Clarifies the definition of "permanent place of abode" for the purposes of the residency rules under the personal income tax

Summary of provisions

Subparagraph (B) of paragraph 1 of subsection (b) of Section 605 of the tax law, as amended by Chapter 28 of the Laws of 1987, is amended to clarify the definition of a permanent place of abode.

Justification

Earlier this year, the State of New York division of Tax Appeals upheld the decision of an Administrative Law Judge that ruled all income earned by a Connecticut couple who own a second home on Long Island is subject to New York State taxes. This ruling has sent a shudder of concern through vacation-home communities across the State as vacation homeowners relied upon an exemption in the tax regulations.

Current law states that if you are domiciled in another state, own a permanent place of abode in New York and spend more than 183 days in New York, you are a resident for income tax purposes. The tax regulation, however, excludes camps or cottages suitable and used only for vacations. In the above referenced case, the family lived in Connecticut and had a vacation home on Long Island's East End which they used only five or six weekends a year. The husband worked in New York City, returning each night Connecticut. They has paid New York State income tax, but at the non-resident rate because they live in Connecticut. The ruling determined their Long Island vacation home was a permanent place of abode in New York and the husband was in the State more than 183 days between work and vacation. As such, they were deemed residents of New York State pursuant to provisions of the Tax Law and held accountable for additional taxes.

Vacation-home communities heavily depend on out-of-state residents who enjoy spending their precious free time and their hard-earned dollars in New York. If left unchanged, the implications of this decision will surely discourage vacation home ownership in New York causing further damage to an already struggling housing market and impeding New York's economic recovery. This legislation amends the Tax Law to expand the definition of "permanent place of abode" for the purposes of personal income tax.

Under this legislation, the usage or ownership of a vacation home will not be sufficient to establish a permanent place of abode for personal income tax purposes so long as the taxpayer spends less than 90 days a year at the vacation home and the home is located more than 50 miles from the taxpayer's primary place of employment in New York and is not used as the principal residence. This proposal has the benefit of being narrowly tailored to address usage and ownership of a dwelling in vacation communities. It also is similar to a proposal that was under consideration by the Tax Department several years ago when efforts were being made to exclude vacation homes from classification as 'permanent places of abode' under New York's residency rules.

This change is being made to clarify existing law. Despite the decision in the New York Division of Tax Appeals, it is clear that it was never the Legislature's initial intent to include or to classify as 'resident's those taxpayers who made limited use of vacation homes located in New York State. Instead, the statutory provisions were added to the Tax Law in the 1920's to ensure that only those people with no transitory and abiding connections to New York State be classified as residents under the Tax Law. Taxpayers with limited-use vacation homes were never supposed to be taxed as 'residents' in New York.

Legislative history

2011-12 S.3998C.

Fiscal implications

To be determined.

Effective date

Immediately and shall be applicable to taxable years beginning on or after January 1, 2014.