owns a home that is rented to someone else on a permanent basis, is it considered the owner’s residence? The answer is no.

Gaied showed that there doesn’t have to be a formal agreement—although this author would want one—if one allows a family member or a friend to live in a residence that one owns at no cost. Some consideration would be helpful, such as taking care of the property in terms of physical maintenance and upkeep. The same theory would apply if a parent rents an apartment for a college student, as mentioned earlier. But this could become a cloudy issue if there are extra bedrooms and the parent stays there often; in this case, it is not clear whose apartment it really is.

Additional Considerations

Again, as in Barker, the key is to know who has the authority or control of the residence.  Does one have to be invited, or is it available to that person on an unlimited basis? The term “unfettered access” is one used in the New York State Audit Guidelines. These are issues that the Department of Taxation is considering in 2015. 

Because many owners of second residences do not use them on a full-time basis, there are often informal agreements for usage by another party, whether it is a family member, friend, or transitory renter. These informal agreements will be important factors to consider in determining whether one has a permanent place of abode in New York in the post-Gaied era.