Taxpayers continue to leave New York and claim residence in another state to lower their tax burden. Although a smart financial move, it is not an easy one. Aside from rebuilding a sense of home and starting over in a new state, those who make the move must do so carefully because New York state taxing authorities are highly motivated to establish that the taxpayer remains a New York resident.
State authorities report the loss of hundreds of thousands of taxpayers annually. This translates to large losses in tax payments — a loss that the tax department can recoup if they can establish that those who attempt to leave the state retain residence for taxing purposes. State auditors are often successful, collecting an estimated $1 billion from these types of cases from 2013 through 2017.
How do New York state taxing authorities build a residency case?
One of the primary methods is the amount of time spent in the state. The New York Department of Taxation and Finance states anyone who spends at least 183 days in the state during the tax year at issue is a resident for tax purposes. State auditors will review stops in New York and where taxpayers keep prized possessions, or those possessions that are “near and dear to their heart,” when building their case, often referred to as the teddy bear test. Some of the more outlandish examples include:
- A stop off the highway for lunch when commuting from New Jersey to Connecticut
- The location of a Peloton bicycle
- A return for a doctor’s appointment
If the $1 billion collected above seems large it is important to note that current figures are likely higher as the state has increased its efforts in this area in recent years. One estimate finds that authorities collected more than $3 billion in audits from 2022 – 2023 alone and residency audits are a key part of this figure. This further highlights the motivation for authorities to come after taxpayers who claim they are no longer New York residents.
What should a taxpayer do if contacted by New York state taxing authorities?
The first step is to take the matter seriously. Review the correspondence for deadlines as a failure to act within the given timeframe can limit your options. Next, consider your options to fight back. The attorneys at Goldburd McCone have experience with New York state residency audits. They can review your case and help tailor a defense strategy to your specific situation.