Two-state woes

[appelman]

I need help from an east coast guru. A client lives with his family and works in New York. In January, he will take a new job in PA. However, because of school considerations, the family will not move until mid-year. In the meanwhile, the husband will rent an apartment in PA, and commute home to NY and back every weekend. Husband and wife also have some self-employment income, and wife has some investment income. What kind of dual taxation mess are they likely to get into?

My intuition would be to file them as part-year residents in both states, i.e. residents of NY for the first half of the year, and residents of PA for the second, and then take the PA tax for the first half year as credit against the NY tax. Is there a better strategy? PA taxes are considerably less than NY.

Another possibility might be to have the husband try to establish a residence in PA for the whole year, filing as married separate for both NY and PA. But I don't know if he could get away with it, and whether it would help much even if he could.

And, on the other hand, might PA claim the husband as a full-time resident because he works there, has an apartment there, and has the intent to remain?

All suggestions will be appreciated.

[Dusty2004]

Dual status

If this were my clients I would file the husband as a resident of PA and the wife as a resident of NY and file the taxes as appropriate for each. I would file the address as the husbands address in PA.

Dusty

[appelman]

I'm coming to agree with you...

for the husband, particularly since I found the following PA guideline:

"An individual is considered a resident rather than a part year
resident if that person was physically present in PA
for at least 184 days (or parts of 184 days) and maintained
a permanent place of abode in PA at any time during
the tax year."

But the wife is going to be considered at least a part-year PA resident (depending on the actual date of relocation), and I think both of them are going to be considered part-year NY residents, no?

[dtlee]

No one will likely agree with this post, so please feel free to ignore it. It is the holiday season and I am not out to start any arguments.

New York State considers you to be a New York Resident until you sever ties to New York. Intention does not count as much as it does for other states. They work with different rules than any other state I have worked with and I personally knew of a situation where they were able to recover back taxes from a person who moved to Florida, had a condominium there, voted there, was licensed there, had a car there which was registered there, and worked there year-round. He did come to New York for holidays, some birthdays and graduation ceremonies. It was not based on number of days in New York, but that he shared ownership of his home with his wife who was still in New York (she had a business in NY), still retained a couple of professional ties in New York, had other family ties in NY (his children did not want to change schools late in high school), and kept some personal items which remained in the New York home. He was in Florida for over 10 years and ended up paying 10 years of back taxes with interest and penalty to New York. That being said, the timeframe you mention is not likely the windfall for New York that this one was, so New York may not pursue it.

If you were a New York resident and still maintain a domicile in New York and family, you are likely a New York resident no matter what other state or states may also consider you a resident.

For real guidance rather than my opinion, please take a look at these:

NYS General Tax Information for New York State Nonresidents and Part-Year Residents is here:

New York State Publication 88

If you think I am making this sound more complicated than it needs to be, take a look at this document:

NYS Nonresident Audit Manual Updated September 1997

This is a 113-page document that New York State uses to audit nonresidency claims.

[Kram BergGold]

My opinion

I agree with dtlee. File them as part year NY residents and then he somehow files as a PA non resident for part of the year and a resident for the rest of the year. She files a part year PA return.

However, your other choice is file her as a part year NY resident and part year PA resident. He files as a full year PA resident. Again, if audited NY is not going to buy this.

[appelman]

Thanks.

I think now he HAS TO file as a full-year PA resident, based on the quote in my previous message. But he still MAY also have to file as a part-year NY resident, though the fact that he has moved with intent to stay, and his wife joins him within the year, both mitigate in favor of a change in his residency as of the beginning of the year.

I don't think there is any argument about his wife as a part-year NY and part-year PA resident.

Thanks to all for comments.

[Will H]

Just want to say I agree completely with Doug (DTLEE). We have had this very discussion at two NY workshops this summer and he is right on the money.

[appelman]

Yes, but what is the bottom line?

If you read the audit guide, we are talking about the domicile issue. And, from the discussion in the guide, there seems to be a lot of "facts and circumstances" wiggle room. Actually, by the time you apply the other state tax credit, I'm not even sure how much money is involved. I guess I'm going to have to run some scenarios.

