NY Issues Important Tax Decision on Vacation Homes

The New York State Appeals Tribunal has decided on the Matter of Petition of Nelson Obus and Eve Coulson, which has important implications for those who live outside of New York but have vacation homes in the state.

During the tax years in question, Nelson Obus and Eve Coulson lived in New Jersey. They purchased a home in Northville, New York, that they maintained year-round as a vacation home. The home had an attached apartment that they rented to a tenant year-round for $200 a month. The couple used the main section of the home for approximately two to three weeks each year. Nelson worked in New York City full time and was thus present in New York for more than 183 days. The taxpayers filed a nonresident New York State individual return for 2012 and 2013. New York State audited the taxpayers claiming they were statutory residents (in accordance with 20 NYCRR 105.20) and assessed them New York State tax on all of their income for those years. Nelson and Eve challenged the assessment.

The administrative law judge found that because the dwelling had a separate living quarters for the petitioner and their tenant, the Gaied case was distinguished. The Gaied decision held that when a property is maintained for the use of another, the home cannot be deemed the taxpayer’s permanent place of abode. The administrative law judge also found that although this was a vacation home, the physical characteristics of the home made it suitable for year-round use and concluded that it was a permanent place of abode.

The state of New York Tax Appeals concluded:

• The taxpayers had a residential interest in the home, as they had a right to reside at the dwelling and maintained living arrangements at the home and exercised that right to use the home during the years in question.
• The vacation home had physical characteristics that enabled it for use year-round including heat, full kitchen, hot water and other amenities and found it to be a permanent place of abode based on its physical characteristics and the taxpayers’ relationship to the home.
• The Tax Appeals Tribunal distinguished the language in NYS Statutory Resident Statute (20 NYCRR 105.20(e)(1)) stating a mere camp or cottage, which is suitable and used only for vacation is not a permanent place of adobe. It concluded that this exception rests on both the objective characteristics of the dwelling (suitability) and its subjective use by the taxpayer only for vacations. Merely because a taxpayer may only use a dwelling for what appears to be a vacation purpose and considers it suitable only for that purpose, this does not exclude the dwelling as a potential permanent place of abode.
• The taxpayer was present in New York for more than 183 days.
• The Tax Appeals Tribunal found the taxpayers to be statutory residents.

It is unclear if this decision will be appealed to the New York State Court of Appeals. This is an important decision to consider when someone has a vacation home in New York, but lives outside of the state. After this decision, New York State may be more prone to audit these taxpayers as statutory residents of the state if the statutory requirements are met in terms of the day count and owning a permanent place of abode.