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
Taxpayers who divide their time between states are particularly vulnerable to this type of scrutiny. Understanding how residency audits affect snowbirds and frequent travelers can help individuals better anticipate the issues auditors focus on.
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, with residency audits playing a key role. This escalation further underscores why taxpayers should understand how to prepare for a residency audit before issues arise.
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 carefully for deadlines, as a failure to act within the given timeframe can limit your options. Next, consider your options to fight back. In many cases, residency disputes begin with an audit notice similar to other tax examinations, making it helpful to understand how tax audits typically proceed and resolve.
The attorneys at Goldburd McCone have extensive experience handling New York state residency audits. They can review your case, assess audit risk factors, and help tailor a defense strategy designed to protect your residency position and minimize potential tax exposure.