New York State Tax Ruling

Connecticut and New Jersey residents with a Hamptons summer cottage or a Manhattan pied-a-terre are about to get a nasty surprise: New York state wants more taxes from them.

A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year. They have been hit with an additional tax bill of $1.06 million.

Tax experts and real estate brokers say this ruling could boost the tax bill for thousands of business executives who own New York City apartments they use only occasionally. It could also hurt sales in the Hamptons and New York’s other vacation-home communities.

http://www.antiquesgalleryofsarasota.com/

A little digging reveals that the Barkers (the couple in the subject case) weren’t the first to get smacked with this ruling:

July 01, 1999

Madonna has filed a $2.5 million malpractice lawsuit against her former financial planners, whom she blames for causing her to pay higher state income taxes.

The suit, filed Tuesday in Manhattan’s State Supreme Court, also charges Padell, Nadell, Fine, Weinberger & Co., and the firm’s partners and associates, with breach of contract and fiduciary duties.

Bert Padell, the firm’s senior partner, said the lawsuit stems from Madonna’s having to pay $2 million in New York State income taxes after he prepared a 1992 tax filing saying she was a California resident.

Padell said New York had a higher tax rate than California, and its residents’ total income was taxed, even the part that was earned somewhere else.

“The state came in and said she was a New York State resident because she lived here more than 183 days” in that tax year, making her subject to New York’s income taxes, Padell said.

Yes, the determinative factors include the fact that 1) 183 or more are spent in NY (he works here) and 2)they own a home that’s suitable for year round living. It matters not that they don’t actually live in it year round – just that it’s habitable year round. They tried to carve out an exception saying that the cramped space therein isn’t suitable for their particular family (two adults, three kids) for more than a few vacation days at a time, but it was wisely (IMO) rejected. That would be like the Octo-mom saying my 1br apt doesn’t qualify as a suitable year round residence just cause she and her kids can’t comfortably fit in it for more than a few short stretches. If you read the statute carefully, intent of the buyer was never to be taken into consideration, thus it correctly meant nothing to the ALJ and appeals panel that the purchasers never intended to use the home as a permanent residence. This is one of the many examples of how the law can be, in its absolute application, kind of stupid and have effects never likely intended.

Within the story are two conflicting statements:

The new ruling applies only to people who spend more than 183 days in New York, which would include many out-of-state commuters to the city.

and

Mr. Pinto ruled that the couple’s Long Island vacation home qualifies under the law as a permanent abode because it was suitable for living year-round—whether or not the couple actually stayed in the home wasn’t relevant. Under the ruling, if an owner doesn’t spend a single a day in a home it could still count toward a permanent residence.

Question to any tax experts in the house, can the couple who is the subject of this case go back and amend their 2002-2004 CT tax returns to get a break on those or is it too late? I believe that most states have a provision whereby you won’t/can’t be taxed on the income if you paid the income tax in another state for the same time period. Or am I wrong about that?