Two-state woes

[dtlee]

Actually the person I was referring to never went to court. He spent maybe 250-350 days in New York during that ten-year period. New York was questioning from 12 prior to 2 years prior to the point where they had contacted him (they had not looked at the most recent two years yet).

Remember, this is not English Common Law where you are innocent until proven guilty beyond a reasonable doubt. He had not kept grocery, gas station, dry cleaning, and fast food receipts for that period to prove how much he was there. He had not even kept business logs for more than the normal three-year period. New York knew they had him over a barrel and he knew that he would have a hard time documenting his whereabouts. Even his phone bills would not have been much help since most of his calls were local calls which were not itemized. He might have had some help there had he called his family every day, but he was not that kind of guy (also, it was before cell phones and unlimited long distance, so the calls home were a tad expensive).

Beyond that, he was unable to prove that he had permanently moved to Florida and that he had no intention of returning. He and his wife were not considering divorce, yet there was insufficient room for his wife and family in the Florida condomium, making it difficult for him to prove he intended to bring them there (and he probably did not intend to). He had not really looked at other homes that would have been suitable for his family during those years. That plus his regular returns to see family and friends in New York made the state believe that he would return to New York if the job he had in Florida were eliminated (and that also was probably true).

New York is good at this stuff.

[appelman]

I think Joan has tied it up pretty well.

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.

PA has this concept of "statutory residency" that trumps any domicile issue. If you spend 184+ days or parts of days in PA and have a permanent place of abode in PA at any time during the year, you are a statutory resident. NY has a fuzzier criterion, but I'm inclined to go along with the consensus that they'll probably want to grab him as a part-year resident. One unpleasantness is that as a dual-state resident, he will probably have to claim the credit on the PA return, which means he'll have to front the NY tax and recoup some of it as a PA refund. And because of the documentation that PA requires, he'll probably have to file PA on paper.

Again, thanks to everybody for the input.

[JON]

I think (maybe)

there is resident and part year resident. California lost in tax court trying to get retirement income earned in the state, but people left (smart) for retirement and they wanted taxes. Federal steps in - I do not think in one year a person can be a full year resident of two states, but who knows??? You can have income taxed from other states.

Whatever happened with New York's 1990s try for taxing on business trips into the state. I thought it backfired when New York employees started allocating their income based on business trips they took outside the state. Now you do see W-2s with various states' withholdings based on time spent in various states because their corporation has offices in several states. I have two like that.

The USA has gotten a lot smaller - and so has the world.

[joanmcq]

The CA retirement case doesn't really apply; CA was 'pulling back' pensions simply becaue they were based on wage income earned while a resident after the taxpayers had definitely moved. This is more analogous to a CA resident moving to Reno while the family still lives in CA, he has a house in CA, and travels back to CA every weekend to see them. CA would claim he is still domiciled in CA.

With the case of employees, usually there is a de minimus rule. But if an employee works for several months in another state, a case can easily be made for taxation to the two states.

[appelman]

Epilogue

I spoke to a pleasant lady at the NY DTF today. She was absolutely certain that the husband would be considered non-resident for the year. I know this is not binding, but it is certainly suggestive. They seem to give weight to the fact that the family will be joining him in mid-year. (Obviously by 2011 tax time, my client will know whether this is really the case.) Most of the foregoing discussion on this topic has focused on the situation where the spouse remains in NY.

[Davc]

CA was 'pulling back' pensions simply becaue they were based on wage income earned while a resident after the taxpayers had definitely moved.

CA was also "pulling back" pensions because the employer historically had a presence in CA or in the case of an IRA, the trustee institution.

[JON]

I think

the CA retirement issue is on point. Federal tax court said CA was wrong. Residency establishes where the retirement is taxable. CA wanted to somehow have it taxable where you were when it was earned and paid to the retirement account. No "clawback" there. Residency establishes were W-2 income is taxed also. If it is taxable also in another state you will get a tax credit in your state of residency. If you were a resident in two states at the same time and W-2 taxable in both would you then get a tax credit in both states for taxes paid to other states. If you could you just avoided some state taxation. I do not think an individual can be a resident of two states unless you are a part year resident. I have had spouses filing as not residents of the same state. I have never had an individual be a full year resident of two states. Temporary jobs do not change residency, but can give income taxes in two states with residency giving a credit for taxes paid to other states.

