Anyone with a “permanent place of abode” in New York is required by law to pay income taxes to the state — and to New York City, as well, if the “abode” is there. But if you’re an out-of-state resident who sets up and maintains a rent-free home for your parents in New York, does that make you a New York resident, too?
The state Tax Tribunal said “yes” — and ordered John Gaied, the owner of a Staten Island auto repair shop, to pay $253,062 in back taxes for a three-year period in which Gaied said his home was actually in New Jersey.
Yesterday, however, the Court of Appeals unanimously overturned that decision.
The background: in 1999, Gaied purchased a small apartment building in the same neighborhood as his repair shop. As the court noted, “his motivation for acquiring the building was two-fold: as a place for his elderly parents to live [rent free] and as an investment property.”
Gaied had a key to his parents’ apartment, visited regularly, and paid for all their utilities under his name. He didn’t have his own bed or a room in the building, but slept over occasionally on the couch when his parents needed him. He also voted in New York and filed a “head of household” income tax return claiming his parents as dependents. And since he made his living in New York, he filed non-resident tax returns with Albany. Through 2003, Gaied said his own home was 28 miles away, in New Jersey. At the end of 2003, Gaied sold his New Jersey house and moved to Staten Island—but based on an audit, the state Department of Taxation and Finance dunned him for taxes it said he owed for 1999 2001-2003.
The Tax Tribunal initially ruled in Gaied’s favor a few years ago, but the department successfully sought to reargue the case, after which it was decided against Gaied. As the Wall Street Journalreported at the time:
New York tax authorities have identified a potentially lucrative source of income: out-of-state residents who buy New York homes for their relatives.
Not so fast, the Court of Appeals has now said: “We agree with [Gaied] and hold that in order for an individual to qualify as a statutory resident, there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.”
Or, to put it another way, a house (or apartment) is not a home unless you actually live there.