It’s not at all unusual to encounter the owner of a New York business who dreams about leaving the State. The reasons often given for the desired move include, among others, the cost of doing business in New York, the State’s over-regulation of business and, probably most of all, its hostile tax environment.[i]
Lately, however, many more New Yorkers are talking about leaving the State. When you ask them why, they’ll recite a litany of familiar reasons, including those mentioned above. Generally, they seem sincere when they tell you they’re committed to doing whatever it takes to make a new home elsewhere.[ii] That is until you explain that “whatever it takes”[iii] requires (i) a lot of patience which, it turns out, many of these individuals do not have, (ii) a lot of effort, which they are unwilling to invest, and (iii) some sacrifice, which . . . well, forget about that.
A recent decision of New York’s Tax Appeals Tribunal[iv] illustrates one couple’s attempt at leaving the State. The Taxpayers (Husband and Wife) implemented many of the steps that must typically be taken to establish a change of domicile away from New York. Unfortunately for them, they were premature in thinking they had succeeded in doing so. Their missteps may serve as a lesson for others who genuinely aspire to one day describe themselves as “former New Yorkers.”[v]
The Tax Returns
Prior to the years at issue, Taxpayers filed New York State income tax returns as residents of New York.
For 2018, however, Taxpayers filed form IT-203, New York State nonresident and part-year resident income tax return, on which they reported a permanent home address in Florida, and identified (as a part-year resident) the New York county in which they previously made their home.[vi] Taxpayers reported they were part-year residents, and that they moved out of New York in late October of 2018.[vii]
Taxpayers filed form IT-203 for 2019 on which they reported the same Florida permanent home address and the same New York county of residence. Taxpayers reported they were nonresidents and maintained living quarters in New York during 2019.[viii]
Taxpayers reported New York source rental income for the years at issue from two real properties located in New York.
The Exam Process
In August 2020, the Division commenced an audit of Taxpayers’ 2018 and 2019 New York income tax returns.
Based on information obtained during the audit, the Division determined that Taxpayers remained domiciled in New York during the years under exam and issued a notice of deficiency asserting additional tax plus penalties and interest for each year.
Taxpayers requested a conciliation conference with the Bureau of Conciliation and Mediation Services (BCMS) to protest the notice. BCMS issued a conciliation order sustaining the amount of tax determined due by the Division.
In 2022, Taxpayers filed a petition with the Division of Tax Appeals in protest of the conciliation order.
The DTA’s Findings
During the formal hearing held before an ALJ, Taxpayers and the Division had the opportunity to elaborate upon those facts they believed were relevant to the question of domicile.
Stated Intent
Taxpayers explained that they planned to use their New York lakefront residence (purchased in 2011) as their “main property until there was a time that [Husband] could step away from work[.]” They testified that this residence was their primary residence at the time they purchased their home in Florida (in 2014).
Taxpayers also testified that in 2016 and 2017, they started talking about eventually moving their primary residence to Florida, and “it was really 2018 before we could, our lives were such that we could really make that permanent move.”
The Residences
Taxpayers continued to own and maintain their New York residence during, and after, the years at issue.[ix]
In 2014 – four years prior to the period in question – Taxpayers acquired a condominium in Florida for $935,000.00. The condo was slightly larger than Taxpayers’ New York residence, and the common areas included various amenities.
Taxpayers executed a mortgage for their purchase of the condo, to which a “second home” rider was attached, stating Taxpayers would only use the condo as their second home.
Taxpayers made some significant improvements to the condo after its purchase, at a cost of more than $200,000.[x]
Personal Items
Taxpayers did not move their furniture from New York to the Florida condo. Instead, they furnished the condo with furniture from stores in Florida.
However, Taxpayers moved their ski equipment (water skis?[xi]) – and Waterford crystal[xii] from the New York residence to the Florida condo.
Taxpayers testified that after they purchased the condo, they began spending more time there every year.