[Davc]

the CA retirement issue is on point. Federal tax court said CA was wrong. Residency establishes where the retirement is taxable. CA wanted to somehow have it taxable where you were when it was earned and paid to the retirement account. No "clawback" there. Residency establishes were W-2 income is taxed also. If it is taxable also in another state you will get a tax credit in your state of residency. If you were a resident in two states at the same time and W-2 taxable in both would you then get a tax credit in both states for taxes paid to other states. If you could you just avoided some state taxation. I do not think an individual can be a resident of two states unless you are a part year resident. I have had spouses filing as not residents of the same state. I have never had an individual be a full year resident of two states. Temporary jobs do not change residency, but can give income taxes in two states with residency giving a credit for taxes paid to other states.

1. Congress and the president settled the retirement income issue with a new law.. Federal tax court doesn't decide issues of state taxes.

2. W-2 income of non-residents is not taxed the same in all states and while there is usually a credit allowed somewhere, it may be on either a resident or a non-resident return.

3. It is possible to be a resident of two states, or at least taxed as a resident of two states at the same time.

4. Since the "Other State Tax Credit" is generally based on tax liability net of credits you would be chasing your tail to determine how to prepare 2 resident returns when the credit goes on the resident state. All you can do is hope it never comes up.

[JON]

California pension

I think federal court comes into play on a lot of issues between states. I would love to hear from someone who did file an individual taxpayer as a FULL year resident of two states and the circumstances that created the situation.

[joanmcq]

Residency rules are different for states and domicile is not the same as residency. That is where NY may consider you to still be domiciled there, whereas he will definitely be considered a resident of PA.

[JG EA]

13. It is possible to be a resident of two states, or at least taxed as a resident of two states at the same time.
.

I agree except this one. It doesn't seem possible or reasonable or make sense. I know tax law doesn't.... but this seems just impossible to me. How can that possibly be?

I was always taught to do worksheets with total income and divide up the states when a person moved. It is possible to be double taxed - so there needed to be an accounting for that. But double taxed came into play with source income. Credits were done as you outlined. But to be a resident in more than one state at one time......I can't see it.

[dtlee]

I agree except this one. It doesn't seem possible or reasonable or make sense. I know tax law doesn't.... but this seems just impossible to me. How can that possibly be?

I was always taught to do worksheets with total income and divide up the states when a person moved. It is possible to be double taxed - so there needed to be an accounting for that. But double taxed came into play with source income. Credits were done as you outlined. But to be a resident in more than one state at one time......I can't see it.

I agree with Evan's assessment, but had a similar situation where the husband soon was laid off in the other state and the wife had to keep working to support the family. It got very sticky very fast.

I also agree with Davc and my earlier comment about the potential for being a resident of two states. While I tend to agree that this does not seem reasonable, I found it to be more common than I would have liked.

For example, consider this definition from New York:

You are a New York State resident for income tax purposes if your domicile is not New York State, but you maintain a permanent place of abode in New York State for more than 11 months of the year and spend 184 days or more (any part of a day is a day for this purpose) in New York State during the tax year.

Now consider this from South Carolina:

You are a SC resident, even if you have a home in another state, if (1) you think of SC as your permanent home, (2) SC is the center of your financial, social and family life, and (3) when away from home, SC is the place to which you intend to return.

It is definitely feasible for a person from South Carolina to be in New York State for a prolonged period and meet the residency definitions of both states. I have seen this quite frequently, especially when the economy is bad and workers are willing to take a job in another state for a prolonged period, renting an apartment rather than enduring the expense of a hotel or motel.

Incidentally, here is New York's definition of a permanent place of abode:

In general, a permanent place of abode is a residence (a building or structure where a person can live) you permanently maintain, whether you own it or not and usually includes a residence your husband or wife owns or leases.

[JG EA]

There still has to be more involved. If all one's financial activities were in say SC, voted in SC, yet had a second job in NY and spent that 184 days there in a second home, still that person is a resident of SC. Those statements are for considering all the facts. And I'm sure there is more in the NY code than that.
If someone lived in NY and kept their home and moved and bought another home in another state, got appropriate driver's licenses, etc. then they could no longer be a resident of NY.

