“Summertime and the Living” Isn’t Easy[i]
Summer in the New York Metro Area can be challenging. Some would say it sucks.[ii] It gets really hot. When it rains, it pours – no spritz here. The humidity is oppressive.[iii] Ironically, a forecast of sunny days and clear skies that may draw other “subspecies”[iv] of humans out of their dwellings causes many New Yorkers, instead, to remain indoors, whether it be at home, in air-conditioned shops, or at other artificially cooled venues.
There are some, however, who are either oblivious or indifferent to New York summers, or for whom the season would not be “complete” without spending hours in heavy traffic to get to a crowded beach to take a dip in what have recently been reported as shark-infested waters.[v]
Then there are those “fortunate” few who have no choice but to be ensconced in their offices.[vi] These folks have been spared the dilemma of having to decide between socializing or recreating indoors versus outdoors.
Of late, the ill effects of New York’s summer seem to have been manifested in the pronouncements of those who have been elected to lead the State. For example, Governor Hochul recently boasted of New York’s more than $300 million in tax revenue from mobile sports betting:
“In just six months, New York has become a leader among states in implementing successful gaming polices, with hundreds of millions of dollars going to important programs that will improve the lives of all New Yorkers.”
Among the programs that will benefit from this tax revenue: “responsible gaming programs.”[vii]
Another example may be found in the recently proposed “adult-use license regulations” pursuant to which conditional retail licenses will be granted only to individuals who have been, or whose relatives have been, convicted of a marijuana-related crime (so-called “justice involved individuals”), and who hold or have held, for a minimum of two years, at least a ten percent ownership interest in, and control of, a business that had net profit for at least two of the years the business was in operation.[viii]
Officials believe that New York has the potential to become the second-largest cannabis-product retail market after the Golden State – the Empire State always aims “high.”
Among the programs that will benefit from the resulting tax revenue: “drug treatment” programs.
Adding to this “rosy” outlook, the State announced last week that its tax receipts through the first quarter of 2022 exceeded the budget forecast by $1.7 billion, though it also warned that “economic headwinds are increasing, and may alter the trajectory for the remainder of the fiscal year.” As if to emphasize this last point, New York City announced that receipts of estimated personal income tax for June 2022 were more than 30 percent lower than last year because of increased inflation and the recent performance of the stock market.
Interestingly, no one mentioned the possible effects of the tax increases enacted by Albany in 2021.[ix]
Given the litany of quality-of-life issues that were already plaguing New Yorkers before COVID,[x] and which were only exacerbated by the pandemic, the prospect of more drug use, more gambling, an even higher cost of living, and the ever-present possibility of more tax increases, is bound to increase the pace at which residents will be leaving the State.
There is a difference, however, between leaving New York in a conventionally understood sense and successfully escaping the reach of New York’s taxing jurisdiction, as was illustrated in a recent decision of the Tax Appeals Tribunal.[xi]
Just a few years prior to the year in question (the “exam year”), Taxpayer became ill and retired from their New York business. Shortly afterward, during the year immediately preceding the exam year, Taxpayer purchased a house in Florida; two days later, they moved into the house. Taxpayer’s Florida house was much larger and more expensive than their New York house, which Taxpayer continued to own.
Taxpayer explained that they spent the remainder of that preceding year transitioning household goods from New York to their Florida house; they also moved their antique car collection to the Florida house.
That same year, Taxpayer filed a homestead exemption application,[xii] obtained a Florida driver’s license, purchased a car from a Florida dealer, registered to vote in Florida, executed wills in Florida, began using a VA facility in Florida, and became active in their community.
Taxpayer filed form IT-203 (New York State nonresident and part-year resident income tax return) as a New York State part-year resident for the year in which Taxpayer moved into the Florida house. Taxpayer asserted that on the last day of the tax year, they lived outside of New York but received income from New York sources during their nonresident period.
For the exam year, Taxpayer filed form IT-203 as a nonresident of New York. Taxpayer checked the “No” box on line H of the return, in response to the question “[d]id you or your spouse maintain living quarters in NYS” during the year; it left blank the space for their permanent home address but listed a Florida mailing address. Included with the return was a W-2 that reflected a Florida address.
One year after the filing of Taxpayer’s nonresident tax return for the exam year, the Division of Taxation sent Taxpayer a letter advising that they were selected for audit for the exam year and requested that a Nonresident Questionnaire be completed.