Time Spent
Based on a review of Taxpayers’ Verizon statements (obtained during the audit), the Division determined that Taxpayers spent more days in New York than in Florida during each of the years at issue.[xiii]
Moreover, for the years at issue, the Division determined that Taxpayers spent most of their time in Florida during the winter months, and most of their time in New York during the summer months.[xiv]
Taxpayers spent the Christmas holiday in New York during the years at issue. They spent Thanksgiving in New York in 2018, and in Florida in 2019.[xv]
The time Taxpayers spent in New York was due, in part, to Husband’s business activities.
Husband’s Business
In 2018 and 2019, Husband was the president and sole shareholder a corporation (the “Business”) located in New York. He acquired the Business approximately 30 years prior to the years at issue.
According to Husband, his only role in the Business was limited to sales; he stated he was not involved with the day-to-day operations. Husband further stated that “[w]hether I reside in New York for the summer or Florida for a majority of the non-summer months, my role with the company remains in sales on a part time basis.”
Taxpayers’ 2018 and 2019 federal forms 1040, U.S. Individual Income Tax Return, reported Husband’s occupation as “MGR/Salesman.”
Husband received wage income from Business in 2017, 2018 and 2019. The 2017 and 2018 IRS forms W-2, wage and tax statements he received from the Business reflected his address in New York. The 2019 form W-2 reflected his address in Florida. The forms W-2 showed that Husband received wages from the Business that decreased over time.[xvi]
Stepping Away
According to Husband, Taxpayers’ transition to Florida was part of his retirement plan; Taxpayers wanted to maximize their time in Florida and Husband wanted to slow down at work and come up with an “exit strategy” from the Business by either turning it over to others or selling it.
Husband’s “plan A” exit strategy was to transfer the business to his son. Although he prepared an initial outline for implementing this plan, it was dropped in 2018.
Husband then moved on to “plan B” of his exit strategy, which was to diminish his role in the Business and transfer responsibilities to others in the company.
As part of plan B, Husband transferred many of his responsibilities to Business’s General Manager (“GM”), including responsibility for many of Husband’s previous customers.[xvii]
Management of the Business’s inside sales team was transferred to GM, though Husband also delegated certain major customer sales accounts to others at the Business during the transition process, and transferred oversight of the Business’s overseas factory to another key employee.
Comptroller was hired in July 2019 to support GM in his general manager role (as part of the transition from Husband), especially regarding the finances of the Business.[xviii]
Husband testified that, in 2018, when he was in New York, he would go into Business’s office “most every day.” By contrast, Husband testified that he initiated “probably zero” meetings in 2019 and, when he was in Florida, he would seldom make telephone calls to people from the Business.[xix]
However, an account manager at the Business testified that Husband remained involved in 2018, but his interactions with Husband in 2019 were limited.
A Sale
During the time he was transitioning responsibilities in the Business to others, Husband also began pursuing “plan C,” which was to investigate opportunities to sell the Business to third parties.
In late 2019, Husband received an unsolicited communication from, and met with, a prospective buyer for the Business. Notwithstanding their discussions went nowhere, it was noteworthy that Taxpayer signed an NDA in early 2020 as “President” of the Business.
Husband ultimately succeeded in selling the Business to another suitor after the years at issue, in late 2021.[xx] As part of this deal, Husband agreed to remain with the Business for two years to assist with transitioning operations to the buyer. According to Husband, his responsibilities and participation in the Business did not increase because of the acquisition.
Other Indicia
Taxpayers reported the Florida condo as their home address on their 2018 and 2019 federal tax returns, and signed Florida Declarations of Domicile in 2018, declaring they were domiciled in Florida.
They registered to vote in Florida, obtained Florida drivers’ licenses, registered vehicles in Florida, and obtained a Florida hunting and fishing license. Oddly, the evidence Taxpayers offered as to each of these items was for a year after those at issue.
