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NYS Residency — Did You Actually Change Your Domicile?

By:
Brian Gordon, CPA
Published Date:
Jul 1, 2022

As a trend I have been noticing more recently, clients want to change their residency from New York State to Florida because they are expecting a large capital gain, or large income in the near future. They want to change their residency prior to that gain having to be reported on a New York resident return. The move may also be from New York City to another part of the state to save on New York City resident tax. Is that legal? If it is done correctly — yes. You can change your residence for a nicer climate or a new job or simply to lower taxes. The key element here is that the move has to be genuine.

Domicile is defined in part as your fixed and permanent home. If you are planning for a change, the move has to be permanent, or at least for an indefinite period of time. There is no quick fix. “…the intention must be honest, the action genuine, and the evidence to establish both clear and convincing” (Matter of Newcomb, 192 NY 238, 251).

I will go over some basics. A person can be a resident of New York State in either one of two ways:

1. You can be domiciled in New York.

You are domiciled in New York if it is your primary residence — as mentioned above, your fixed and permanent home. You can have more than one residence, but you can only have one domicile. Your intention to make a residence your domicile is important, but your intention must be true and honest. Auditors will examine several factors as well as your “habits of life” or lifestyle to determine if you followed through with your intentions to make them reality.

2. You can be a statutory resident of New York.

Unlike domicile, statutory residency is based on facts rather than an analysis of habits and lifestyle.

a. Do you have a qualifying residence in New York State? If yes, see b.

b. During the year in question, are you present in New York State for more than 183 days?

For the purpose of this day count, any part of a day (even one hour or less) is counted as one day. If you come into New York at 11:00 p.m. on a Saturday, and leave two hours later at 1:00 a.m. (Sunday), that is counted as two days. There is no requirement to sleep at the residence.

A client who was looking to avoid New York State tax on a capital gain as described above asked me, “I heard that if I change my domicile, then in the future, all I have to do is stay out of New York State for 184 days. Is that true?”

This statement alone is not enough to make a determination. Let’s assume the subject has a residence of equal size in each state. He is looking for a quick fix to avoid New York State resident tax on an expected capital gain. He believed that he could change his domicile by spending significantly more time in Florida for one year. Then in Year 2, he would spend close to, but less than, six months in New York. He believes that because he changed his domicile in Year 1, he would not be a New York State resident in Year 2, unless he was in New York State more than 183 days (a statutory resident).

What is wrong with his plan? As stated above from the Newcomb case, the intention must be honest, the action genuine, and the evidence to establish both clear and convincing. Did he make Florida his fixed and permanent home? Did the subject change domicile in Year 1 by spending significantly more time in Florida than New York State?

When you change domicile, you are changing your primary residence to another location with the intention to stay at the new location, long term or indefinitely. This is where you will live for the foreseeable future. The intention must be backed up by clear evidence. You can change your domicile in one day, but the determination made by an auditor will be based on an examination of facts and circumstance over a period of years. The Year 1 return will be filed in Year 2, and it will be audited in Year 3 or 4. The auditor has a window of three or four years to analyze evidence to determine if your intention to change domicile was genuine.

In Year 1, if the subject spends eight months in Florida and four months in New York, it may look like he changed his domicile to Florida if we were limited to a one-year review. But what about Years 2 and 3? If he spends six months in New York (180 days) in Years 2 and 3, he will not be a statutory resident, but the question becomes: Did he ever actually change his domicile in Year 1? In a domicile analysis, we would be looking at factors such as comparison of homes, business connections, family connections, and other lifestyle issues. To simplify the example, if those factors are all neutral, the focus would be on where he spends his time. The most important issue would be how many days he spent in Florida compared with New York State. What if in Years 2 and 3, he spent only four months in Florida and two months vacationing in other locations while spending six months in New York State? The auditor will most likely determine that domicile was never changed from New York, because he never had the intention of making Florida his fixed and permanent home. A domicile stays as is, until a new domicile is established.

The subject in this case is trying to make a small sacrifice to spend extra time in Florida to avoid the tax on his capital gain in Year 1, but this is not a change in domicile. By shifting the majority of his time back to New York State in Year 2, even though he is in New York State for less than 184 days, the indication is that there was never a plan to change domicile to Florida, because he is spending more time in New York State than any other location.

Is it possible to change domicile for one year and then back again? Yes. But again, the intention must be honest, clear and convincing. Suppose a New York domiciliary gets a new job in Florida. He sells his home in New York State and buys a new one in Florida with the honest intention of staying in Florida permanently; this is a good basis for a change in domicile to Florida. But after one year, he decides he doesn’t like the job; he doesn’t like the climate in Florida, and gets an offer from his prior employer at a significant increase to his previous salary.

He then decides to move back to New York. He sells his home in Florida, buys a new home in New York and returns with the intention of staying there permanently. Given this situation, assuming it was all honest intentions, he did change his domicile from New York to Florida, and return to New York one year later. The difference with the first example is that our subject never intended to stay in Florida permanently.

Is there any way our subject could avoid New York State resident tax on his capital gain in Year 1 without changing domicile? Yes. According to New York State tax law, you can be domiciled in New York, but not taxed as a resident under the following conditions:

Condition 1

You did not maintain any permanent place of abode in New York State during the tax year; and

You maintained a permanent place of abode outside New York State during the entire tax year; and

You spent 30 days or less (a part of a day is one day for this purpose) in New York State during the tax year.

To summarize, this example is for someone who is planning to leave New York State on a temporary basis with a plan to return; therefore, he is still domiciled in New York State. If you sell your New York home or discontinue your New York lease prior to Year 1, and you acquired a residence outside of New York State for the entirety of Year 1, and you did not come back and visit New York State for more than 30 days, you can file as a nonresident for that year.

Note: If you leave New York in a motor home and drive around the country for a year, you do not qualify for this exception because you did not establish a permanent place of abode in any other state. You will still be a resident of New York State.

Condition 2

You lived in a foreign country for at least 450 days during any period of 548 consecutive days (1.5 years);

You, your spouse (unless legally separated), and minor children spent 90 days or less in New York State during this 548-day period; and

During the nonresident portion of the tax year in which the 548-day period begins, and during the nonresident portion of the tax year in which the 548-day period ends, you were present in New York State for no more than the number of days that bears the same ratio to 90 as the number of days in such portion of the tax year bears to 548. The following formula illustrates this condition:

Number of days in the nonresident period X 90 = Maximum days allowed in short period.

548

Please note — under these conditions, you are still domiciled in New York State, but not a resident (you file a nonresident return). The reason you are still domiciled in New York State is because your plan is to return to New York.

These examples are probably difficult for most people to qualify for; but as I said above, there are no quick fixes. Proper planning is absolutely necessary.

 


Brian Gordon, CPA, is president of State Tax Audit Representation, Inc., a tax audit and controversy representation firm. He represents clients on audits involving residency, sales tax, corporation tax, and various other state and local tax and collection matters as well as IRS matters. Previously, Mr. Gordon was with the New York State Department of Taxation and Finance for many years as the district audit manager in the New York Metropolitan District, where he worked on many high net worth tax audits of all types. Following his government experience, he was state and local tax director at a New York CPA firm. He is a former president of the NYSSCPA Queens/Brooklyn Chapter and a member of the New York, Multistate & Local Taxation Committee. He writes and speaks on various state and local tax issues. He can be reached at 516-510-6041 or bgordon@StateTaxAuditRep.com, and would be happy to clarify this topic or answer any questions on how to analyze your situation.