Is Your Vacation Home Sufficient to Establish Residency? A New York Court Case Changes the Game

July 29, 2022

By: Tina Chunn, SALT Senior Manager

At a glance

  • The main takeaway: Taxpayers scored a big win in their fight against New York residency audits when a court ruled that a vacation home should not be treated as a permanent place of abode.
  • Impact on your business: This ruling will have a significant impact on the treatment of vacation homes in New York residency determinations.
  • Next steps: Aprio’s State and Local Tax (SALT) Team can help you make sure that your desired change of residency is respected by the states.

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The full story:

Determinations of state tax residency can impact how much income is subject to tax in that state, as well as what credits one may be entitled to. An individual may be considered a resident of a state for personal income tax purposes either by establishing that the state is the person’s “domicile” or by meeting certain “statutory resident” requirements.

An individual’s domicile is the state they consider to be their permanent place of legal residency (i.e., where one establishes roots and the place one returns to after being away). A taxpayer can have only one domicile at a time and that determination depends on a variety of factors. Many residency audits focus on whether one has properly established a change in domicile.

However, regardless of the state in which one is domiciled, an individual can also be treated as a “statutory resident.” For example, in New York, an individual is considered a statutory resident if that person “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, whether or not domiciled in this state for any portion of the taxable year, unless such individual is in active service in the armed forces of the United States.”[1] The regulations define permanent place of abode as “a dwelling place of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer.”[2]

A new tax court case changes the playing field

The rule described above was the subject of a recent New York court decision that shed light on when an individual “maintains a permanent place of abode.”[3] For the tax years at issue (2012 and 2013), the taxpayers were domiciled in New Jersey, but they also owned a vacation home in Northville, New York, a village located more than 200 miles from one of the taxpayers’ place of employment in New York City. Since he commuted to New York for work, there was no issue as to whether both taxpayers met the 183-day requirement. Based on these facts, the New York Tax Appeals Tribunal ruled that the taxpayers were statutory residents because they “had the right to reside in and maintained living arrangements at [the] Northville home and exercised that right, albeit sparingly, during the years at issue.”[4] The taxpayers appealed.

On appeal, the Court explained that the purpose of the statutory residence rule is to discourage tax evasion by “individuals who are really and for all intents and purposes residents of the state but have maintained a voting residence elsewhere and insist on paying taxes to [New York] as nonresidents.”[5]  Given that purpose, the Court stated that “there must be a showing that the taxpayer has a residential interest in the property, which is a fact-intensive inquiry . . . The taxpayer must have utilized the dwelling as his or her residence; maintaining a dwelling that could be a permanent place of abode is not enough to establish status as a statutory resident.”

Applying that standard to the facts of this case, the Court noted that although the taxpayers’ “free and continuous access” to the home supports the state’s position, it identified several other factors that illustrate that the taxpayers were not within “the target class of taxpayers who were intended to qualify as statutory residents.” These factors include:

  • The taxpayers utilized the home for three weeks each year at most for skiing or visiting the racetrack.
  • The taxpayer that worked in New York City did not use the home for access to his job, since it is over a four-hour drive each way.
  • There is a year-round occupant in the attached apartment, and the taxpayers notify that tenant prior to arriving at the house.
  • The taxpayers do not keep personal effects in the home; rather, they bring what they need when they visit.

Based on these facts, the Court concluded that even though the home could have been used in a manner for it to constitute a permanent place of abode, the taxpayers did not actually use the home in a manner that demonstrates a residential interest in the property. Therefore, the taxpayers did not maintain a permanent place of abode, and accordingly, were not statutory residents of New York.

The bottom line

This favorable ruling will have a significant impact on the treatment of vacation homes in New York residency determinations. However, each residency case is fact-specific, and many factors will be considered by the state in making a residency determination. 

Aprio’s SALT team has experience with residency issues and can assist you to make sure that your desired change of residency is respected by the states. 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 Tina Chunn, SALT Senior Manager at [email protected] or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at [email protected] for more information.

This article was featured in the July 2022 SALT newsletter.


[1] N.Y. Tax Law § 605(b)(1)(B).

[2] 20 NYCRR 105.20(e)(1).

[3]  Matter of Nelson Obus et al., v. New York State Tax Appeals Tribunal et al., case number 533310, New York Supreme Court, Appellate Division, Third Judicial Department, June 30, 2022.

[4] In the Matter of the Petition of Nelson Obus and Eve Coulson, DTA No. 827736 (January 25, 2021).

[5] The reference to “voting residence elsewhere” is to identify that the individual is domiciled in another state, as one’s voting record is one of the factors that states look at to determine domicile.

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.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.

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