Landmark Gaied Residency Case Is Reversed; Gaied Lawyer Weighs In

Published Date:
Feb 25, 2014

New York's Gaied case has become a sort of standard in residency taxation—it's the  case that other guidance and disputes are compared with when lawyers and accountants try to answer the multilayered question: what does the state mean by "permanent place of abode"?  Final guidance on this question may be coming, however, thanks to a recent ruling from the New York Court of Appeals. The state's highest court has reversed a lower court and sided with appellant John Gaied, in what will likely be a landmark decision.

The Gaied case revolved on the question of whether John Gaied, a New Jersey resident who maintained a Staten Island home for his elderly parents, was a New York resident for tax purposes. Was he resident because he maintained and owned the home and paid the bills, even though he didn't actually live there? (The full particulars can be found in an earlier NYSSCPA E-zine story.) Jeffrey S. Gold, chair of the NYSSCPA's New York, Multistate & Local Taxation Committee, said the reversal validates the state's audit guidelines and "brings the department and the courts more in step regarding permanent place of abode, allowing better planning for taxpayers.” 

In a draft of the opinion, which runs eight pages, the court noted that the Tax Tribunal had interpreted "maintains a permanent place of abode" (PPA) to mean that a taxpayer merely has to maintain a dwelling, not necessarily reside in it, to be a statutory resident. However, the court wasn't buying that: "We conclude there is no rational basis for that interpretation. Notably, nowhere in the statute does it provide anything other than the 'permanent place of abode' must relate to the taxpayer." Therefore, the judgment of the Appellate Division is reversed, with costs.

The Court of Appeals said that the matter needed to be remitted to the Appellate Division, "with directions to remand to respondent New York State Tax Appeals Tribunal for further proceedings in accordance with this opinion." The Tax Tribunal had initially ruled in favor of Gaied, but in a rare reversal, sided with the tax department in a second ruling.

What Does This Mean?

Gold sees this ruling very much in line with the state's Nonresident Audit Guidelines, which Gold said were "widely construed to be a pullback from the harsh results of the initial Gaied decision, allowing taxpayers and the department to consider not just ownership and property rights but the relationship that a taxpayer has with a premises."  

Guidelines are just that—guidance for auditors—and they don't have the same force as a law or regulation. But in the aftermath of the ruling, they've taken on a new significance. Gold added that “although some factors listed in the Guidelines—such as the mere payment of bills or use of the address for business mail—may need revisiting after the Gaied appeal, others, like the storage of personal items, availability of accommodations, and use of the dwelling, can help determine if the taxpayer had what the court termed a 'residential interest' in the property.”

Gold gave the example of an out-of-state resident who has a New York apartment that he no longer wants and would like to get rid of, but can't sell due to a down market. Previously, said Gold, the tax department would consider that apartment a PPA even though it wasn't being used. "The new decision may allow that taxpayer to close down the apartment, remove personal items, terminate nonessential utilities, etc. and not have it treated as his PPA."

Brian Gordon, another committee member, said that the new Gaied ruling matches the precedent set in the earlier Matter of Evans case from 1993. In Evans, a taxpayer occasionally resided with a priest in a rectory, and to reach a decision on whether that situation created a PPA, the Tax Tribunal looked at the physical nature of the abode and the taxpayer's relationship before reaching a decision.

"They got it right this time," said Gordon.

Gaied's Lawyer Discusses the Case

Tim Noonan, the attorney who represented John Gaied, was of course pleased with the decision. In comments he sent to the NYSSCPA E-zine, he wrote: "The court said that the abode in question must relate to the taxpayer, and that the taxpayer himself must have a residential interest in the place.  This result should affect many open cases, as well as help restore the 'statutory residency' test to its original intention; that is, to tax those persons (and only those persons) who really live in New York."

But what happens next, now that that the Court of Appeals has effectively sent the case back to the Tax Tribunal?  Noonan said the new ruling effectively rejects the Tax Tribunal's second ruling and goes back to the first ruling: "Since Mr. Gaied did not have living quarters at his parents’ apartment, he did not maintain a permanent place of abode in New York. That factual finding is still valid, and was never changed or overturned by the Tribunal. This decision is a clear affirmation of the importance of the legislative intent, and we would expect the Tribunal and department to apply the law the way the legislature envisioned and the Court of Appeals mandated."

The exact nature and timing of the proceedings is not definite yet. The NYSSCPA E-zine and Trusted Professional will have more details as they become available. Meanwhile, a transcript and webcast of the arguments before the Court of Appeals are available on the N.Y. Courts website. 

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