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You've had enough of the Rochester winters. And of New York taxes.
So you're getting that second place in Florida-or one of six other states without an income tax- and just keeping a place here for the summer.
The question: How do you make sure that New York will no longer tax you after the move?
New York taxes apply differently to residents and non-residents. Residents are required to pay taxes on all of their income, while non-residents are required to pay tax only on income from New York sources.
If you become a snowbird, you want to be a non-resident-but to assure this status, you need to take affirmative steps to break your ties to New York. Just spending most of the year out of state is not enough.
There are two separate ways to be a New York resident for tax purposes.
First, you are taxed as a resident if you meet the statutory residence requirements. These are mechanical rules that say you're taxed as a resident if you maintain a "permanent place of abode"-most often a home-in New York and spend more than 183 days in the state during the year.
Even if you don't fit the statutory criteria for being a resident, however, you're still a resident if your "domicile" is in New York. The tax law assumes that everyone has a real permanent home-in the words of the tax law, the place to which you intend to return whenever you are absent. This home is known as your domicile, and you may have only one domicile at a time. To be taxed as a non-resident, you need to establish a domicile outside New York.
In sum: New York taxes you on all of your income if you have a residence here and spend too much time here or if the state is your domicile.
These rules are the source of a great deal of controversy, and several important cases in the last couple of years illustrate planning strategies-and pitfalls to avoid. A number of these cases have involved the statutory resident requirements.
To be a statutory resident of New York, you must maintain a "permanent place of abode" in the state. There are lots of disputes about what constitutes a "permanent place of abode." The bottom line is that you are at risk if you own almost any interest in New York real estate.
For example, in one recent case, the tax appeals tribunal held that a vacation home that the taxpayers bought primarily for family members and used about 10 nights a year constituted a permanent place of abode.
Day counting is an area of law in and of itself. If challenged, it's up to you to prove where you were each day. This can be very hard to do.
In one widely reported case, a hedge fund manager, obsessed with avoiding taxes in New York City (which has rules similar to New York State's) hired an assistant to track whether he was in the city each day.
New York City challenged his claim of non-resident status. He won-saving $27 million in tax-after a trial at which the court examined detailed records and heard hours of testimony on the issue of whether he was in New York City on four disputed days.
There is a common misconception that if you do not meet the statutory residence requirements, you are taxed as a non-resident. This is not the case. Even if you spend less than half the year in New York, you are still taxed as a New York resident unless you can show that you have abandoned your domicile in New York and have established a new domicile elsewhere.
To determine the location of a person's domicile, the state focuses on the location of the taxpayer's home, active business involvement, items "near and dear," and family connections, as well as where the taxpayer spends most of his or her time. There is a long list of items that the state considers in analyzing these factors.
It's not easy to change your domicile. There are many cases in which courts have found that snowbirds did not change their domicile because of factors such as continuing social, business and religious ties to New York, ownership of New York real property and frequent presence in New York. It is the taxpayer's burden to show his or her change of domicile by clear and convincing evidence.
The bottom line is this: If you're a snowbird, you can be treated as a non-resident of New York. But to assure this status, you need to take affirmative steps to establish a domicile elsewhere and, if you keep a home here, to make sure you're not in the state for more than half the year. It's your burden to prove that you've met these requirements, so it's best to think about them before the tax man comes calling.
Josh Gewolb is a tax attorney at Harter Secrest & Emery LLP.9/28/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email email@example.com.