According to a recent blog published by The Empire Institute, New York State’s Department of Taxation and Finance just lost a crucial challenge to their policy of extracting ludicrous sums via income tax payments from wealthy vacation homeowners who live out of state.
This month, the New York state court of appeals refused to hear an appeal of a ruling made by a lower circuit court in June of 2022, deeming that the state tax auditors’ efforts to pinch more than $500,000 in back taxes and interest from the prominent Chief Investment Officer of Wynnefield Capital Inc. Nelson Obus – a resident of the state of New Jersey – were unlawful.
For context, New York state tax auditors were attempting to tax the investment income, dividends, and capital gains earned by Obus in the two years following his 2011 acquisition “of a $290,000 vacation home in the village of Northville, near Great Sacandaga Lake in Fulton County.”
The principal point of contention for this case was whether or not Obus could be categorized as a permanent resident of the state of New York. If Obus did qualify for permanent residency status, New York state tax authorities would be justified in extracting income taxes from him. To validate such status, however, New York state’s auditors had to affirm that Obus met the state Tax Law’s two-part test for establishing permanent residency: “(a) physical presence in the state more than 183 days a year, and (b) maintenance of a “permanent place of abode” in New York.”
While Obus obviously satisfied part (a) – given that he is the Chief Investment Officer of a major New York Hedge Fund – it cannot be said that he satisfied part (b) – as he only maintains a temporary vacation home in upstate New York.
This ruling establishes a strong precedent that protects those that work in New York, reside outside of the state, and maintain secondary vacation dwellings in the state from unjustifiably and predatorily being taxed by the New York Department of Taxation and Finance.
The strong push back against New York’s desperate attempts to apply its tax burden to anyone they can get their hands on is an important precedent for all taxpayers.
It is likely billions of dollars are now off the table for New York auditors. This is especially true when one considers New York state’s heightened reliance on the taxation of the incomes of resident millionaires in the wake of the increases in the tax rates of the state’s highest earners approved in 2021.
While this ruling is a positive development, the attitudes of the Empire State’s predatory tax authorities need to be reversed if they seek to mitigate the harm of the state’s recent exodus.