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Vacation Home Not a Permanent Place of Abode for New York's Statutory Residence Rule

If you do not live in New York but have been considering a vacation home in the Empire State, you stand to benefit from the opinion in Obus v. New York State Tax Appeals Tribunal. Over the summer, a unanimous panel of justices of the Appellate Division of the New York Supreme Court delivered a taxpayer friendly ruling declaring that a vacation home in New York is not automatically deemed a “permanent place of abode” for purposes of New York’s income tax residency rules and that the facts and circumstances surrounding the vacation home’s use must be analyzed when applying New York’s statutory resident test. 

Determination of NY Resident Status

Under New York law, an individual can be deemed a New York resident in two ways:  

  • Domicile Test: The individual is domiciled in New York—that is, treats New York as the individual’s permanent or “true” home. 
  • Statutory Resident Test: The individual is domiciled outside of New York but (a) maintains a “permanent place of abode” in New York and (b) spends more than 183 days of the year in New York. New York has traditionally maintained that a permanent place of abode is a residence or dwelling maintained by an individual that is suitable for year-round use. It does not matter if the individual owns or rents the home, and New York regulations have provided an explicit exception only for “a mere camp or cottage” for vacation use. Historically, this exception has not prevented New York from treating most vacation homes as permanent places of abode based solely on their physical characteristics.

Application to the Obus Case

Enter the taxpayers, Nelson Obus and his wife, Eve Coulson. Obus was a domiciliary of New Jersey but commuted daily to New York City for work. In 2011, the couple purchased a five-bedroom, three-bathroom vacation home in Northville, New York, some 200 miles north of New York City. The home had year-round climate control, and the taxpayers paid for all of the expenses for the property. Obus used the home for two to three weeks per year, primarily to partake in cross-country skiing or to visit the Saratoga race track in the summer. The home also included an attached apartment, which was occupied by a tenant whom Obus would always notify prior to his visits. Coulson used the home with even less frequency, having visited the home only twice after purchase. 

For the years 2012 and 2013, the taxpayers filed joint nonresident income tax returns in New York, taking the position that they did not maintain living quarters in New York. These returns were audited and, in 2016, the New York Department of Taxation and Finance determined that the vacation home was a permanent place of abode, resulting in the classification of the taxpayers as New York statutory residents. The NYS Tax Department came to this conclusion as a result of the taxpayers having had the right to reside and maintain living arrangements in the Northville home with free and continuous access, determining that the taxpayers’ infrequent use of the home was of no consequence. Accordingly, the NYS Tax Department issued a notice of deficiency, asserting an additional $526,868 of income tax, plus interest and penalties. The taxpayers sought a review with the NYS Division of Tax Appeals, but the review was denied, and they subsequently appealed to the Appellate Division.

Given Obus’s daily commute, there was no question that he had spent 183 days in New York, satisfying the day-count prong of the statutory resident test. The sole issue for the Appellate Division was whether the home in Northville was properly classified as a “permanent place of abode” for purposes of determining statutory residency. The Appellate Division disagreed with the lower court and explained that for a vacation home to be treated as a permanent place of abode, the taxpayer must have a “residential interest” in the home by actually using the dwelling as a residence. Simply maintaining a vacation home that could potentially be classified as permanent place of abode does not make it so. The Appellate Division conceded that the Northville home was indeed much larger than a mere camp or cottage but determined that free and continuous access to the home was insufficient to categorize the home as a permanent place of abode. Not only did Obus use the home for only a few weeks per year, he could not possibly use the home to commute to his job in New York City as it was more than four hours away. Moreover, Obus regularly informed the apartment tenant when he would be visiting, and he did not keep personal effects at the home, choosing instead to bring with him what he needed on his visits. The Appellate Division concluded that, as Obus had not used the vacation home in a manner demonstrating a residential interest, he had not, in fact, maintained a permanent place of abode in New York. He therefore did not satisfy both components of the statutory resident test.

With the Obus ruling, a vacation home in New York no longer automatically qualifies as a permanent place of abode for purposes of the statutory resident test. Rather, this determination will require a closer fact-specific inquiry as to whether a taxpayer has a residential interest in the vacation home. At the very least, for now, it appears that a vacation home that is infrequently used, inconvenient for commuting and not otherwise used to store personal effects is not a permanent place of abode. While additional guidance would be desirable and may come in the future, in the interim, caution is still required when determining usage of a vacation home. A Manhattan pied-à-terre, for example, will not escape classification as a permanent place of abode if the taxpayer uses it regularly to commute to the office. And it is not clear how many visits to a “cozy cottage” in the Catskills will transform it from a mere cottage into a permanent place of abode. That said, Obus provides some direction for individuals in structuring the ownership and use of New York vacation homes while minimizing their potential classification as New York statutory residents.