Revisions to New York’s Statutory Residency Test and How They May Impact You

The New York Department of Taxation and Finance recently released a new version of its personal income tax Nonresident Audit Guidelines. These guidelines outline the rules the state uses to determine residency, which is significant in that tax law grants states the power to impose a tax on income from all sources earned by a state resident. The state of New York uses two tests – domicile and statutory residency – to determine New York residency. Under the statutory residency test, an individual is considered a statutory resident of New York if they are not domiciled in the state, but (1) maintain a permanent place of abode in New York for “substantially all of the taxable year,” and (2) spend more than 183 days of the taxable year in the state.

In the newly released guidelines, an important change for 2022 concerns the definition of “substantially all of the taxable year” in relation to how long a permanent place of abode must be maintained under the statutory residency test. Beginning with tax year 2022, the Nonresident Audit Guidelines now define “substantially all of the year” to mean a period exceeding 10 months. For previous tax years, the term had been interpreted to mean a period exceeding 11 months.

To understand how this rule change will impact taxpayers, consider a taxpayer who is domiciled in New Jersey, but works in New York throughout the year. If this individual were to purchase a New York property on February 24, 2022 and spend more than 183 days in New York during the calendar year, they would be taxed as a New York resident under the new 10-month threshold. Conversely, under the 11-month threshold, the taxpayer would not be subject to tax as a New York resident.

Similarly, consider a taxpayer who maintains a home in New York and spends more than 183 days in the state, but sells this residence on November 15, 2022. According to the 11-month threshold, the taxpayer would not be subject to statutory residency because they did not maintain the abode for more than 11 months. However, under the 10-month threshold, that same taxpayer would be a statutory resident of New York for 2022.

As illustrated in these examples, the impact of this rule change can be very significant if taxpayers do not undertake proper planning. Delaying the closing date on the purchase of a New York home or moving up a sale date presents an opportunity for taxpayers to save money by sidestepping New York’s residency rules. If you have questions about how the 10-month rule will affect your statutory residency in New York, please contact Alan Goldenberg, Principal and Leader of the State and Local Taxation and Tax Controversy groups, or your Anchin Relationship Partner.