New York state tax auditors are coming down hard on those who may owe state taxes, even if they reside in another state. Why? In part, because changes to federal tax law have tempted NY residents to leave the state, at least for tax purposes. The Tax Cuts and Jobs Act (TCJA) put a limit on the State and Local Tax (SALT) deduction. This deduction hit high tax states, like New York, the hardest as residents are less likely to be able to deduct their entire state tax payment from their federal tax returns.
A recent case provides an example. The case involves a couple with a primary home in Connecticut and an apartment in Manhattan. According to NY state auditors, the apartment and the fact that the couple was in the state of NY for at least a part of 183 days resulted in statutory residence. As a result, they were subject to NY state taxes.
Why is New York claiming a tax obligation when the couple lives in another state?
State taxes can apply to anyone domiciled in the state. Auditors determine domicile after reviewing many factors. The top five: home, business, time, family and items deemed “near and dear.” A piece in Forbes delves into what auditors generally deem as “near and dear.” According to the publication, these items can include things like a family pet and where the subject keeps his or her book collection.
Part of the problem is the fact that domicile requires more than just a checklist of easily quantifiable objects. It involves an attempt to determine the subject’s intent. This can be a grey area, literally defined within the auditor’s guide as a ”subjective inquiry” and a “difficult one.” As a result, a taxpayer can be found to be domiciled in more than one state.
Does this mean taxpayers can get taxed more than once?
In some cases, yes. In this example, auditors expected the couple to pay income taxes in both Connecticut and New York. The couple is suing the state for double taxation. We will provide updates on this case as it progresses.
New York state’s tax laws are complex. As a result, anyone that finds themselves owing a substantial sum is wise to seek legal counsel. The attorneys at Goldburd McCone are familiar with the nuances of New York state’s tax laws and can discuss your options.