With New York State projecting billions of dollars in reduced revenues resulting from the national recession and recent terrorist attacks, and Governor George E. Pataki pledging not to raise taxes, the State Department of Taxation and Finance will be looking to increase the public fisc by means of aggressive enforcement of existing tax law.
One area that has proved to be fertile ground for finding additional tax revenue and which has generated significant litigation in recent years is the residency tax audit. The residency tax law is unique because, despite the fact that a taxpayer no longer resides in the State of New York and may have taken steps to formerly declare a new domicile, the taxpayer may still be liable for New York State income taxes on all income earned both within and outside of New York, if found to have maintained a “permanent place of abode” in New York and to have spent an aggregate of 183 days or more in the state during the calendar year. The residency audit is particularly troublesome because the burden of proof is on the taxpayer to prove that the taxpayer did not spend the aggregate number of days in New York, as two out-of-state taxpayers painfully learned recently.
