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High Earners in New York Go to Great Lengths Not to Get Taxed as Residents

By:
S.J. Steinhardt
Published Date:
Apr 19, 2024

iStock-450743923 New York Money

Ultra-wealthy people in New York are employing a number of tactics to avoid being considered residents by the state's tax authority, Bloomberg reported.

According to the New York State Department of Taxation and Finance (DTF), taxpayers will be considered New York state residents if they maintain "a permanent place of abode" in New York State for substantially all of the taxable year, and they spend 184 days or more in New York state during the taxable year. Any part of a day is a day for this purpose, and they do not need to be present at the permanent place of abode for the day to count as a day in New York.

And so, Bloomberg reported about some wealthy people idling in their luxury SUVs near the New Jersey entrance to the George Washington Bridge shortly before midnight, waiting for a new day to begin before crossing the state line to New York, to avoid the previous day being counted toward the 184-day threshold. Bloomberg also described wealthy people flying out of New York by private jet just minutes before midnight to avoid the following day being counted toward that threshold.

The number of taxpayers earning more than $1 million who moved out of the state more than doubled in 2020 from 2019 and has continued each year to be well above pre-pandemic levels, according to the DTF, Bloomberg reported. Overstaying their time in the state, beyond the 184-day threshold, could cost them millions of dollars in taxes. 

Of course, the tax money that the wealthy seek to avoid paying is crucial for state revenue. People earning over $1 million each year made up just 1.6 percent of tax filers, but they paid 44.5 percent of the state’s total personal income taxes in 2021, New York Comptroller Tom DiNapoli said in a recent report cited by Bloomberg.

“We are incredibly reliant on New York’s high earners for our income tax revenue,” Acting Tax Commissioner Amanda Hiller told an audience of civic leaders at a panel discussion on New York’s economic future last fall. The state doesn’t know whether millionaires are leaving because of tax policy, but officials are closely studying their movements in search of an answer, she said.

As a result, state officials are using residency audits—investigations into whether people correctly identified themselves as a full-time, part-time,or nonresidents for income-tax purposes—in order to gain access to that revenue.

The DTF has 300 auditors dedicated to conducting residency audits, and they scrutinize bank records, phone bills and family photos, artificial intelligence (AI) tax monitoring systems to spot inconsistencies in returns. These auditors watch travel, and they apply a standard known as “the teddy bear test” to see where individuals keep their most cherished possessions to determine whether a home is their primary residence.

“We always tell people the tax audit from New York is like the tax version of a colonoscopy,” Mark Klein, a tax attorney at Hodgson Russ, said in an interview. “I’ve had cases that have hinged on a single dog. And I had a case once that was based on the fact that the person moved their Peloton bicycle to Florida.”

The state collected roughly $1 billion from 15,000 audits between 2013 and 2017, according to data obtained by Bloomberg through a Freedom of Information request.

When New York considers whether taxpayers have spent more than 184 days in New York, even a small portion of a day is counted as a day, and a “permanent place of abode" could simply be a vacation home. A few hours spent in New York, or even getting off the highway while driving from New Jersey to Connecticut, qualifies as a whole day, as does getting outpatient treatment at a New York hospital. New York auditors may assume a person was in the state if he or she cannot prove otherwise.

“Even though you have a Florida driver’s license, Florida voting record, Florida home, it does not matter,” said Jonathan Mariner, who created the TaxDay app that tracks users’ locations so they don’t overstay the threshold of days that would trigger residency status. He created his app after facing his own residency audit after moving to Florida. “You could be on vacation in New York and they’ll pull you back in,” he told Bloomberg.

In addition to Tax Day, similar apps have emerged. A residency tracking app called Chrono, which uses biometric data to prove users’ whereabouts, launched in 2021. Another tracking system, Monaeo, which automatically logs users’ locations to create detailed records of their whereabouts, was developed more than a decade ago but has seen an enormous increase in downloads since the pandemic.

“I would say 60 percent to 70 percent of our user base is specifically tied to New York,” said Bill Mastin, chief executive officer of Topia, which owns the app, in an interview.

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