When New Yorkers flee the state to avoid high taxes, they are voting with their feet. The state is not handling the rejection well, desperately grabbing for these taxpayers’ wallets through aggressive residency audits.
When New York’s Department of Taxation suspects that a person is falsely claiming to live in another state to dodge taxes, they are able to audit a person’s residency through shockingly invasive searches of an individual’s personal information and property.
Auditors have been known to enter homes, search refrigerators, comb through phone records, social media feeds, and even dental and veterinary records to find any shred of evidence that a person spends more time than they claim in New York. Those who lose their audits are forced to pay the state’s punishing income tax.
With the average audit raking in $144,270, auditors have every incentive to continue harassing former New Yorkers.
There is a tremendous imbalance of power between tax emigrants and state auditors. Domicile status is subjective, so it does not take much to “prove” that a person is still a New York resident; the state wins more than half of the audits it takes on. John Gaied experienced this firsthand.
A New Jersey resident with a business in New York, Gaied became the target of a domicile audit which eventually made it to the New York Court of Appeals. He owned an investment property in New York, which he let his elderly parents live in. Auditors searched their home and found that Gaied did not have his own bed or any other personal belongings in the home.
Nonetheless, the Administrative Law Judge ignored the exculpatory evidence and determined that Gaied was a New York resident, demanding $253,062 in state income taxes. This bad decision was only overturned after Gaied leapt through countless legal hoops. Most people are not this fortunate. In the face of life-disrupting audits—which can last up to five years and may be repeated on an annual basis—it’s easier to just give up the case.
New York has some of the highest tax rates in the country. The SALT cap, enacted in 2018, placed a $10,000 limit on a tax deduction popular among high-income earners in high-tax states, making toxic tax climates like the Empire State more visible than ever.
New York recently lead the country in population loss, losing 48,000 residents between 2017 and 2018. Meanwhile, Texas and Florida—neither of which have an individual state income tax—lead in population gains. More New Yorkers move to Florida than to any other state. Florida even beat out neighboring states like New Jersey, Connecticut, and Pennsylvania, the historical havens for New York commuters seeking a lower cost of living (Census 2017). Even New York Gov. Andrew Cuomo admits that taxes are driving people out of the state.
According to Barry Horowitz, a partner at the WithumSmith+Brown accounting firm, high earners moving from New York to Florida have a 100% chance of being audited. This is unsurprising. New York’s wealthiest 1% pay nearly half of the state’s income taxes; as the wealthy flee an increasingly hostile tax system, authorities will do everything they can to maintain control over their money.
But New York cannot trap disgruntled taxpayers in the state forever. Residency audits are only a band-aid solution. The state is over $40 billion in debt, with state authorities incurring around $150 billion in debt, and faces $70 billion in unfunded liabilities (mostly in pensions and state employee health benefits). The only real long-term solution for New York is to curb excess spending and build a tax climate that welcomes businesses and residents.