Have a Vacation Home in New York? Double-Check Your Tax Liability

By: Jess Johannesen, Senior Manager, State & Local Tax Services

At a Glance:

• The Main Takeaway: The New York State Tax Appeals Tribunal recently ruled that a New Jersey couple were statutory residents of the state on the basis that their vacation home constituted a “permanent place of abode.”
• Impact on You: This could have major implications for individuals and families who have a vacation home in New York, but who live outside of the state.
• Next Steps: In this article, we provide an overview of the most important details from the case, as well as factors you should consider if you are in a similar situation.

Need help assessing your residency status and potential tax liability? Contact Aprio’s SALT team today.

The New York State Tax Appeals Tribunal recently rendered a decision with implications for individuals who have a vacation home in New York, but who live outside the state. The Tribunal ruled that a New Jersey couple were statutory residents of New York on the basis that their New York vacation home constituted a “permanent place of abode.”[1]

Below, we provide an overview of the case, plus key factors you should consider if you maintain a vacation home in New York state.

Breaking down the case

During the years at issue, the married couple maintained their primary home and were domiciled in New Jersey. The husband worked in New York City, and the couple owned a vacation home in Northville, New York, more than 200 miles from the husband’s office. For personal income tax purposes, New York defines a resident to include someone who spends more than 183 days of the tax year in New York and maintains a permanent place of abode in the state.[1] Due to the husband’s job in the city, it was undisputed that he spent more than 183 days in New York each year.

Thus, the residency determination turned on whether the couple maintained a permanent place of abode in the state. In addition to the main portion of the vacation home, there was an attached apartment with a separate entrance and key, which was occupied year-round by a tenant. The couple argued that this property was maintained for the use of another individual, so the Northville home could not be deemed their own permanent place of abode.

To support their argument, the couple cited a case in which a taxpayer, who was also domiciled in New Jersey, owned an apartment in Staten Island. That taxpayer provided the apartment for his parents, and he would occasionally stay overnight at the parents’ request. Similarly, that taxpayer commuted to his business in Staten Island daily, so the 183-day requirement also was not an issue.

The only question was whether the apartment was deemed a permanent place of abode. In this case, the Court of Appeals held that the mere maintenance of the dwelling was not sufficient to qualify it as a permanent place of abode for the taxpayer. Instead, the Court ruled that, for the taxpayer to have maintained a permanent place of abode for purposes of the residency test, he must have a “residential interest” in the property.[1]

Considering that case, the Tribunal addressed whether the couple had a residential interest in their Northville vacation home. The couple argued that their short, infrequent stays at the home for vacations were not sufficient to deem the home a residence. However, the Tribunal noted that this subjective view of the use of the home only focused on the meaning of the term “residence,” while excluding the concept of “interest.” As owners, the couple had the right to reside in and maintain living arrangements at their vacation home, and they exercised that right even if only sparingly.

The couple separately argued that their Northville home qualified for an exception from being considered a permanent place of abode because the home was used and only suitable for vacations.  The Tribunal explained that this type of exception considers whether the dwelling exhibits physical characteristics ordinarily found in a dwelling suitable for year-round habitation, pointing out a specific carve-out in the regulation that “a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode.”[1] In this case, although the couple used the home infrequently for vacation purposes, the home was maintained and suitable for living year-round, as evidenced by the fact that the tenant in the attached apartment did live there year-round.

The bottom line

Ultimately, in concluding that the couple maintained a permanent place of abode, the Tribunal applied the following test:

• Does the dwelling exhibit the physical characteristics ordinarily found in a dwelling suitable for year-round habitation?
• Does the taxpayer have a legal right to occupy the dwelling as a residence?
• Did the taxpayer exercise that right by enjoying his or her residential interest in that dwelling?

If the answer to all of these questions is yes, then it can be concluded that the taxpayer maintained a permanent place of abode for purposes of the statutory residency test.

While it is possible that this decision may be appealed to the Court of Appeals, it highlights the state’s analysis of this particular component of statutory residency for people who have vacation homes in New York. If the 183-day test is not in dispute, New York state could turn to audit more taxpayers as statutory residents along these lines of maintaining a permanent place of abode.

Aprio’s SALT team has experience assisting individuals with their personal income tax and state residency considerations. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jess Johannesen, Senior Manager, State & Local Tax Services at  jess.johannesen@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the March 2021 SALT Newsletter.

[1] In the Matter of the Petition of Nelson Obus and Eve Coulson, DTA No. 827736, 01/25/2021.

[1] New York Tax Law §605(b)(1)(B).

[1] In the Matter of John Gaied v. New York State Tax Appeals Tribunal et al., 22 NY 3d 592, 2014.

[1] 20 NYCRR §105.20(e)(1).

Disclosure
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.