Included with this letter was an Information Document Request (IDR) requesting various documents and information, including, among other things, whether Taxpayer had an interest in any partnerships or S Corporations, and a chronological history of Taxpayer’s residence and employment.
Subsequent IDRs requested Taxpayer’s credit card information, cell phone records, a description of all principal activities for each of the above-referenced partnerships or S corporations, a complete list of Taxpayer’s doctors, a list of all family members in New York and Florida for the exam year, and other information to substantiate the facts stated above.
Taxpayer responded that they were retired and not currently employed. Taxpayer also indicated that they had four adult sons, all of whom lived in New York.
Taxpayer advised that they were a passive investor and did not take an active role in the businesses in which Taxpayer had an ownership interest.
When much of the information requested by the Division had not been supplied, the Division issued a subpoena to obtain various documents, including Taxpayer’s cell phone records.
The Division prepared its own chronology of Taxpayer’s whereabouts gleaned from charge card statements and other documents provided by Taxpayer, and from the cell phone records. This allowed the Division to determine Taxpayer’s location for most, but not all, of the days during the exam year.
The Division contacted Taxpayer’s representative to remind them that the burden of proving a change of domicile was on Taxpayer. The Division stated that the documentation supplied was insufficient to support the stated change; thus, it was the Division’s position that Taxpayer had not met their burden.
For example, a review of the time spent in and out of New York for the exam year (for which Taxpayer claimed to be a nonresident) was calculated at 173 days in New York, including 2 days where Taxpayer could not show they were not in New York, and 151 days in Florida.[xiii]
The Division acknowledged that the purchase of the house in Florida was significant, and that Taxpayer had established some ties to Florida.
But the Division also noted that the historical New York home was still maintained by Taxpayer and was used by Taxpayer on a frequent basis.
Moreover, the supporting information requested was not provided, including, for example, when the Taxpayer’s vehicles were transferred to Florida.
Thus, based on the information that was supplied – which was characterized as incomplete or limited – or subpoenaed, the Division found that Taxpayer’s “general habit of life” indicated an equal commitment to both states and did not support a finding of domicile in one state more than the other for the period in question.
Following the audit, the Division issued Taxpayer a notice of deficiency asserting additional New York personal income tax, plus interest for the exam year. This notice was premised upon the assertion that Taxpayer was domiciled in New York State for such year.
Taxpayer filed a petition with the Division of Tax Appeals contesting the claim they were domiciled in New York during the exam year.
The parties agreed to have the controversy determined on submission without a hearing.[xiv] The administrative law judge (ALJ) assigned to the case established a schedule for submission by the parties of all documentary evidence relevant to the case, including any stipulation entered into by the parties, as well as briefs in support of their positions; the schedule included a deadline on which the record closed, though Taxpayer submitted some additional documentary evidence after such date.
Taxpayer’s representative offered a letter addressed to the Supervising ALJ. The letter provided Taxpayer’s position as to why their domicile for the year in question was Florida and not New York. It explained that as Taxpayer approached retirement age, they began to divest themselves of ownership in various family businesses that Taxpayer had built over the years and began implementing their plan to relocate to Florida, where they had family.
The letter alleged that the Division’s allocation of days and its finding that Taxpayer spent a greater percentage of time in New York was incorrect. For example, the letter explained that two of the days counted by the Division as New York days were travel days to and from New York City airports for a trip to Ireland. The letter also asserted that for this vacation and another vacation to St. Maarten, neither were counted as New York days or Florida days, but for both trips Taxpayer departed from and returned to Florida and the days should be considered as days in Florida.
The letter alleged further that it could not be concluded that Taxpayer was predominantly in New York. Taxpayer considered themselves “retired,” took numerous vacations, and attended car shows in New York, Pennsylvania, and Florida.[xv] It also explained that because Taxpayer was retired, they had time to spend with their grandchildren and asserted that visiting with their grandchildren should have no determining effect on their domicile.
The representative’s letter also stated that Taxpayer spent considerable time in New York in the summer because it was “unbearably hot” in Florida[xvi] and their grandchildren were off from school. When Taxpayer visited their grandchildren, they stayed with their children, not in Taxpayer’s old home.