In 2019, Taxpayers executed revocable trusts that listed their Florida address and were administered, construed, and governed by the laws of Florida. They each also executed a new Last Will and Testament subject to Florida’s estate laws.
Taxpayers continued to be members of two country clubs in New York. Although they testified that they changed their status at one of these, as a result of which they gave up certain rights, it appeared from the testimony of others that the change was made after the year at issue.
Taxpayers joined a country club in Florida in late 2018. They also became involved with the condo association board during the years at issue: Husband chaired the association’s finance committee, and Wife was the secretary of the board of directors and chair of the association’s social and covenants committees.
Taxpayers testified that they established checking accounts with Florida banks and closed their New York accounts. Unfortunately, they did not provide documentary evidence of Florida bank accounts, and their 2018 and 2019 federal income tax returns showed interest from a New York bank.
Similarly, they claimed to have “opened a safety deposit box in Florida and to have closed their safety deposit box in New York but provided no documentary evidence in support of either.
Taxpayers’ form 1099 composite from their Charles Schwab brokerage account, dated February 2019, listed their Florida address.
Taxpayers used New York accountants during the years at issue, and they used attorneys admitted to practice in both New York and Florida during the years at issue.
Taxpayers had medical care providers in New York and Florida and obtained medical care in both States during the years at issue.
The ALJ’s Decision
Based on the foregoing, the ALJ determined that, although Taxpayers intended to change their domicile to Florida at some point, they failed to establish that they had done so as of late 2018. Accordingly, the ALJ concluded that Taxpayers remained domiciled in New York for the years at issue.
Taxpayers timely appealed the ALJ’s decision to the Tax Appeals Tribunal (the “Tribunal”).
The Tribunal
The Tribunal stated that a taxpayer claiming a change of domicile is obligated to prove it by “clear and convincing evidence.”
The location that an individual taxpayer considers to be their domicile, the Tribunal explained, is a question of subjective intent.[xxi] Proof of that intent, the Tribunal added, is derived from “the examination of objective criteria and other verifiable information” – specific facts – that “clearly manifest the individual’s intention to permanently establish a new domicile at a specific point in time.”
The Court then turned to the governing statute,[xxii] which defines a New York resident individual for income tax purposes as someone:
“(A) who is domiciled in this state, . . ., or (B) who maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in this state, whether or not domiciled in this state for any portion of the taxable year, . . .”
Though the term “domicile” is not set forth in statute, the Division’s regulations define “domicile,” in relevant part, as follows:
“(1) Domicile, in general, is the place which an individual intends to be such individual’s permanent home – the place to which such individual intends to return whenever such individual may be absent. (2) A domicile once established continues until the individual in question moves to a new location with the bona fide intention of making such individual’s fixed and permanent home there. No change of domicile results from a removal to a new location if the intention is to remain there only for a limited time; this rule applies even though the individual may have sold or disposed of such individual’s former home. The burden is upon any person asserting a change of domicile to show that the necessary intention existed. In determining an individual’s intention in this regard, such individual’s declarations will be given due weight, but they will not be conclusive if they are contradicted by such individual’s conduct. The fact that a person registers and votes in one place is important but not necessarily conclusive, especially if the facts indicate that such individual did this merely to escape taxation . . . . (4) A person can have only one domicile. If a person has two or more homes, such person’s domicile is the one which such person regards and uses as such person’s permanent home. In determining such person’s intentions in this matter, the length of time customarily spent at each location is important but not necessarily conclusive . . .”
Establishing a new domicile, the Tribunal continued, is only effected when a taxpayer establishes that they have abandoned their domicile in New York and established a new domicile elsewhere.[xxiii]
The foregoing standard of review necessitated, the Tribunal explained, an examination of the following objective factors to determine Taxpayers’ subjective intent to maintain or change domicile: home, time, business ties, social ties, family ties and other evidence, with no single factor being dispositive.[xxiv] The analysis of these factors entailed a comparison of the New York ties for the specific factor with the ties for that factor that existed in Florida.
