A decision was recently handed down from the New York State Court of Appeals Third Judicial Department that was unexpected for many, and a potential game changer for people formerly held to be statutory residents of New York State or New York City.

Nelson Obus’ vacation home in the Adirondacks was determined not to be a permanent place of abode. This decision can also change the way that a permanent place of abode is defined for all taxpayers. New York State has filed an appeal.

The case was Matter of Nelson Obus v. New York State Tax Appeals Tribunal, decided June 30, 2020. It falls under the category of Statutory Residency, and more specifically: What is a permanent place of abode?

A person can be a resident of New York State in either one of two ways:

1. You can be domiciled in New York.

You are domiciled in New York if it is your primary residence—your fixed and permanent home. You can have more than one residence, but you can only have one domicile. Auditors will examine several factors as well as your “habits of life,” or lifestyle, to determine your true domicile.

2. You can be a Statutory Resident of New York.

Unlike “domicile,” statutory residency is based more on facts rather than an analysis of lifestyle.

a. Do you have a permanent place of abode in New York State? If “yes,” see b.

b. During the year in question, are you present in New York State for more than 183 days?

In the Obus case, the primary issue was item a: “permanent place of abode.”

A permanent place of abode is any house or apartment or other residence that you own, rent or have unfettered access to. This can include the home of a friend or relative who allows you to use that residence as your own. Unfettered access generally means that you would have a key and you don’t have to ask permission to enter (24/7 unlimited access). If it is a permanent place of abode, you would also generally keep some personal items there. As determined in the well-known Gaied case, you would also have to have a “residential interest.” That term wasn’t clearly defined, but it is understood to mean that no matter how infrequently you use the abode, you have to use it as your residence— distinguished, for example, from a landlord that also would have a key.

An exception to the permanent place of abode rule is the vacation home rule.

According to NYS audit guidelines citing the regulation in 20 NYCRR 105.20(e)(1), For a dwelling to be permanent, it must be suitable for year-round use. Thus, “a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode.”

The determination of whether an abode was suitable for year-round use has been defined by NYS as being heated and having cooking and bathing facilities. Considering the statement “which is suitable and used only for vacations” the focus was on the word “suitable,” not on how it was used. Therefore, if it was used only for vacations, but it was suitable for year-round use; because it had heat, cooking and bathing facilities, it was considered to be a permanent place of abode. An example would be the Barker case where a residence in the Hamptons was used by the Barkers for two to three weeks during the summer only, but was deemed to be a permanent place of abode because it was suitable for year-round use. When it was used, it was used as a residence.

This brings us to the matter at hand. Mr. Obus was domiciled in New Jersey and commuted to New York City where he worked. He owned a vacation home in the Adirondacks, more than 200 miles (a four-hour drive) from the city. Similar to the Barkers, Mr. Obus only used the residence for a couple of weeks during the year—about one week in the summer and one week in the winter. There is also a Mrs. Obus, but she has rarely been to this house; it is a five-bedroom, three-bathroom home, with year-round climate control. Based on standards previously applied by New York State audit division and the NYS Tax Tribunal, the Adirondacks home was a permanent place of abode for Mr. Obus because it was suitable for year-round use. New York State found him to be a statutory resident because he spent more than 183 days in New York State. Almost all of these days were spent in New York City for work purposes, not in the Adirondacks, but the days count regardless of wherever in New York State he was.

At the NYS Tax Tribunal, it was determined that the Obuses had the right to reside in and maintain living arrangements at the Adirondacks home; they exercised that right, albeit sparingly, during the years at issue.

Essentially, this statute "fulfils the significant function of taxing individuals who are really and for all intents and purposes residents of the state but have maintained a voting residence elsewhere and insist on paying taxes to [New York] as nonresidents." (Matter of Gaied v New York State Tax Appeals Trib., 22 NY3d at 597. [internal quotation marks, brackets, ellipsis and citation omitted]).

Primary to the decision in this case, The Court of Appeals has explained that the legislative intent of the statutory resident rule is to discourage tax evasion by residents of this state. “Essentially, this statute fulfills the significant function of taxing individuals who are really and for all intents and purposes residents of the state but have maintained a voting residence elsewhere and insist on paying taxes to [New York] as nonresidents.” The court also stated that the reference in the regulations to a mere camp or cottage is just one example which would not constitute a permanent place of abode. It did not define all vacation homes.

We all have heard of many cases where someone works in New York City and has a city apartment that they use often, and also has a home outside the city (i.e., New Jersey) that is claimed to be the domicile. The above law applies to these people as does the statement: for all intents and purposes are residents of New York State. Without having to argue the nuances of “domicile,” the statutory resident rule applies, as it should.

Another point that the court made was that the Obuses did not keep personal effects at the house; they would bring what they need for vacation visits. This was one of the factors considered in Evans; however, the Obuses certainly could have kept things at this home if they wanted to because they owned it.

The court emphasized the requirement that the taxpayer must utilize the dwelling as his or her residence. “Maintaining a dwelling that could be a permanent place of abode is not enough to establish status as a statutory resident. To properly determine the taxpayers' residential interest, it is imperative to consider a variety of factors, including the nature and duration of the use” (see Matter of Evans v Tax Appeals Trib. of State of N.Y., 199 AD2d 840, 842 [1993]; NY St Dept of Taxation & Fin Advisory Op No. TSB-A-18[3]I). The key point is that the court felt that the Obuses did not utilize this house in a manner which “demonstrates that they had a residential interest in the property.”

Please note that although the above mentions “duration of use,” citing Evans, the context that duration was used in that case was length of time (12 years), not amount of time in a given year, so this decision is a clear departure from previous decisions.

The court found with a unanimous vote of five to zero that the residence was a vacation home, and not a Permanent Place of Abode. Quite convincing.

We can clearly learn from this decision that five important factors in this decision were:

1. The Obuses did not have a residential interest because they did not use the home as a residence.

2. The home was used only for vacations, and on a very limited basis.

3. The home was very far and had no relation to Mr. Obus’ work in New York City.

4. The Obuses did not keep personal items at the home.

5. The law was not intended to trap people like the Obuses, as they do not fall into the category of “for all intents and purposes are residents of the state but have maintained a voting residence elsewhere.”

Because there was a unanimous decision in favor of the taxpayer, there is no requirement to allow an appeal to New York State; however, New York State did appeal, which can be considered.

If this ruling stands, not only will vacation homes in rural areas be viewed differently, but every statutory resident case where there is limited use of a New York State residence, may be viewed with the consideration of whether the residence is utilized in a manner that demonstrates a residential interest -under these new standards- and, are the taxpayers for all intents and purposes residents of the state but maintaining a voting residence elsewhere. Stay tuned.