Joseph Lipari (NYLJ/Rick Kopstein)
One of the topics often addressed in this column (and not coincidently the subject of much litigation) is residency. New York state residents are subject to the Personal Income Tax on their worldwide income.1 An individual may be considered a resident either by virtue of being a “statutory resident,” or by reason of being a “domiciliary.” N.Y. TAX LAW §605(b)(1); see also 20 N.Y.C.R.R. §105.20(a). Statutory residence is largely mechanical—a taxpayer is a resident if he or she has a “permanent place of abode” in the state and is physically present here for 183 days or more in a year. N.Y. TAX LAW §605(b)(1)(B); see also 20 N.Y.C.R.R. §105.20(a)(2). In contrast, since where one is domiciled is largely a reflection of the individual’s intent, that determination requires a broader analysis of the facts and circumstances concerning his or her life.
The relevant authorities provide for a strong presumption against a claimed change of domicile and require a high level of proof (“clear and convincing” evidence).See, e.g., In re Newcomb, 192 N.Y. 238, 84 N.E. 950 (1908). Moreover, due to the length of the audit and appeal processes, cases are litigated years after the years at issue. As a result, an administrative law judge (ALJ) has the benefit of 20/20 hindsight in that events subsequent to the years at issues can be considered as well. For those reasons, a recent ALJ determination was such a pleasant surprise. In that case, Gregory Blatt, DTA No. 826504 (N.Y. Div. Tax App., Feb. 2, 2017), petitioner successfully proved that he changed his domicile from New York to Texas, even though he moved back to New York a year later.
In 2008, Gregory Blatt was the general counsel and a corporate executive of IAC, the Internet holding company led by Barry Diller. Petitioner lived in Manhattan, where IAC’s office was located. Due to a corporate restructuring that spilt IAC into five components, petitioner’s prior position was to be diminished. However, instead of leaving the company, he accepted the opportunity to assume another position in an operational role at IAC overseeing “Match” (the dating service).
Match was headquartered in Dallas. Pursuant to a term sheet that petitioner entered into with IAC in early 2009, petitioner became CEO of Match, but retained certain corporate titles at IAC. Additionally, the term sheet provided that petitioner would spend no more than half of his time in Dallas (and the remainder in New York). Petitioner maintained his Manhattan apartment (which he owned, and in which he had invested significant time and money renovating), but signed a one-year lease for an apartment in Dallas.
After several months at Match, petitioner found that he enjoyed both his new operational role and living in Dallas. Petitioner had no familial ties to New York, and his prior long-term romantic relationship in New York ended in 2008. Toward the end of 2009, petitioner entered into a revised employment agreement with IAC, under which petitioner agreed to work full time in Dallas and relinquished his non-Match titles and responsibilities. Petitioner also listed his New York apartment for sale at this time (which took about a year to sell, as this period was during the economic crisis). On his income tax return, petitioner did not report costs relating to Dallas as deductible travel expenses after this transition.
Throughout 2009, petitioner changed his driver’s license, voting registration, bank and credit card statements, gym membership, and prescriptions to Dallas. He also began seeing a chiropractor in Dallas weekly. In November 2009, petitioner moved his dog from New York to Dallas. According to the determination, petitioner’s dog and his New York apartment (which he had put up for sale) were petitioner’s most “cherished” possessions. Throughout 2009 until the end of 2010, petitioner made friends and entered into romantic relationships in Dallas. By happenstance, petitioner’s childhood friend (whose son was petitioner’s godson) lived in Dallas.
During the period at issue, petitioner also spent some time outside of both Manhattan and Dallas. Prior to, during, and after the period at issue, petitioner vacationed in the Hamptons. He initially rented a house each summer, and docked his boat, in the Hamptons. After he sold his Manhattan apartment, petitioner used the proceeds to purchase a vacation home in the Hamptons.
After returning from his annual late-summer respite, Barry Diller delivered the “shocking” news to his management team that he wanted to “step down as CEO of [Match's parent corporation] IAC, if he could find a suitable replacement.” Several weeks later, petitioner was surprised to learn that he was a candidate for the job. Petitioner accepted the role as CEO of IAC toward the end of 2010. However, petitioner expressly negotiated that Dallas would be his “home base” (although he rented an apartment in Manhattan and planned to travel there frequently). Petitioner had come to like his life in Dallas, and planned to stay there. Additionally, petitioner thought geographic distance between himself and Diller would allow him to “avoid  conflict.” In early 2011, petitioner renewed the lease of his Dallas apartment for another year. Nonetheless, by the middle of 2011 it became clear that it was untenable for petitioner to run IAC from Dallas; he moved back to Manhattan in Summer 2011.