I know this instance was further complicated by husband and wife doing something differently, but it is impossible to be a resident of two states. If someone is away temporarily, or hasn't fully transferred the center of his life, then his home state remains the same. However, once that transfer is complete - New state is where he lives.

[dtlee]

And I'm sure there is more in the NY code than that.

JG,

You got me. I was obviously out to deceive people and I should really apologize for implying that the sentences I quoted from the NY State publication was actually the entire NY State Tax Code. While this forum will not allow me to post the entire state code into my post, I am going to just post a relevant snippet from the NY State Tax Code here:

§ 605. General provisions and definitions.

(a) Accounting periods and methods.

(1) Accounting periods. A taxpayer's taxable year under this article shall be the same as his taxable year for federal income tax purposes.
(2) Change of accounting periods. If a taxpayer's taxable year is changed for federal income tax purposes, his taxable year for purposes of this article shall be similarly changed. If a taxable year of less than twelve months results from a change of taxable year, the New York standard deduction and the New York exemptions shall be prorated under regulations of the tax commission.
(3) Accounting methods. A taxpayer's method of accounting under this article shall be the same as his method of accounting for federal income tax purposes. In the absence of any method of accounting for federal income tax purposes, New York taxable income shall be computed under such method as in the opinion of the tax commission clearly reflects income.
(4) Change of accounting methods.

(A) If a taxpayer's method of accounting is changed for federal income tax purposes, his method of accounting for purposes of this article shall be similarly changed.
(B) If a taxpayer's method of accounting is changed, other than from an accrual to an installment method, any additional tax which results from adjustments determined to be necessary solely by reason of the change shall not be greater than if such adjustments were ratably allocated and included for the taxable year of the change and the preceding taxable years, not in excess of two, during which the taxpayer used the method of accounting from which the change is made.
(C) If a taxpayer's method of accounting is changed from an accrual to an installment method, any additional tax for the year of such change of method and for any subsequent year which is attributable to the receipt of installment payments properly accrued in a prior year, shall be reduced by the portion of tax for any prior taxable year attributable to the accrual of such installment payments, in accordance with regulations of the tax commission.

(b) Resident, nonresident and part-year resident defined.

(1) Resident individual. A resident individual means an individual:

(A) who is domiciled in this state, unless

(i) the taxpayer maintains no permanent place of abode in this state, maintains a permanent place of abode elsewhere, and spends in the aggregate not more than thirty days of the taxable year in this state, or
(ii)

(I) within any period of five hundred forty-eight consecutive days the taxpayer is present in a foreign country or countries for at least four hundred fifty days, and
(II) during the period of five hundred forty-eight consecutive days the taxpayer, the taxpayer's spouse (unless the spouse is legally separated) and the taxpayer's minor children are not present in this state for more than ninety days, and
(III) during the nonresident portion of the taxable year with or within which the period of five hundred forty-eight consecutive days begins and the nonresident portion of the taxable year with or within which the period ends, the taxpayer is present in this state for a number of days which does not exceed an amount which bears the same ratio to ninety as the number of days contained in that portion of the taxable year bears to five hundred forty-eight, or

(B) who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in this state, unless such individual is in active service in the armed forces of the United States.

(2) Nonresident individual. A nonresident individual means an individual who is not a resident or a part-year resident.
(3) Resident estate or trust. A resident estate or trust means:

(A) the estate of a decedent who at his death was domiciled in this state,
(B) a trust, or a portion of a trust, consisting of property transferred by will of a decedent who at his death was domiciled in this state, or
(C) a trust, or portion of a trust, consisting of the property of:

(i) a person domiciled in this state at the time such property was transferred to the trust, if such trust or portion of a trust was then irrevocable, or if it was then revocable and has not subsequently become irrevocable; or
(ii) a person domiciled in this state at the time such trust, or portion of a trust, became irrevocable, if it was revocable when such property was transferred to the trust but has subsequently become irrevocable.

(D)

(i) Provided, however, a resident trust is not subject to tax under this article if all of the following conditions are satisfied:

(I) all the trustees are domiciled in a state other than New York;
(II) the entire corpus of the trusts, including real and tangible property, is located outside the state of New York; and
(III) all income and gains of the trust are derived from or connected with sources outside of the state of New York, determined as if the trust were a non-resident trust.

