Wow -- Government Overreach of the Week

Via Megan McArdle

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.

"People will think twice about spending any summer time in New York," says Robert Willens, a New York-based tax consultant. "The amount of tax they could be subjected to is likely to outweigh the benefit."...

Judge Joseph Pinto, a New York administrative law judge, made the novel ruling in a 2009 case that was affirmed last month on appeal by the New York state tax appeals tribunal. Mr. Pinto seized on what is meant by a permanent residence, which is the benchmark for whether all, or just the in-state portion, of an individual's income is subject to New York state tax.

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.

I didn't really need a reason to not buy a home in the Hamptons, but just in case I were tempted, this would pretty much kill any such desire.  This, however, strikes me as one of those games (like trade wars) that New York has not thought out well before starting.  My admittedly uneducated guess from knowing some New Yorkers is that more New Yorkers own 2nd homes in Connecticut than vice versa.  If New York state is going to lose a tit for tat tax war if this is the case.

21 Comments

  1. DrTorch:

    Seems like this is a legit case for the federal court system. I get sickened by these types of decisions.

  2. morganovich:

    shift your home to being owned by a corporation, and you can likely get out of this.

    make it a "home rental business" that loses money and you could get a NOL... do it as a time share and then never sell the other shares.

    it strikes me as impossible that this will be allowed to stand. this is even more draconian that the US taxing global income as the folks from Connecticut are not even new york citizens.

    this is like the US income taxing a frenchman who visits new york.

    oh wait, they do. it's called US personhood. if you spend more than 180 weighted days in the US (this year counts 1:1, last year 1:3, prior year 1:6 so it works out to something like 110 days a year on a rolling basis)

    that means that if a french student goes to college in the US, he is technically liable for inheritance tax on his entire parents estate should they die or on all income from his french trust fund should he have one.

    looks like new york is just learning from the feds, but at least the feds require you to actually be there as opposed to just owning property.

  3. delurking:

    Wait, I lived in a rented house for years. It was my permanent residence. So, if I rent a home in the Hamptons for, say, a few weeks a year...

  4. NL:

    It's just an ALJ, pretty low rung of the judicial ladder. At the federal level ALJs are considered executive branch employees. They don't need to be confirmed by the Senate. Not sure about NY state ALJs, but I assume this is just an initial trier of fact for the state taxing agency. Still opportunities for superior courts to correct this.

    Just on its face, it's pretty ridiculous (at least as described by the article):

    "Under the ruling, if an owner doesn’t spend a single a day in a home it could still count toward a permanent residence."

    Even if the courts don't fix it, state legislators hopefully will. Congress holds back a lot of its taxing power, even when courts expand it.

  5. Steven:

    This is much more complicated than it is written. My understanding is that Ct residents who work in NYC pay NYS tax under a tax treaty between the NYS tax and take it as a credit on their CT taxes and the states work out the split on their own. Since NYS taxes are higher, he pays no additional (but would if working in CT and living in NYS) The guy is already paying NYS taxes by working in NYS I don't see how this changes anything. There has to be something specific and unusual in this case.

  6. GoneWithTheWind:

    If two states can declare you a legal resident and two states can tax you as a legal resident wouldn't that imply you could legally vote in both states as well?

  7. Dr. T:

    Judge Pinto misinterpreted the law. Permanent residence means exactly that: the person lives in the state permanently and lives out of the state temporarily. Owning property in NY, even if the property is inhabitable year-round, does not confer residency. If the owners of that Long Island vacation home have children who want to attend one of the SUNY schools, they would have to pay the much higher out-of-state tuition because the vacation home does not confer NY state residency.

    @Steven: This is not a city income tax issue; it is a state income tax issue. Working in NYC has nothing to do with the case.

  8. Fred:

    Wait until the politicians in California and Arizona hear about this . . . . they'll think they found the Mother Load

  9. Not Sure:

    My brother's wife is from New York (doesn't live there now- she's in another state) and I stayed at their house for about three weeks total last year. Do you suppose NY will be coming after me for anything?