In examining each of the factors, the Tribunal agreed that while Taxpayers did intend at some point to change their domicile from New York to Florida, “the manifestation of that intention [was] not evident during the period in issue.”
Home/Time
The record reflected that Taxpayers’ homes in both places were permanent, full-time residences. Indeed, prior to the years in issue, the New York residence was Taxpayers’ domicile. In examining the home and time factors, nothing about the New York residence changed to make it less suitable as such. Moreover, although Taxpayers spent time in both residences during the years at issue, they spent more time in New York.[xxv]
As to the questions of associations with one place or another, Taxpayers pointed to their active participation on the board of their Florida homeowner’s association. They did not establish, however, whether their involvement was a function of their home ownership or whether membership was restricted to full-time residents.
Business/Social Ties
Further, while Husband made it “indisputably clear” that he was transitioning his role with his New York business, Husband was ultimately unsuccessful in doing so during the two years in issue. For example, during the years in question he continued to collect a significant salary from the Business, maintained its accounts, and continued to travel on behalf of the Business.
Eventually, and notably after the audit period, Husband sold his New York business.
The Tribunal noted that Taxpayers themselves offered statements that their goal was to transition to Florida when business ties in New York so permitted. Although it was undisputed that Taxpayers were following a process, it was not irrational or without basis, the Tribunal stated, for the Division to determine that Husband continued to maintain strong ties to the Business in New York.
The same was true of their social ties. While Taxpayers joined a country club in Florida sometime in 2018, they also continued full memberships in two country clubs in New York. Again, even though it appears that sometime after the audit period, Taxpayers amended their membership in one of the clubs, that was not relevant to the period in issue. Further, there was no evidence whatsoever that Taxpayers changed their membership in the other New York country club in which they were members.
Other Evidence
The Tribunal then turned to the last factor to be considered, whether Taxpayers manifested their intention to change their domicile through other evidence.
Taxpayers offered that they registered to vote and changed their driver licenses to the Florida in April 2018, and that in October 2018 they filed a statement of domicile with Florida.
Such so-called “formal declarations” of domicile, such as voter registration or motor vehicle registration, the Tribunal state, have lost their importance as courts have recognized their self-serving nature, while acts of the person have been given greater recognition in resolving the question of domicile.”[xxvi]
According to the Tribunal, had other manifestations of intent, such as a comparison of homes, business and social ties and the amount of time spent in each place, been more consistent with a change of domicile, then the offers of documentary proof might have been more persuasive.
Instead, they tended to only show the undisputed trend toward eventually relocating to Florida, while not negating the indicia that Taxpayers had yet to abandon New York as their domicile.
Still, Taxpayers contended that motor vehicles registered and insured in Florida, and the maintenance of Florida bank accounts were proof that they effectively changed their domicile from New York to Florida.
In dismissing this argument, the Tribunal noted that none of these factors were established to have occurred during the period in issue.[xxvii]
Additionally, Taxpayers asserted that the relocation of personal effects, particularly items of personal or sentimental value, should be considered. They pointed to the shipping of their ski equipment and Waterford crystal as proof that Florida, and not New York, was their domicile. However, Taxpayers also acknowledged these items were shipped to the Florida home in 2014, fully four years prior to the period in question.
Recap
The Tribunal ended by recapitulating its findings:
- Their property in New York was a substantial property which Taxpayers used as their “main home” for several years prior to the period in issue.
- The time spent in each location followed similar patterns as in previous years and, in fact, for the years in issue, Taxpayers spent more time in New York than in Florida.
- Husband continued to have substantial ties to the New York business for each of the years in issue.
- While they also joined a Florida country club, Taxpayers maintained full membership in two country clubs in New York, changing membership in just one of them after the period in question.
- Taxpayers also spent three of four significant holidays in their New York home throughout 2018 and 2019.