(ii) For purposes of item (II) of clause (i) of this subparagraph, intangible property shall be located in this state if one or more of the trustees are domiciled in the state of New York.
(iii) Provided further, that for the purposes of item (I) of clause (i) of this subparagraph, a trustee which is a banking corporation as defined in subsection (a) of section fourteen hundred fifty-two of this chapter and which is domiciled outside the state of New York at the time it becomes a trustee of the trust shall be deemed to continue to be a trustee domiciled outside the state of New York notwithstanding that it thereafter otherwise becomes a trustee domiciled in the state of New York by virtue of being acquired by, or becoming an office or branch of, a corporate trustee domiciled within the state of New York.
For the purposes of the foregoing, a trust or portion of a trust is revocable if it is subject to a power, exercisable immediately or at any future time, to revest title in the person whose property constitutes such trust or portion of a trust, and a trust or portion of a trust becomes irrevocable when the possibility that such power may be exercised has been terminated.

(4) Nonresident estate or trust.

(A) A nonresident estate means an estate which is not a resident.
(B) A nonresident trust means a trust which is not a resident or part-year resident.

(5) Part-year resident individual. A part-year resident individual is an individual who is not a resident or nonresident for the entire taxable year.
(6) Part-year resident trust. A part-year resident trust is a trust which is not a resident or nonresident for the entire taxable year.

(c) Tax treatment of charitable contributions for determining domicile. Notwithstanding any other provision of any other law to the contrary, the making of a financial contribution, gift, bequest, donation or any other financial instrument or pledge in any amount or the donation or loan of any object of any value, or the volunteering, giving or donation of uncompensated time, or any combination of the foregoing, considered a charitable contribution under subsection (c) of section one hundred seventy of the internal revenue code, or to a not-for-profit organization, as defined in subdivision seven of section one hundred seventy-nine-q of the state finance law, shall not be used in any manner to determine where an individual is domiciled.

I deliberately disregarded the military provision in my prior post. I apologize to all.

[dtlee]

Here is part 1 of the associated regulations (too big to post)

* Section 105.20.* Resident individual. [Tax Law, § 605(b)(1)]Tax Law, § 605(b)(1)

(a) General. An individual may be a resident of New York State for personal income tax purposes, and taxable as a resident, even though such individual would not be deemed a resident for other purposes. As used in this Subchapter, the term resident individual includes:

(1) all persons domiciled in New York State, subject to the exceptions set forth in subdivision (b) of this section; and

(2) any individual (other than an individual in active service in the Armed Forces of the United States) who is not domiciled in New York State, but who maintains a permanent place of abode for substantially all of the taxable year (generally, the entire taxable year disregarding small portions of such year) in New York State and spends in the aggregate more than 183 days of the taxable year in New York State.

(b) Certain persons not deemed residents although domiciled in New York State. Any person domiciled in New York State is a resident for personal income tax purposes for a specific taxable year, unless for that year such person satisfies all three of the requirements in paragraph (1) or all three requirements in paragraph (2) of this subdivision:

(i) such person maintains no permanent place of abode in New York State during such year;

(ii) such person maintains a permanent place of abode outside New York State during such entire year; and

(iii) such person spends in the aggregate not more than 30 days of the taxable year in New York State; or

(i) within any period of 548 consecutive days such person is present in a foreign country or countries for at least 450 days;

(ii) during such period of 548 consecutive days such person is not present in New York State for more than 90 days and does not maintain a permanent place of abode in New York State at which such person's spouse (unless such spouse is legally separated) or minor children are present for more than 90 days; and

(iii) during the nonresident portion of the taxable year with or within which such period of 548 consecutive days begins and the nonresident portion of the taxable year with or within which such period of 548 consecutive days ends, such person is present in New York State for a number of days which does not exceed an amount which bears the same ratio to 90 as the number of days contained in such portion of the taxable year bears to 548.