The letter explained that the new Florida house was “conducive” to Taxpayer’s new, “more leisurely” lifestyle. It was close to a lake and had a 3-bay garage to house a few of the vehicles from Taxpayer’s vehicle collection, which was “near and dear” to him, and was relocated to Florida. The Florida house was where Taxpayer entertained when family visited them and that it was the focal point of Taxpayer’s “newfound personal life.”[xvii]
After conceding that Taxpayer had family in New York, the letter claimed the Division failed to consider that Taxpayer also have family in Florida.
With respect to business affiliations, the letter explained that Taxpayer was a shareholder/officer with their siblings in four S corporations and a member of an LLC with other family members. It alleged Taxpayer did not take an active role in the business operations and had been reducing their ownership in various family businesses since just before the move to Florida.
Returning to the question of the Taxpayer’s day count, the letter alleged that the day count was too close to “constitute a predominant number of days in New York.” It claimed that Taxpayer created a new home for themselves; that Taxpayer went to New York only to visit grandchildren, wrap up business affiliations, and move assets.
In addition to the letter, Taxpayer’s representative also submitted a calendar that purported to show Taxpayer’s whereabouts during the exam year. The first page of this exhibit was an unsigned statement that the Division’s and Taxpayer’s respective calendars agreed except for travel days, and that Taxpayer made two trips where they flew in and out of New York airports but originated and ended their trips in Florida.
A review of the calendar submitted by Taxpayer made clear that they were not fully in agreement. For example, Taxpayer’s cell phone records and credit card charges demonstrated they were in New York on several of the days the letter described as Florida days.
The ALJ’s Decision
The ALJ began her determination by referencing the sections of the Tax Law that describe New York residency for tax purposes. The ALJ distinguished between the two bases of New York tax residency provided under the Tax Law: statutory residency and, as relevant for the exam year, domicile. Next, the ALJ turned to the definition and description of “domicile” under the Division’s regulations. She found that the regulations defined domicile as the place which an individual intends to be their permanent home. According to the ALJ, a domicile, once established, continues until one moves to a new location with the bona fide intention of making that place one’s fixed and permanent home. However, temporary relocation without an intention to make such place a permanent home is insufficient to show a change of domicile. The burden is upon the party asserting a change of domicile to show that the necessary intention to make the new place a permanent home existed.
The ALJ noted that while a determination of domicile necessarily considers the subjective intent of a taxpayer, certain objective criteria can demonstrate whether a taxpayer’s general habits of living indicate a change of domicile. Those criteria include whether the taxpayer has retained their New York home, the location of the taxpayer’s active business ties, location of the taxpayer’s family and social and community ties, and amount of time spent in the purported new domicile relative to the old one.
The ALJ noted that no single factor is determinative, and the unique circumstances of each case must be considered.
The ALJ determined that Taxpayer had not submitted credible evidence that their habits of life indicated a change of domicile to Florida in the exam year. The ALJ stated that this was because Taxpayer’s evidence consisted primarily of unsworn and unsubstantiated statements made by Taxpayer’s representative on their behalf, which were entitled to little weight and, thus, were insufficient to meet Taxpayer’s burden of proof.
The ALJ also found that Taxpayer’s retention of their historic home in New York and the amount of time spent in New York relative to Florida indicated a lack of intent to change their domicile to Florida.
For the ALJ, the unsworn statements regarding the nature of Taxpayer’s business ties were insufficient to indicate an unequivocal intention to change their domicile.
The ALJ also weighed the family factor, but, as the statements regarding the location of Taxpayer’s family were given in unsworn statements, such statements were likewise accorded little weight.
According to the ALJ, the record simply did not include sufficient evidence to meet Taxpayer’s burden of proof to support the conclusion they had established a new domicile in Florida.
The ALJ then explained that the documents Taxpayer submitted after the closing of the record could not be considered in reaching a determination.
Thus, the ALJ denied Taxpayer’s petition and sustained the notice of deficiency.
Tax Appeals Tribunal (the Tribunal)
On appeal, Taxpayer argued that the ALJ erred in failing to give greater weight to the statements of their representative regarding their “habits of daily life.” They disagreed with the Division’s determination regarding the number of days Taxpayer was in New York for the exam year and stated that any variation between their submitted calendar and the auditor’s day count analysis was inconsequential. Taxpayer also maintained that the photographs they submitted indicated they had brought their most cherished possessions with them to Florida, showing that Taxpayer had the intention of establishing a domicile there.