- Other documentation offered, a Declaration of Florida Domicile, Florida voter registration, and Florida driver licenses were not sufficient in the absence of other factors establishing domicile.
The Tribunal did not dispute that Taxpayers intended to change their domicile at some point. However, the Tribunal found that Taxpayers had not sufficiently manifested that intent as of the end of October 2018.
Because Taxpayers failed to meet their burden of presenting clear and convincing evidence that the notice of deficiency was erroneous or that the determination of the ALJ was incorrect, the Tribunal sustained both.
What to Do?
As indicated above, intention is a decisive factor in determining whether any particular residence that an individual may occupy is their domicile; i.e., the place the individual intends to be their permanent home, the place they intend to return to whenever they may be absent.
These requirements must be satisfied to establish a change of domicile: (1) an actual change of residence, (2) abandonment of the former domicile, and (3) acquisition of another.[xxviii]
The individual New York taxpayer has to recognize (1) that the process by which an auditor will ascertain the individual’s intentions regarding their domicile is a subjective inquiry, and (2) that they have the burden of proving a change of domicile by clear and convincing evidence.
How can the individual best demonstrate their intentions? How can they reduce the opportunity for an auditor to deduce that the individual remains domiciled in New York?
Certainly not by self-serving statements or by easily filed formal declarations alone.
Instead, the individual’s actions must support the abandonment of their New York domicile and their establishment of a new domicile elsewhere.[xxix]
An individual who is serious about changing their domicile should familiarize themselves with the five principal factors[xxx] that an auditor will apply to the individual’s situation for the purpose of determining whether the individual’s actions accurately reflected their stated intentions.
Finally, they must appreciate that the removal of oneself from New York and the creation of a new domicile elsewhere is a process that requires time, planning, and some sacrifice (you can’t have it all), especially where the individual owns a New York business.[xxxi]
The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.
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[i] I guess New York’s perennially dismal ranking at or near the bottom of the Tax Foundation’s “State Competitiveness Index” is well-deserved. https://taxfoundation.org/research/all/state/2026-state-tax-competitiveness-index/. Over the last decade, the Empire State has been ranked 49th or 50th among the states in most years, with a brief reprieve at 48th. Talk about room for improvement. The silver lining: New Jersey is not doing any better.
[ii] Without fail, every one of them states that they’re willing to spend more than 183 days in Florida.
[iii] Most really have no appreciation of how difficult it can be to demonstrate convincingly that they have changed their domicile.
[iv] In the Matter of the Petition of John J. Hoff and Kathleen Ocorr-Hoff, DTA NO. 850209 State of New York Tax Appeals Tribunal.
[v] If they happen to be attorneys, they may be more eager to describe themselves as recovering attorneys.
[vi] In Central New York’s Finger Lakes region.
[vii] On the form IT-203-B, Nonresident and Part-Year Resident Income Allocation Worksheet, attached to the 2018 return, Taxpayers reported the address for their “Living quarters maintained in New York State by a nonresident,” left the box blank for the line (in Sch. B) “Mark an X in the box if NYS living quarters were maintained for you or by you for the entire tax year,” and marked the box for schedule B, column E, indicating affirmatively that the living quarters in New York were still maintained by or for them.
[viii] On form IT-203-B, attached to the 2019 return, Taxpayers reported a street address in New York under the section for “Living quarters maintained in New York State by a nonresident,” left the box blank for the line “Mark an X in the box if NYS living quarters were maintained for you or by you for the entire tax year” and marked the box for schedule B, column E, indicating affirmatively that the living quarters in New York were still maintained by or for them.
[ix] Taxpayers had adult children, some of whom lived in New York. Wife’s elderly parents lived in New York.
[x] In 2022, the New York residence had an assessed value of $907,000.00. In 2020, the Florida condo had an estimated value of $1.344 million, and, in 2023, its appraised value was listed as $1.64 million.
