New York, New York: Importance of 183 Day Rule

New York, New York: It’s up to you (to show you were somewhere else).

New York City is one of the most expensive cities in the world. It got more expensive still for a Florida magazine executive who lingered too long in Gotham.

New York, the State and the City, taxes all income of “statutory residents,” defined as taxpayers domiciled elsewhere who both maintain a “permanent place of abode” and have “physical presence” for more than 183 days.

The Florida magazine executive filed a non-resident New York State return for 2007 showing $2,980,887 adjusted gross income, with $10,316 sourced to New York, resulting in New York state tax of $615. No New York City tax was paid.

New York pulled the return and challenged the taxpayer’s status as a non-resident. The stakes were high. If the taxpayer spent 183 days in New York City, he would pay New York City and State income tax on nearly $3 million of income, rather than the reported $10,316.

The exam was thorough. The New York Tax Appeals Tribunal tells the story:

New York began examining the taxpayer’s return in April 2010. The auditor reviewed petitioner’s credit card statements, telephone bills and air travel records to determine whether petitioner was properly subject to tax as a “statutory resident” of New York State and New York City, i.e., that petitioner maintained a permanent place of abode and spent in the aggregate more than 183 days of the year in New York State and New York City during 2007.

The New York Tax Division’s review revealed credit card charges in a variety of places, including New York City, on days when petitioner claims to have been elsewhere. Similarly, the Division’s review of telephone records revealed calls being made from petitioner’s New York City premises on a variety of dates, including dates when petitioner claims to have been outside of New York. Petitioner had four different telephone numbers at his New York premises. The Division’s review indicated that calls were made to and from those numbers on over 200 days during the year 2007.

The taxpayer countered with affidavits from people in Florida – a hairdresser, concierge, a handyman, and a personal assistant—to show that he was in Florida on days that the examiner said he was in New York. He said that the phone calls must have been made by his “housekeeper, or his children, or other persons.” He said those people could have also used his credit cards.

The New York Tax Appeals Tribunal was unconvinced:

We agree with the Administrative Law Judge that the testimony provided by petitioner and the affiants speaks mainly in general terms and lacks specificity with regard to dates and events. We do not think the Administrative Law Judge erred when he concluded that such evidence was insufficient to establish petitioner’s whereabouts on each of the days in issue. The affidavits presented lacked the detail necessary to rise to the level of clearly convincing evidence. Even though the Administrative Law Judge found petitioner’s testimony forthright and honestly given, we agree that the evidence presented failed to provide the degree of specificity necessary to establish petitioner’s whereabouts with certainty so as to conclude that he was present outside of New York State and City on the disputed days.

The Tribunal upheld additional New York State and City tax liability of $986,220. As the taxpayer was otherwise a Florida resident, which does not have an individual income tax, there was no credit against taxes paid in Florida, so the tax was pure loss.

The case has lessons for taxpayers who spend significant time in New York.

  1. New York is serious about the 183-day rule. New York tax authorities have a reputation for aggressively investigating residency issues.
  2. It’s up to the taxpayer to prove absence from New York. The New York Department of Revenue examined a Midwest-based individual whose job required spending several weeks in New York City each year. The examiner refused to concede that the taxpayer was not in New York 183 days until enough credit card slips, grocery payments, and other physical evidence was presented to prove that the taxpayer really did spend most of his time elsewhere. It helped that the taxpayer’s personal assistant maintained a detailed record of the taxpayer’s calendar and travel.
  3.  Control your phone and credit cards. If somebody in New York City needs a phone or a credit card, it will probably be less costly to get them one, rather than share. If the Florida magazine executive really let his kids or housekeeper use his phones and credit cards, it cost $975,000 for the convenience, as it was that use, attributed to the taxpayer, that pushed him over the 183-day line.

Taxpayers who spend significant time in New York need to monitor their time throughout the year to see whether they are approaching the 183 day mark. As the executive in this case learned, you can pay a lot of air fare out of the city with the tax amount you might save by not being considered a New York statutory resident.

Cite: Matter of Ruderman; DTA No. 826242

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