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Another Bite at the Big Apple

The Gaied Residency Case

Joanne S. Barry

It's a mistake new managers often make: They second-guess a decision due to a lack of confidence in themselves, failing to follow the instincts that got them the promotion in the first place. You can also see it in sports, where results are instantaneous, tangible, and measurable—the short-stop raises his arm to throw to second, rethinks it, doesn't throw, and the runner slides into the base, safe. You can tell by the look on the shortstop's face if he believes he made the right decision.

Unfortunately, the New York State Tax Appeals Tribunal has recently been doing some vacillating of its own. It granted a motion for reargument in two residency cases this year, a significant number because the tribunal has, according to the tribunal itself, only granted such a motion in four cases since the Division of Tax Appeals was established by the state legislature 25 years ago. It remains unclear how the results of one of the residency cases the tribunal granted reargument to earlier this year—Matter of Gaied—will affect tax audits in the future; however, there are possible ramifications for out-of-state residents who have residential property in New York State, as well as for CPAs who prepare their taxes.

Based on Gaied, the scope of the residency rules in New York … could undergo drastic changes at the tax department's discretion.

The NYSSCPA filed an amicus brief in support of long-standing legal precedent, which was applied in the tribunal's original decision involving the petitioner, John Gaied, who in July 2010 won a residency case against the state on appeal. At the time, Gaied was a New Jersey resident who also owned and maintained a Staten Island apartment for his elderly and ailing parents. Because he worked on Staten Island, he exceeded the 183-day residency statutory test, but in making its original decision, the tribunal rightly looked to a precedential decision, Matter of Evans, which for more than 20 years has been the cornerstone and primary authority in permanent-place-of-abode cases. The tribunal correctly determined at that time that an apartment maintained by Gaied solely as a home for his elderly, dependent parents, and at which he did nothing to maintain living quarters for himself, was not his permanent place of abode.

It was a rational close to the case. But in autumn of 2010, the story unexpectedly gained a new chapter when the New York State Department of Taxation and Finance filed a motion to reargue the case, claiming that anyone who has a property right in an abode in New York State actually has a permanent place of abode. And the tribunal waffled—it granted the reargument despite the fact that, as the NYSSCPA states in the amicus brief, the standard it used to make its first determination is not only supported by long-standing precedent, but by nothing less than the legal framework and legislative history surrounding statutory residence in New York.

On June 16, the tribunal vacated its original decision and sided with the state tax department, declaring that Gaied does indeed maintain a permanent place of abode on Staten Island. What is the significance of this decision? It could mean that now anyone who “maintains” a dwelling in New York State may be considered to have a permanent place of abode here, regardless of whether that person has ever resided in the dwelling or treated it as a residence. That includes out-of-state residents who maintain apartments for their college-age children or elderly parents in New York (like Gaied). The same specter of liability could arise for an out-of-state resident who invests in a dwelling for the sole purpose of renting it to third parties but who fails to find a tenant during the taxable year. Perhaps even the purchase of retail space with an apartment above it could create a “permanent place of abode” for a nonresident whose only intention and use of the property is to operate a store. There could be other residency implications not mentioned here. The bottom line is: When there are so many unknowns to consider, what would compel individuals to purchase a second home in New York for themselves or anyone else in their family?

How the state tax department will use the outcome of Gaied remains to be seen. As of now, the tax department is not planning to issue any new guidance because, in the words of a department spokesperson, the case “upholds[s] current departmental policy.” What is certain, however, is that the Gaied decision will have a direct effect on CPAs in the tri-state region, especially those who practice in the area of multistate taxation. If the state plans to put Gaied to use, CPAs and their clients should be aware that dwellings that were not considered permanent before might be subject to reclassification. Based on Gaied, the scope of the residency rules in New York, stable for 20 years, could undergo drastic changes at the tax department's discretion. Once armed with this information, out-of-state house hunters could change their minds about investing in New York.

Joanne S. Barry. Publisher. The CPA Journal, Executive Director, NYSSCPA jbarry@nysscpaorg.

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