[xi] Their New York residence was located in Poplar Beach, on Lake Canandaigua.
[xii] The Waterford crystal was a gift from their parents and had sentimental value to them; it was shipped to Florida by UPS shortly after they acquired the condo.
[xiii] 2018: 186 days in New York (more than half the year) vs 131 days in Florida vs 48 days elsewhere; 2019: 164 days in New York, 153.5 days in Florida and 47.5 days elsewhere. Taxpayers testified that the Division’s breakdown of time spent in New York, Florida and other locations was “relatively close” to the numbers they calculated based on their own calendars.
[xiv] Snowbirds? Not what I’d want to convey if Iwere trying to convince a court that I’d left New York and established a new domicile in Florida.
The affidavit of Taxpayers’ CPA stated that “[f]rom 2014 through 2018, the Taxpayer had a pattern of staying in Florida during the months of January, February, March, part of April, October, November and December, such that by 2019 the Taxpayer only spent 164 days in New York.”
[xv] Some of you may be sharing the holiday in New York this week with folks who claim to have recently changed their domicile from New York to elsewhere. You may want to say something.
[xvi] In the amount of $270,330.92 in 2017, $262,282.92 in 2018 (the year Taxpayers filed as part-year residents) and $127,264.23 in 2019 (their first full year reporting as nonresidents).
[xvii] According to GM’s affidavit, GM worked as Operations Manager for Business during the 15-year period prior to the years at issue. In 2018, he was promoted to the position of general manager. GM also stated he “ran the Company” and “handled every aspect of the business and every Company customer[.]”
[xviii] Comptroller’s duties included, among other things, preparing all financial statements, establishing and maintaining budgetary controls, directing and performing accounts receivable, accounts payable and general accounting functions, managing and processing cash receipts, cash disbursements and making appropriate cash management decisions, ensuring tax compliance, overseeing and approving payroll and managing human resource functions.
[xix] At the end of 2018 or beginning of 2019, a key employee became involved with one of Husband’s accounts, which was one of the top ten or fifteen customers at the time. Later in 2019, this employee’s interactions with Husband were limited, but Husband was still about 10% to 15% involved in the account, which then became one of the Business’s top five to ten customers.
[xx] A press release regarding the sale that was introduced into the record identified Taxpayer as president of the Business.
[xxi] The Tribunal observed that individuals are free to establish a domicile for whatever reason they choose, and minimizing tax exposure does not negate that choice.
[xxii] Tax Law Sec. 605(b).
It should be noted that an individual taxpayer otherwise treated as being domiciled in New York will not be treated as a resident for a particular taxable year if the taxpayer maintains no permanent place of abode in the state, maintains a permanent place of abode elsewhere, and spends in the aggregate not more than thirty days of the taxable year in the state.
[xxiii] 20 NYCRR 105.20 [d].
[xxiv] For the most part, these are the same factors as those identified in the State’s “Nonresident Audit Guidelines” as the “primary factors” to consider; i.e., home, active business involvement, time spent, location of near and dear items, and family connections.
[xxv] 20 NYCRR former 102.2 [d]; see also 20 NYCRR 105.20 [d] [4]).
[xxvi] Notably, even the sworn documents filed with the State of Florida, as formal declarations, are less significant than informal acts demonstrating an individual’s general habit of life.
[xxvii] For example, Taxpayer offered a Florida hunting and fishing license that was issued on September 29, 2020. Proof of Florida registration for only one of Taxpayers’ four cars was within the audit period and that was in July of 2019, while two others showed dates in 2020 and 2021, and another showed New York insurance as late as February of 2022.
[xxviii] We’re not talking about a move for a short-term tax advantage.
[xxix] The Courts refer to such actions as the objective manifestation of the individual’s intentions.
[xxx] See the “Nonresident Audit Guidelines.”
[xxxi] https://www.taxslaw.com/2022/01/leaving-new-york-but-what-about-ones-new-york-business/