The New York Court of Appeals recently issued a landmark decision in Gaied v. New York State, by holding that in order for an individual to satisfy the “maintains a permanent place of abode” test for purposes of New York State residency taxation, there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence. This decision overturned a long standing interpretation of the statute by the Tax Appeals Tribunal, as well as the Appellate Division determination from which the appeal was taken.
The issue in Gaied was whether an apartment owned by a taxpayer in New York, but maintained for his elderly and sick parents, constitutes a “permanent place of abode” for New York state tax residency purposes. During the tax years at issue, the taxpayer was domiciled in New Jersey and owned an automotive service and repair business in Staten Island. In 1999, the taxpayer purchased a multi-family apartment in Staten Island. One of the reasons for the purchase was so that his elderly parents would have a place to live. Starting in late 1999, the taxpayer’s parents lived in in the Staten Island apartment, relying on the taxpayer for their support. The taxpayer paid the electric and gas bills for the apartment, and maintained a telephone number for the apartment in his name. However, the taxpayer never lived at the apartment and did not keep any clothing or other personal effects there; nor did he have sleeping accommodations at the apartment. When he would stay the night, he would sleep on a couch. While the taxpayer had keys to the apartment, he did not have unfettered access and only stayed at the apartment on occasion, doing so at his parents’ request to attend to their medical needs.
For tax years 2001-2003, the taxpayer filed nonresident income tax returns in New York. The Tax Department audited these returns and determined that the taxpayer was a statutory resident of New York City because he (1) spent over 183 days in New York City and (2) maintained a “permanent place of abode” at the Staten Island property during those years. Thereafter, the taxpayer challenged the determination that he maintained a “permanent place of abode” at the Staten Island property in the Division of Tax Appeals.
The Division of Tax Appeals subsequently ruled in favor of the tax department, and the taxpayer appealed to the Tax Appeals Tribunal. The Tribunal sustained the deficiency and determined that “where a taxpayer has a property right to the subject premises, it is neither necessary nor appropriate to look beyond the physical aspects of the dwelling to inquire into the taxpayers’ subjective use of the premises.” The taxpayer then appealed the Tribunal’s determination to the Appellate Division, Third Department, which upheld the Tribunal decision, albeit with two Justices dissenting. The taxpayer then appealed to the Court of Appeals which, reversed both the lower court and with it, the Tax Appeals Tribunal determinations below.
In ruling for the taxpayer, the Court of Appeals overturned long-standing precedent within the Tax Tribunal as to the definition of “maintains a permanent place of abode” for residency purposes. The Tax Appeals Tribunal had previously 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 of Appeals concluded, however, that there is no rational basis for the Tax Tribunal’s interpretation, noting that, “nowhere in the statute does it provide anything other than the “permanent place of abode” must relate to the taxpayer.” The Court of Appeals further noted 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.”