  10. Zero Wing Executive Branch, NY State Offices:

    .


    ================================================
    All your $$$s are belong to us.
    ================================================

    .

  11. LoFlyer:

    I find it interesting that democrats can twist the law any way the wish. Rham Emanual hasn't lived in Chicago for years, and is allowed to run for election as Chicago mayor. Vacationers in NY state are taxed as full time residents. The twisted logic and changing laws of democrats is self-serving and against American ideals. Instead of rule by law we have rule by man. If this is the best the democrats can do then screw them. This is not "progressive politics", this is totally regressive.

  12. caseyboy:

    Not so sure its safe to drive through NY. Wouldn't that potentially make you liable for sales/use tax on the car?

    Ten years ago I might have said, I'd be amazed if a state or Federal court let a decision like this stand, Today, I'm not sure. I'm not sure what the law is anymore when a state can take away private property to give over to someone else for a private purpose. Didn't see that one coming. Keep an eye out for another looming decision, can a person be penalized for not participating in commerce? If so then the wheels are off the wagon.

  13. me:

    @LoFlyer

    At the risk of riding one of my pet peeves: It's not "democrats" that bend the law any way they wish (implying that republicans would never do so or plain couldn't). It's politicians (democrats and republicans) vs the rest of us, and the way they get the masses to sign off on that is pointing to "the other tribe" and their awful behavior. One of the things politicians really don't like is rule by law - ideally, they want laws that apply to everyone else, but not to them and their friends. Where do you think the State Secrets doctrine came from? (latest example: http://www.ndtv.com/article/world/former-cia-agent-tells-a-horror-story-84785)

  14. John David Galt:

    It's lawyers. Laws written by honest people would not be readable more than one way.

    This finding will certainly be overturned, anyhow.

  15. Bitter Clinger:

    Nonsense like this prompted me to get the flock out of there in 1986 when the getting was good.

  16. Smokey:

    A U.K. citizen made this comment at Samizdata 4 years ago. Things have only gotten worse since then:

    "Imagine telling somebody twenty years ago that by 2007, it would be illegal to smoke in a pub or bus shelter or your own vehicle, or that there would be £80 fines for dropping cigarette butts, or that the words 'tequila slammer' would be illegal, or the government would mandate what angle a drinker's head in an advertisement may be tipped at, or that it would be illegal to criticise religions or homosexuality, or rewire your own house, or that having sex after a few drinks would be classed as rape, or that the State would be confiscating children for being overweight. Imagine telling them the government would be contemplating ration cards for fuel and even foods, that every citizen would be required to carry an ID card filled with private information which could be withdrawn at the state's whim. They'd have thought you a paranoid loon."

  17. Nicky:

    I see the plumbers being extra busy in the Hamptons this year. Taking the boilers out of the "cottages". No heating system equals summer camp. I will note that the gentleman works in NYC and spends more than 183 days of the year in NY. It has nothing to do with residence. Only in New York.

  18. Teri Pittman:

    The state of Oregon used to tax the spouse's income if one partner worked in Oregon. There was a public drive to change the law. It's a bit difficult to do if you don't live in the state. I am taxed on income earned in Oregon, but they also seem to want to tax my early withdrawal 401k funds too. It's a lot to pay to a state that I draw no services from.

  19. IgotBupkis, President, United Anarchist Society:

    > They’d have thought you a paranoid loon.

    Indeed. "Seig Heil!"

  20. josh:

    Smokey, I like your comment but I am glad people get fined for dropping their cigarette butts. Who better to pay for trash getting picked up than the person throwing it on the ground?

  21. IgotBupkis, President, United Anarchist Society:

    > It’s a lot to pay to a state that I draw no services from.

    What, you thought you were PAYING for something with those taxes?

    Get with the program!

    You aren't PAYING taxes -- you're being allowed to keep what you aren't giving them in taxes.

    Obama himself has stated it that way, though obliquely.

    "Being allowed to keep money" is not the same thing at all.