THE BARKER DECISION'S TAX BITE

Dear REBNY Member:

We asked Roberts & Holland LLP, one of the top tax firms in the City, to provide us 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. REBNY has already begun conversations with State Officials on the impact of such a policy on the sale of vacation homes throughout the State. We will keep you informed of the progress of those discussions.

A recent decision written about in the Wall Street Journal is perhaps more troubling than the Barker Decision. The State has decided to ask the State Tax Tribunal to reconsider a case in which it ruled in favor of a taxpayer who owns a home in New Jersey, owns and works at a business in Staten Island, but purchased a home in Staten Island for his parents to occupy. The State is asking the Tax Tribunal to rule that the taxpayer is a resident of New York State (and therefore likely to be determined to be a resident of New York City). Such a ruling would subject the taxpayer to pay resident taxes on all of his income, including investment income (and likely subject that taxpayer to pay New York City Income Tax). The prior Tax Tribunal decision focused on the fact that the taxpayer did not have a bed or any personal items in the Staten Island home, and therefore concluded that the taxpayer was not a legal resident of the State of New York. Although no decision to over turn the prior ruling has been made in this case to date, the position expressed by the State officials, if accepted by the Tax Tribunal and the Courts could be extremely negative to our industry and City. Under such a policy, parents, who work in the City of New York and who buy or lease an apartment for their adult children, would be subject to pay all taxes as a New York City and State resident, even if their own actual place of residence was outside of the City and/or State. We have reached out to the appropriate State officials to raise our objections to such a policy.

Thank you,

Steven Spinola

President

Real Estate Board of New York

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.).