For most people of my generation, “where do you live?” was not a complicated question. For me, “Stamford, CT” was a simple response. This was the case of most of those in my town. Most of the adults at that time worked in one of the industrial plants downtown in some capacity. Or perhaps they owned a store or worked in a sundry occupation such as my father, who ran movies on Atlantic Street. There was almost never a question as to what was someone’s residence was.

But, a funny thing happened over the years. The industrial base of the USA diluted. Plants closed. Neighborhoods shifted. People became more transient in the search for employment. In later years, we all experienced the collapse of the housing and real estate markets. We began to see how something called “social networking” could pull people together in one place that were countless miles apart.

In recent days the concept of “home” has grown to be an intention of the heart and mind, as people often identify with a place of belonging, which may not be where they are physically situated in many cases.

However, our friends at the local taxing authorities have not become so enlightened over time. Most states with an income tax law adopt a either a very rigid “physical presence” or “residential connection” test to determine who actually is tied to their jurisdiction for tax purposes. As states become more and more desperate for revenue, more and more of these hard tests are being employed in the war between states for taxpayer dollars.

The fine firm of Morrison and Foerster recently reported in its newsletter on a New York case, the Matter of Tatiana Varzar, .In this case, the New York State Tax Appeals Tribunal rejected Ms. Varzar’s claim that she had changed her residency from Brooklyn, New York, to Florida, finding she had failed to establish either that she had changed her domicile or that she was not a “statutory resident” of New York State and City.

During the years 2004, 2005, and 2006, Ms. Varzar owned and maintained a home in Brooklyn and another home in Pompano Beach, Florida. Separately, she claimed to have maintained an apartment in Tampa, Florida, for an unspecified period during this interval.

Ms. Varzar carried on an assortment of business ventures in New York and Florida. Finally, she purchased a restaurant near her Pompano Beach home, but the restaurant did not open until after the time interval in question.

For each of the years in question, Ms. Varzar filed individual income tax returns as a nonresident of New York. At audit, the NYS Tax Department determined that Ms. Varzar was a domiciliary of New York State and City, and that she was a statutory resident of New York State and City because she failed to show that she spent more than 183 days outside of New York State and City for each calendar year, with 183 days per year being the usual benchmark for the determination of residency for a given state.

Later, the Tribunal ruled against Ms. Varzar. Analyzing the four criteria for determining whether a taxpayer changed domicile, it concluded that Ms. Varzar had failed to prove that she changed her domicile from Brooklyn to Florida. Most critically, the Tribunal determined that Ms. Varzar’s business ties to Florida were “limited” as compared to her Brooklyn business ties, and that the evidence reflected Ms. Varzar as having family and community ties in Brooklyn, but not any family or community ties to Florida. The Tribunal also concluded that the Department properly characterized Ms. Varzar as a statutory resident because she did not carry her burden to show that she was not present in New York State or City for more than 183 days during any of the years at Issue. The Tribunal highlighted the lack of any documentary evidence establishing Ms. Varzar’s whereabouts during the subject years, and upheld the administrative judge’s conclusion that Ms. Varzar’s testimony was not sufficiently credible.

In this case, it was very clear to all how this particular determination was made. But do all such cases along these lines favor the governmental authorities?

Well, not exactly.

One of my favorite cases with respect to this genre is Berry Gordy, Jr. vs. the Board of Equalization of California. Some of my older readers will no doubt remember Berry Gordy Jr. (he of Motown fame), who fashioned a record company in a small building in Detroit while working in the auto industry. From said studio came some of the finest musical talent ever to walk this earth, and Berry was so successful that it dawned on him one day that there was no reason to remain in Detroit year round. So, he moved to sunny California, and spent his time enjoying life and owning several homes there. However, California noting Gordy’s success, decided that they wanted some of his wealth as well. It asserted that Gordy was spending more time in Beverly Hills than in Detroit (can you blame him?), and taxed him as a full-year resident for all of 1969.

But here, the result was different. Citing that Gordy had a much stronger residential connection to Michigan than California, the court ruled in Gordy’s favor, as his professional associations, vehicles, children’s schools, and social ties all painted a picture of a man who had never “left” Detroit.

It is interesting to take the Varzar and Gordy cases and compare them. At first it seems that they are two different decisions in different jurisdictions based on similar fact patterns, made many years apart. However, a common theme in each case is intention. Ms. Varzar never truly intended to leave New York while Mr. Gordy never truly intended to part ways with Michigan. In the end, intention followed by the commitment of large amounts of property in a given jurisdiction seemed to rule the day for determining the tax status of each respective individual.

This premise of residential intention cuts both ways. Not long ago, a desperate cash-strapped city in Connecticut attempted to levy property taxes on the vehicles parked on tax assessment day at a student dorm. Conveniently forgetting the rule that dormitories are not homes and that students are not residents, this was a good try, but the property belonged elsewhere to a permanent jurisdiction. None of the students intended for that cash-strapped city to be their permanent residence when moving into the dorm.

But for tax determinations, can intention and commitment of capital in one location override one’s physical presence in another location during a year? Frankly, there are casebooks and articles written on that very subject, and jurisdictional laws vary. There are no easy answers, and professional guidance should always be sought.

However, one thing is for certain.  As states become more desperate for revenue, look to see more strict definitions of residency and domicile made against taxpayers in order to tax anything parenthetically related to its borders.

Tony De Angelo


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