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Brian Gordon, CPA, is the Director of State and Local Taxes at Sanders Thaler Viola & Katz, LLP. Previously, Brian was with the NYS Department of Taxation and Finance as the District Audit Manager in Manhattan and Brooklyn. He is a member of the NYSSCPA New York, Multistate & Local Taxation Committee and writes and speaks on various tax issues. He can be reached at 516-704-7130 or 516-510-6041 and email: bgordon@st-cpas.com.

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New residency case: Matter of Sobotka, or can you be a part-year statutory resident?

By Brian Gordon

An important matter was addressed in a recent New York tax hearing in front of an Administrative Law Judge (ALJ). The issue being: Can someone be domiciled in New York for part of a year, and be a statutory resident for the other part of the year?

For a quick recap on residency, someone is domiciled in New York if their primary residence is in New York. A statutory resident is someone that is not domiciled in New York, but has a residence in New York and spends more than 183 days in New York during the year.

Mr. Sobotka became domiciled in New York State on August 18th 2008.

The taxpayer’s attorney was seeking summary determination on one primary issue: Since Mr. Sobotka was domiciled for part of the year, by definition he cannot be a statutory resident because a statutory resident is defined as someone who is not domiciled in New York.

The test for statutory residence has traditionally been looked at by the Tax Department on a full year basis regardless of whether the taxpayer was domiciled for part of the year. The taxpayer’s attorney makes the point that this is inconsistent with the law that says “Not Domiciled”.

The ALJ did not exclude the possibility of part-year domicile and part-year statutory residence, but he did say that the state is wrong to count all of the days in the year to determine the test of over 183 days in New York. He said that they could only count the days in the period that the taxpayer was not domiciled in accordance with the statutory residence rules. Therefore, the only way Mr. Sobotka could be a statutory resident for the not-domiciled period (January 1 to August 17) would be if he spent over 183 days in New York during that part-year period. Summary judgment was denied as evidence of day count was not submitted.

The ALJ himself pointed out that the result is flawed. The flaw being that if the not-domiciled period is shorter than six months (a period less than 183 days), then it is not possible to have over 183 days in New York in that part-year period. The flaw did not affect the ALJ’s decision, as he mentioned that the state may look to the legislature for a law change.

It is important to note, that this is one ALJ’s decision, and affects only this case. It is not precedent setting and does not become the new law. However, this ruling is very favorable to taxpayers, and we should be encouraged going forward. I agree with this ALJ that the days in New York during the domiciled period should not be counted for the not-domiciled period, and for years I have brought this issue to the attention of the Tax Department. Regarding the flaw mentioned by the ALJ above, an equitable result for future consideration would be to prorate the 183 day rule for the not-domiciled period. The state actually has a similar proration rule within their “548 day” residency law for time spent abroad. By making that amendment, the result would be more beneficial to taxpayers than the state’s current position, and would be equitable for both sides.

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