Taxpayer claimed that their failure to report the maintenance of living quarters in New York on their personal income tax return was not inaccurate as the house they owned stood empty during the year in question and, thus, did not qualify as living quarters.
Taxpayer also claimed that, if the Division had asked, they would have provided sworn statements supporting their position that they had, in fact, changed their domicile.
The Division argued that the ALJ correctly determined that Taxpayer was domiciled in New York. In support of its argument, the Division stated that its notice of deficiency was entitled to a presumption of correctness, and Taxpayer failed to overcome that presumption.
According to the Division, Taxpayer had the burden of proof to demonstrate by clear and convincing evidence that the notice of deficiency was erroneous.
The Division asserted that the ALJ correctly determined that the domicile factors indicated that Taxpayer retained their New York domicile.
The Tribunal explained that the Tax Law imposes personal income tax on resident and nonresident individuals.[xviii] Residents, it stated, are subject to tax on their entire income,[xix] while nonresidents are only subject to tax on their New York source incomes.[xx]
According to the Tribunal, “residency,” for purposes of imposition of personal income tax, is defined as: “an individual: (A) Who is domiciled in this state, . . . or . . . (B) Who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in this state . . .”[xxi]
Domicile is not defined in the Tax Law, the Tribunal continued, but the Division’s personal income tax regulations describe it as “the place which an individual intends to be such individual’s permanent home”.[xxii] Once established, a domicile continues until the individual moves to a new location with the bona fide intention of making such a place the individual’s fixed and permanent home.[xxiii] An individual can only have one domicile at a time.[xxiv] A temporary relocation does not result in a change of domicile.[xxv] Ultimately, the burden of proving a change in domicile rests with the party asserting the change. As it is Taxpayer who was claiming a change of domicile to Florida, they had the burden of showing such a change by clear and convincing evidence.
Formal declarations, the Tribunal stated, are considered in determining a change of domicile, but more weight is accorded the informal acts that demonstrate an individual’s “general habit of life”. It is well established, the Tribunal explained, that the New York courts have looked to certain objective criteria to determine whether a taxpayer’s general habits of living demonstrated a change in domicile. Among the factors considered are retention of a home in the historical domicile; location of business activity; location of family ties; location of social and community ties[xxvi]; and time spent in the historic domicile relative to the purported new domicile.
Taxpayer and the Division opted to have the petition decided on submission. Pursuant to the Rules, affidavits as to relevant facts may be received, for whatever value they may have, by the administrative law judge; however, in this case, Taxpayer neither testified nor submitted sworn affidavits supporting their argument that they had changed their domicile to Florida. As recognized by the ALJ, other than the few formal declarations of a change of domicile contained in the audit file, Taxpayer’s evidence consisted of unsworn statements made by their representative. The Tribunal observed that unsworn, unsubstantiated statements such as these were insufficient to meet a taxpayer’s burden of proof. This was especially the case where, as here, it must be determined whether Taxpayer formed the necessary intent to abandon their old domicile and adopt a new one.[xxvii]
It’s In the Proof
Too often, taxpayers who are seeking to abandon their New York domicile and establish a new domicile elsewhere fail to consider the factors on which the State will focus its attention in determining whether the taxpayers have, in fact, ceased to be tax residents of New York. The individuals who fall into this category include those who obtain a driver’s license in Florida, register their car in Florida, register to vote in the State, join a religious institution and social club there, execute Florida wills – basically, the so-called secondary factors.
Many taxpayers are aware of these factors but are unwilling, whether for financial or emotional reasons, to do what is necessary to successfully accomplish their move. These folks include those who hold on to their long-time family home in New York, refuse to step back from their New York business, and who generally act like snowbirds, meaning New York residents who flock to Florida from late October or November through April or May, while spending the remaining months in New York.[xxviii]
Then there are some, like Taxpayer, who seem to have taken many of the steps necessary to satisfy the primary factors. According to Taxpayer, they bought a larger and more valuable house in Florida, they emptied their New York house, they stepped away from the management of their New York business and investments, they moved their near and dear items to Florida, and they spent a substantial part of the year in Florida.[xxix] In addition, the Taxpayer moved their medical care to Florida, moved close to family in Florida, and satisfied other secondary factors that, in turn, supported the primary factors described.