[S T]

Domicile and Residency Issues

I haven't reviewed the domicile and residency issues for NY and PA - however, being familiar with Calif. I don't think it is going to fly!
If hubby is moving to PA and trying for residency then wouldn't he have to establish residency, voter registration, DMV registration, etc.
I think I agree with Dtlee's post - NY is going to be really aggressive

Thinking tax PA income as non-resident - credit to NY and file NY resident return

Sandy

[OtisMozzetti]

I have not even tried right now to spend the time to follow the specifics here. The comment that I have is that it would not be surprising if two different states, with their respective desires for tax revenue and so on, took positions that seem to be inconsistent.

[dtlee]

When I was a foreign state preparer for a major chain, we occassionally would encounter situations where the rules of two states made a taxpayer a resident of both. None of the states offer a way to handle that since they all assume that there will be a resident state and a nonresident state.

[dtlee]

If you read the audit guide, we are talking about the domicile issue. And, from the discussion in the guide, there seems to be a lot of "facts and circumstances" wiggle room. Actually, by the time you apply the other state tax credit, I'm not even sure how much money is involved. I guess I'm going to have to run some scenarios.

If you spend enough time with the cases and the issues, you will see that a person has to somehow document that they have no intention of returning to New York (possibly at least part of the impetus for the guy who had bumper stickers and billboard signs telling people to "Get Out of New York" for a few years before he left). Intention to live in another state does not automatically imply (to New York) that you don't intend to come back. Do everything you can to sever personal links to New York. Empty the safe deposit box and put the contents in Pennsylvania. Cancel the gym membership here. Resign from the local church or synagogue. Give up your officership at the local club. Turn in your "savings cards" and credit cards at stores which operate only in New York. Document it all in writing when you do. If you have accounts at a bank that does not operate in Pennsylvania, move them to one that does.

As I hinted, this may be overkill in this situation, but many people try to leave, have trouble selling the home, have difficulty finding a new one, have issues with kids or other relatives, and create a protracted period of "leaving." In that situation, you may end up with one spouse a New York resident and the other a Pennsylvania resident for a while. New York will want the other one back unless you can prove intent to not come back (especially, if the job eventually falls through and he does come back, unintentionally).

[Nashville]

State Comity

NY and PA may as well be Leichtenstein and Luxembourg to me, but I will add or agree to this extent:

People think things like taxability and residency are mutually exclusive among states. Like the impermeability of matter: two different substances cannot simultaneously occupy the same space.

So it is also a common misconception that one state's taxability must end where another begins. Like noticing that the pavement often changes when driving across a state line.

Not so. None of the states check with their neighbors when writing their tax laws, i.e. New York laws were not written to respect Pennsylvania or any other state. So depending upon the definition of whatever states are involved, you may be a taxable resident of two or more states at the same point in time. Taxable income can work the same way -- taxability of income under one state does not guarantee that the same income is exempt in another.

Do some states have reciprocity agreements? Of course. However, none of these agreements were entered with the thought of changing ANYONE's state taxability laws. Without exception, they are written to reduce administrative costs of processing out-of-state wage statements and credits to taxes paid to other states.

Even though I am devoid of NY-PA subject matter, I would be inclined to agree that DTLee is correct.

[JON]

I think

he is going to PA not temporary in Jan and becomes a PA resident by PA law. All his income in PA will be taxed and withheld on by PA and he is a full year resident. The wife is a part year resident of both States. I did not look at the NY case, but I would guess the Florida guy spent a lot of time in NY for those 10 years. The Florida issue came up with airline pilots that had little and spent little time in FL and families were not even there.

If income is taxed in two states the residency state always gives a credit for taxes paid to other states. FL without its tax can make this an easy target for state taxing authorities. Whatever happened to the Derek Jeter vs the State of NY where they were saying he was a NY not a FL resident? That was started 4 or 5 years ago and never did hear anything. For Jeter his salary is already allocated to NY according to playing time, but all the rest of his income is considered FL. NY wanted that and Jeter's accountants and attorney were fighting that..

[joanmcq]

I think the Jeter case is still being litigated. I've done a lot of cross state work, and NY is as bad as CA in residency rules. He may well be considered a resident of both states. Because of the apartment and work as well as the amount of time spent in PA, he will be a resident of PA all year. NY will try to domicile him in NY because of his ties to NY (wife & family still there), as well as the amount of time spent in NY. Look closely at the rules for part days in NY counting as days spent in NY. Your probable outcome is he is a full year resident of PA, a part-year resident of NY and she is part-year for both, if she moves as scheduled.