The Tax Navigator – New York Residency Requirements

Join Sean Muller, The Tax Navigator, and Hershel Stern as they discuss the complexities of changing tax residency from high-tax states like New York. They explain that the process involves much more than the widely known 183-day statutory rule and outline how authorities aggressively audit “domiciles” based on subjective factors such as business connections and intent. They emphasize that the burden of proof rests entirely on the taxpayer to demonstrate a permanent move.

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Detailed Description of The Tax Navigator – New York Residency Requirements

00:00:00
Sean: Alright. Well, I am in the New York office today, and, luckily, I have Hershel Stern with me today.

00:00:04
Sean: And we’re going to talk about residency requirements. Many folks in New York, Connecticut, Pennsylvania, and the Northeast, have threatened to leave the state either from COVID or with recent elections. And so, we’re just going to talk about some of the requirements so you’re aware because they’re not clear. So, Hershel, thanks for doing this.

00:00:21
Hershel: Thank you, Sean. Thanks for coming to New York, and I hope you’re enjoying the weather. Yes. Definitely a lot of conversation about leaving the state, considering elections, considering the high tax rate in the state.

And the state is known to be very aggressive about people who are New York residents. We’re talking about New York, similar to New Jersey, where people make a decision to change their residency and move out of New York. The state has been very aggressive in terms of bringing those people back in, and there are a number of ways that the state can treat someone as a tax resident.

00:00:58
Sean: And so most people think it’s this: if you live in the state, or the city, and you’re there more than 183 days, you’re a resident. So that’s one rule around it. That’s what you said, the statutory rule?

00:01:09
Hershel: Yeah. I think the 183 days is very familiar to a lot of people, and that’s probably because the media focuses a lot on the 183 days. There have been, over the years, different stories, of whether it be entertainers, professional sports players, that had public cases regarding residency and taxes, and that always seems to be the point that everyone focuses on the 183 days.

00:01:37
Hershel: I would say it’s very much an oversimplification on how residency works and how, you know, states tax residents.

00:01:43
Sean: And then you’ve got this domicile, which is very nebulous. They don’t really define it, I think it’s to their advantage. They can attack what they want. But if it’s domicile, the day’s test is a lot less, right? So how does domicile work and what are they looking at there?

00:01:57
Hershel: Right. So, domicile is a concept of where your permanent home is. And a person establishes a domicile, living somewhere, and then that is their domicile until they change and establish a domicile in another state.

00:02:12
Hershel: And that is really not a question of the account per se. It’s a question of intent, intent of where a person wants their permanent home to be, and they use the phrase of, where do you intend to return home to? So, think about being on vacation and say, I’m going home. Which house of yours are you referring to when you say you’re going home? That’s the place that you’re domiciled in.

00:02:33
Sean: Okay. But it’s a resident side. It’s not a business side. So, if you own a business, do they look at the domicile of the business as well?

00:02:40
Hershel: So that’s an excellent point because we focus a lot on changing residency, whether it be by changing domicile and avoiding statutory residence. But the bigger question often is where is the income source?

And if someone were to, for example, their business being real estate, real property in New York, they can go live in Florida 365+ days. All their income will be sourced in New York because that’s where their business is.

00:03:05
Hershel: So, the two of them kind of have to be looked at independently. But when you think about domicile, and this is really how it is addressed under audit, because it’s a question of intent, it’s somewhat subjective and certainly abstract.

00:03:18
Hershel: So, the state has kind of come up with certain factors that they’ll look to, to try to prove that you actually have changed where you would intend your home to be. Certainly, the place that you live, the actual home would be one of the primary factors that they’ll look at.

00:03:34
Hershel: How does the home in the new state compare to the home that you own in the old state? If you get rid of your home, you avoid that. You know, the old state.

00:03:42
Hershel: They’ll look at your business. So, if your active business connections are within the old state, they’ll look to that to say, well, you still have that relationship with the state. They’ll look at time spent.

00:03:54
Hershel: So, this is actually a very important point, where people think of, well, if I’m leaving the state, I have to keep my day count under the 183 days. But to establish a domicile somewhere else, there needs to be a significant amount of time spent there.

So, people cannot be homeless. They need to have a domicile somewhere or their domicile remains where they originally were.

00:04:16
Sean: So, if you’re going to redomicile, you should have a majority of your days somewhere else.

00:04:22
Hershel: The majority of these should be in the new state where you’re trying to establish your domicile.

00:04:26
Sean: And so, the other thing that pops up for our folks that are married, even though you can file married filing separate in the Northeast, you look to where your wife stays as well, right? So, if you try to leave New York, but your wife is continuing to be there, wife is raising kids, and that’s a factor against you right there, right?

00:04:43
Hershel: That is certainly a factor. There could be a position to take where one spouse, and we have had this scenario, one spouse has changed domicile, files as a non-New York resident, and the other spouse is a New York resident. A little bit trickier, but it is possible.

00:04:54
Sean: And so, for a person coming from Texas, the rules look like it’s pretty simple and cut and dry, but the states, it looks like they purposely left it that way to give themselves leeway to prosecute and go after you, right?

00:05:07
Hershel: They certainly did. And I think, again, when you talk about statutory residence, which is really just having a place to live and spending the 183 days here, there they can be extremely aggressive.

00:05:18
Hershel: One of the things that people don’t realize is that any moment spent here is actually a day. So, if someone were coming in and they stopped to get a coffee while they go into New York, that would be a day in New York, and that gets counted towards the 183 days. And the state is known to be very aggressive. And what’s most interesting about residency is the fact that the burden of proof is on a taxpayer.

00:05:38
Sean: Okay. Alright. Well, I appreciate it, Hershel. Thanks.

00:05:42
Hershel: Thank you.

This episode of The Tax Navigator was recorded prior to publication. Some references or updates discussed may reflect information current as of the recording date.