The Division of Taxation asserted that petitioner had never ceased to be a domiciliary of New York state, relying primarily on the tests set forth in the relevant legal authorities. The regulations provide that domicile, generally, 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.”20 N.Y.C.R.R. §105.20(d)(1) (emphasis added). The person claiming the change of domicile (that is, either the taxpayer or the state) has “[t]he burden … [of] show[ing] that the necessary intention existed.” 20 N.Y.C.R.R. §105.20(d)(2). In re Newcomb, 192 N.Y. 238, 250 (1908), a century-old foundational domicile case cited by the ALJ, further characterizes the appropriate intent as “a present, definite, and honest purpose to give up the old and take up the new place as the domicile of the person whose status in under consideration.” Perhaps most problematic for the taxpayer, the regulations also provide that “[n]o change of domicile results from a removal to a new location if the intention is to remain there only for a limited time.”20 N.Y.C.R.R. §105.20(d)(2) (emphasis added).
Nevertheless, the taxpayer was successful in persuading the ALJ that he changed his domicile from Manhattan to Dallas in 2009.2 The ALJ distilled the case law into five factors that she considered important in determining petitioner’s intent.
The first factor was “retention of a permanent place of abode in New York.” Of the five factors, this was the only one that petitioner “failed.”3 However, the ALJ found that the factors in favor of finding that petitioner had changed his domicile outweighed this first factor.
The second factor was “location of business activity.” As demonstrated by the first few months of his tenure at Match, it may have been workable for petitioner to “permanently” shuttle between Dallas and New York. However, that petitioner spent an increasing amount of time in Dallas (by necessity or preference) indicates that petitioner “worked” in Dallas, not New York. It is also helpful that his role at Match was distinct from his role as general counsel of IAC, and he quickly gave up any general corporate responsibilities at IAC.
The third and fourth factors were “location of family ties” and “location of social and community ties.” Petitioner had no familial ties to New York, and, by the time of his move to Dallas, no long-term romantic entanglements either. Taxpayer had a close friend (and his godson) in Dallas. Further, petitioner undertook to make new friends and to enter into romantic relationships in Dallas.
The fifth factor was “formal declarations of domicile,” although the ALJ also spends some time discussing actions (as opposed to merely written declarations). As noted above, petitioner relocated the legal and perfunctory parts of his day-to-day life to Texas. More critically, however, petitioner moved his “cherished” dog to Dallas, to which the ALJ responded that “historically, the move of items near and dear tend to demonstrate a person’s intention.”
What may have been most persuasive, however, is that petitioner demonstrated that his return to New York was unexpected, rather than planned. It was helpful that Barry Diller’s “step[ping] down” and petitioner’s ascension to CEO were both unanticipated. Further, that petitioner renewed his lease in Dallas and demonstrated that he attempted to run IAC from there were helpful facts. One gets the sense from the case that petitioner’s return to New York was reluctant.
Still, even with the existence of these helpful facts, it is remarkable that petitioner was able to overcome that he returned to New York after the period at issue. In some ways, Blatt was an “easier” case than that of a retiree or semi-retiree who leaves New York for warmer climes, but who retains a pied-à-terre, as petitioner had a professional reason to be in Dallas. Nevertheless, Blatt stands for the proposition that, given the proper intent, a taxpayer may lose his New York domicile, even if his absence is short.
1. N.Y. TAX LAW §§611(a) and 612(a). New York nonresidents are taxed only to the extent of their New York–source income. N.Y. TAX LAW §631(a).
2. As the only years at issue were 2009 and 2010, the ALJ did not need to address the question of whether petitioner changed his domicile back to New York in 2011.
3. Other than the oddball case of a taxpayer who relinquishes his permanent place of abode in New York but who does acquire a permanent place of abode elsewhere (and, therefore, does not acquire a new domicile, see 20 N.Y.C.R.R. §105.20(d)(2)), all domicile cases are about taxpayers who continue to retain a New York permanent place of abode.