However, as both the ALJ and the Tribunal stated, Taxpayer failed to substantiate the foregoing assertions, either through their own testimony or by sworn affidavits. Instead, they failed to provide all of the information that was reasonably requested by the Division via the IDRs, they chose to have their case determined without a hearing, and they only relied upon a letter prepared by their attorney. How could they have been so ignorant of their burden of proof? Or was there more?[xxx]
Oh well. Stay tuned. The next crop of self-declared former New Yorkers may be much better prepared.
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[i] Of course, adapted from “Porgy and Bess”. I saw the movie as a kid, and it left an indelible impression. Sidney Poitier and Dorothy Dandridge in the starring roles. The music of the Gershwins.
[ii] See https://www.theguardian.com/commentisfree/2016/jun/26/new-york-city-summer-vile-heat for a great article about summer in New York City.
[iii] Don’t even mention the subway platforms.
[iv] I use this facetiously, except as regards Californians.
[v] Remember this exchange between Sheriff Brody and Hooper in “Jaws”?
Brody: Is it true that most people get attacked by sharks in three feet of water about ten feet from the beach?
Brody: And that… and that before people started to swim for recreation – I mean before sharks knew what they were missing – that a lot of these attacks weren’t reported?
Hooper: That’s right.
[vi] In some cases, a Hobson’s choice: work this weekend or fall hopelessly behind. Spoiler alert: I count myself among these individuals.
[vii] The Governor also wants to allow casinos to open downstate. https://www.politico.com/news/2022/02/06/nyc-casino-hochul-00004068.
[viii] You don’t hear much about this last requirement, do you?
[ix] Which could have been much worse but for Cuomo’s resistance.
[x] The smell of pot, feces and urine has again become commonplace in too many parts of New York City.
[xi] Thomas A. and Jean Boniface, Decision DTA NO. 829018 Tax Appeals Tribunal.
[xii] Used by a permanent resident of Florida to claim a reduction in property taxes.
Taxpayer stated on the application that they were not receiving “any permanent-residency based tax benefits on ANY other property” but the Florida house.
[xiii] The Division not only prepared a calendar reflecting the days spent in and out of New York and Florida, but also provided the basis for the determination for each day.
[xiv] Rules of Practice and Procedure, Sec. 3000.12. Query why Taxpayer chose not to appear, especially when they failed to provide complete documentary evidence in support of their claim that they had abandoned New York and had established Florida as their new domicile.
[xv] Taxpayer’s representative submitted photos from a Google search of Taxpayer’s car collection, including when a few of the cars were at car shows.
[xvi] Not what you’d expect from someone talking about their new forever home.
[xvii] Sounds like so many buzzwords.
[xviii] Tax Law §601 [a] – [c], [e].
[xix] Tax Law § 611 [a].
[xx] Tax Law § 631 [a].
[xxi] Tax Law § 605 (b) (1) (A) and former §605 (b) (1) (B). Statutory residence was not satisfied in this case.
For more on statutory residence, see: https://www.taxslaw.com/2022/07/statutory-residence-in-new-york-time-to-rethink-the-permanent-place-of-abode-test/.
[xxii] 20 NYCRR 105.20 [d] .
[xxiii] 20 NYCRR 105.20 [d] .
[xxiv] 20 NYCRR 105.20 [d] .
[xxv] 20 NYCRR 105.20 [d] .
[xxvi] It was interesting that the Tribunal identified social ties and omitted near and dear items as a factor to be considered.
[xxvii] The TAT considered Taxpayer’s request to consider additional documents submitted in support of their petition. The tribunal noted that ALJs have authority to fix the time for filing of legal memoranda and other documents, both in the course of a hearing and on submission by the parties. 20 NYCRR 3000.12 [b], 20 NYCRR 3000.15 [c] . Because Taxpayer’s additional documents were submitted after the record was closed, the tribunal did not consider them in rendering its decision. “To do so,” it stated, “would interfere with the conduct of the hearing below and jeopardize the finality of the determination and our decision in this matter.”
[xxviii] These taxpayers will often be treated as statutory residents in any case.
[xxix] The case did not describe Taxpayer’s presence in Florida prior to the alleged change in domicile, though it appears Taxpayer did not previously own a place in the State.
[xxx] Smells fishy, doesn’t it?