As long as an individual who is domiciled in New York State continues to meet the requirements of either paragraph (1) or paragraph (2) of this subdivision, such individual will be considered a nonresident of New York State for personal income tax purposes. However, where such individual fails to meet those conditions, such individual will be subject to New York State personal income tax as a resident. Where an individual domiciled in New York State claims to be a nonresident for any taxable year (or portion thereof), the burden is upon such individual to show that such individual satisfied the requirements set forth in paragraph (1) or paragraph (2) of this subdivision.

Example: B, a single individual, is domiciled in New York State. During the period July 2, 1988 through December 31, 1989 (a period of 548 consecutive days), B was present in a foreign country 463 days.

Example: During the above period, B was present in New York State a total of 50 days, 15 days during the period July 2, 1988 through December 31, 1988, and 35 days during 1989. Since B was present in a foreign country 463 days, B meets the requirements of subparagraph (i) of paragraph (2) of this subdivision.

Example: B also meets the requirements of subparagraph (ii) of paragraph (2) of this subdivision, because the total of 50 days B was present in this State during this 548 consecutive day period is less than the maximum of 90 days allowed.

Example: To ascertain whether B meets the requirements of subparagraph (iii) of paragraph (2) of this subdivision, B must determine if the number of days present in New York State during the period July 2, 1988 through December 31, 1988 exceeds the maximum allowed for the nonresident portion of the taxable year within which the 548 consecutive day period began. The maximum number of days B may be present in New York State during the period July 2, 1988 through December 31, 1988 is 30, determined by making the following computation:

 183 (number of days in   /  548 x  =  30 (maximum number of days B may spend  
    the nonresident            90        in New York State during the period   
 portion of the taxable                  July 2, 1988 through December 31,     
         year)                           1988)

Example: Since B was present in New York State 15 days during the period July 2, 1988 through December 31, 1988, B did not exceed the maximum of 30 days allowed for this period. Therefore, B meets the requirements of subparagraph (iii) of paragraph (2) of this subdivision.

Example: Based on the information contained in this example, B meets all the requirements of paragraph (2) of this subdivision and would be considered a nonresident of New York State for income tax purposes during the period July 2, 1988 through December 31, 1989. Therefore, B would be required to file as a part-year resident of New York State for the taxable year 1988 and as a nonresident of New York State for the taxable year 1989.

(c) Rules for days within and without New York State. In counting the number of days spent within and without New York State, presence within New York State for any part of a calendar day constitutes a day spent within New York State, except that such presence within New York State may be disregarded if such presence is solely for the purpose of boarding a plane, ship, train or bus for travel to a destination outside New York State, or while traveling through New York State to a destination outside New York State. Any person domiciled outside New York State who maintains a permanent place of abode within New York State during any taxable year, and claims to be a nonresident, must keep and have available for examination by the Department of Taxation and Finance adequate records to substantiate the fact that such person did not spend more than 183 days of such taxable year within New York State.

(d) Domicile. (1) Domicile, in general, is the place which an individual intends to be such individual's permanent home - the place to which such individual intends to return whenever such individual may be absent.

(2) A domicile once established continues until the individual in question moves to a new location with the bona fide intention of making such individual's fixed and permanent home there. No change of domicile results from a removal to a new location if the intention is to remain there only for a limited time; this rule applies even though the individual may have sold or disposed of such individual's former home. The burden is upon any person asserting a change of domicile to show that the necessary intention existed. In determining an individual's intention in this regard, such individual's declarations will be given due weight, but they will not be conclusive if they are contradicted by such individual's conduct. The fact that a person registers and votes in one place is important but not necessarily conclusive, especially if the facts indicate that such individual did this merely to escape taxation.

(3) Domicile is not dependent on citizenship; that is, an immigrant who has permanently established such immigrant's home in New York State is domiciled here regardless of whether such immigrant has become a United States citizen or has applied for citizenship. However, a United States citizen will not ordinarily be deemed to have changed such citizen's domicile by going to a foreign country unless it is clearly shown that such citizen intends to remain there permanently. For example, a United States citizen domiciled in New York State who goes abroad because of an assignment by such citizen's employer or for study, research or recreation, does not lose such citizen's New York State domicile unless it is clearly shown that such citizen intends to remain abroad permanently and not to return. (See subdivision (b) of this section for certain persons not deemed residents of New York State for a specific taxable year although domiciled in New York State.)