Your “Vacation” Home MUST be a Vacation Home

The Real Estate Board of New York asked Roberts & Holland LLP, one of the top tax firms in the City, to provide a clear explanation of the recent Barker Decision of the New York State Tax Appeals Tribunal regarding out-of-State residents owning vacation homes in the State of New York.  

The decision did not change the long standing interpretation of the law that basically states that someone who owns or rents a residence in New York and who spends any part of at least 183 days in the State during the year is a resident of New York and subject to all New York State taxes on all of their income.  Below is the Roberts & Holland bulletin.

Roberts & Holland LLP

Information Bulletin

New York Residency Rule

Permanent Place of Abode

 

 

The recent Barker Decision of the New York State Tax Appeals Tribunal has generated many questions in the industry.  

The case involved a taxpayer who owned a vacation home in the Hamptons and the definition of a resident for New York State tax purposes.  The outcome of the case did not surprise many tax professionals.

            

New York State and City tax resident individuals on their worldwide income. Nonresidents are taxed only on certain categories of income sourced in New York.  The State and City define the term "resident" similarly, with two alternative tests.  An individual is a "resident" of New York if either (i) the individual is "domiciled" in New York, or (ii) the individual both (a) maintains a "permanent place of abode" in New York and (b) spends all or part of more than 183 days in New York.  Thus individuals who are domiciled outside New York State (e.g. in Connecticut or New Jersey) may be characterized and taxed as New York residents if they maintain a permanent place of abode in New York and spend more than 183 days in New York during the year. Additionally, individuals who are residents of New York State but not New York City (e.g. Long Island) may also be New York City residents if they maintain a New York City permanent place of abode and spend more than 183 days in the City.

Accordingly, individuals who regularly commute into New York for business must generally avoid owning or renting a house or apartment in New York in order to avoid being classified as a resident for tax purposes.

            

The Tax Law does not define the term "permanent place of abode," but the regulations provide the following:

   [a]  

dwelling place permanently maintained by the taxpayer, whether or not

          owned by the taxpayer. . . .  

However, a mere camp or cottage,

          which is suitable and used only for vacations, is not a permanent place

          of abode.  

Furthermore, a barracks or any construction which does not       

          contain facilities ordinarily found in a dwelling, such as facilities for

          cooking, bathing, etc., will generally not be deemed a permanent place

          of 

abode.

 

The Barker case involved a Connecticut resident who regularly commuted to a job in Manhattan and owned a house in the Hamptons.  The house was rarely used by the Barkers and was not located near Mr. Barker's place of employment.  Nevertheless, since the house was usable during the year (and was used many weekends during the year by Mrs. Barker's parents), it qualified as a permanent place of abode and Mr. Barker was found to be a resident of New York State. (Since they did not have a residence in New York City, Mr. Barker was not a City resident.)