2023 Marcum Year-End Tax Guide

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“However, residency break-ups are never easy, and high-income tax states dedicate a lot of human capital and financial resources to ensuring they get their share of tax.”

• Near and dear items – where the taxpayer prefers to keep their jewelry or art collection or where their social clubs are. • Family connections – where the children attend school, where the spouse/partner lives, where the bank accounts are held, where the doctors are visited. New York has two safe harbor tests against the domicile test: • The “30-day” test (no permanent place of abode in New York, maintain a permanent place of abode outside of New York, and spend no more than 30 days in New York during the year) • The “548-Day” test (for taxpayers who are abroad for 450 days of any 548-day period) STATUTORY RESIDENCY Statutory residency is considered when someone maintains a ‘permanent place of abode’ (defined as a dwelling place fully suited for living, including access to furniture and utilities) in the old state. California defines a “resident” as: • Every individual who is in this state for other than a temporary or transitory purpose; and • Every individual domiciled in this state who is outside the state for a temporary or transitory purpose. There are two other alternative tests to determine California residency

• The outbound test: if a taxpayer is a domiciliary of California, he will be a California resident if his absences from California are temporary or transitory. • The inbound test: if a taxpayer is inside California for other than a temporary or transitory purpose, regardless of place of domicile, they are a resident of California. For statutory residency purposes, New York has a two-prong test: day-count test – with the number being set at 183 days and maintenance of a permanent place of abode (PPA) for substantially all of the year. A PPA does not even have to belong to the taxpayer – it can be a corporate apartment, for instance. Any part of the day on which the taxpayer sets foot, drives, swipes their credit card in New York, or makes a telephone call from New York (based on cell phone tower location) is considered a New York ‘day.’ The exceptions are flying in and out of a New York airport or in-patient medical treatment. During a New York residency audit, the following are scrutinized: credit card receipts, EZ Pass records, phone records, social club bills, and utility statements. And New York is ready to subpoena this information from various third parties whenever the taxpayer gets overwhelmed with recordkeeping. If, based on day count, someone is determined to be a statutory resident of a state, that person may end up

with double residency, with one based on day count and the other based on their home state. This may be a double whammy as a resident credit may not be allowed or insufficient to cover the other states’ rate. For instance, a Connecticut resident deemed a statutory resident in New York is permitted a resident credit against New York paid taxes, but only up to the tax rate imposed by CT of 6.35% (compared to New presumption of residency may be rebutted when the taxpayer sells or leases out their New York home before the 11th month-mark in the year. Even when residency audits are resolved favorably for the taxpayers, audits may be converted to allocation audits that seek to revisit the sourcing of various types of income to the state in question based on the number of days worked in the state. Things are never as easy as packing up and going, especially for high earners. As mentioned earlier, recordkeeping is crucial. As many concepts are subject to a ‘facts and circumstances’ approach, securing the advice of a tax professional well versed in the finer details of these types of state inquiries/examinations can make a difference worth tens of thousands of dollars. York State top rate of 10.9%). There is a silver lining to New York statutory residency - the

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