High Court Rules That Maintaining NY Property Doesn't Make a Person "Statutory Resident"

Categories: Courts

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New York State Court of Appeals in Albany.
John Gaied has owned a multi-family residential building in Staten Island since 1999. From 2001 to 2003, he paid the gas and electric bills for one of the apartments in the building. That apartment's telephone number was in his name. He had keys to that apartment and covered its rent himself. The building was in the same neighborhood as an automotive service business he ran.

Gaied, however, listed his residence in New Jersey and filed non-resident income tax returns in New York City from 2001 to 2003. He claimed did not live in the Staten Island apartment: His parents lived there and he financially supported them.

The New York State Department of Taxation and Finance disagreed with that reasoning, and when state audited Gaied in 2008, it ruled that he owed New York $253,062 for unpaid income taxes he should have paid as a "statutory resident" of New York. Gaied appealed to the courts, and his case has since underscored the complicated and murky residency definitions in the New York state tax code, leaving disagreements among both tax officials and judges.

On Tuesday the state's highest court put an end to the debate. In a unanimous decision, the Court of Appeals reversed a previous court's ruling and sided with Gaied.

"The legislative history of the statute, to prevent tax evasion by New York residents, as well as the regulations, support the view 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," wrote Judge Susan Read.

Residency laws are particularly relevant in New York, where many property owners live outside the state and commute in for work or vacation. To determine who pays how much in taxes, officials must distinguish between residents and non-residents. But this is can be tricky because of all the folks who split time between here and other states. According to state law, a "statutory resident" is someone "who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than [183] days of the taxable year in the state."

People have gone to extraordinary lengths to avoid paying New York City and state taxes, which are higher than in, say, New Jersey. In March 2012, for instance, the New Yorker detailed the precise travel schedule of financier Julian Robertson, who meticulously ensured he never spent more than exactly 183 days in NYC even if it meant leaving a party early to get over the Nassau County line by 11:59 p.m (so as not to "waste a tax day").

Gaied's case, however, does not deal with a limit of the law but a vagary. The court noted that "Tax Law does not define 'permanent place of abode,'" and that regulations have defined the term as "a dwelling place of a permanent nature maintained by the taxpayer." How this applies, exactly, is then at the discretion of tax officials.

The tax appeals tribunal, which makes residency determinations for the state, "has interpreted 'maintains a permanent place of abode' to mean that a taxpayer need not 'reside' in the dwelling, but only maintain it, to qualify as 'statutory
resident,'" the court explained.

When the tribunal initially heard Gaied's appeal, it ruled in his favor because he did "not have living quarters at his parents' apartment." But Department of Taxation and Finance called for a re-hearing, arguing that the ruling went against past precedent. The tribunal agreed with this reasoning and this time ruled against Gaied, citing that the Staten Island place was, in fact, his "permanent abode."

The law, the tribunal stated, had "no requirement that the petitioner actually dwell in the abode, but simply that he maintain it."

Gaied appealed to the state court, and the Appellate Division affirmed the tribunal's decision by a 3-2 split. One step up the legal chain, however, the Court of Appeals gave Gaied the final victory.

"We conclude there is no rational basis for [the tribunal's] interpretation" that a statutory resident does not need to live at the property, the court stated. "Notably, nowhere in the statute does it provide anything other than the "permanent place of abode" must relate to the taxpayer."

Next: read the text of the court's decision.


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