Tax Tribunal Reverses Decision in Gaied Case

The New York State Tax Appeals Tribunal has issued a decision in its reargument of a residency case that could have major ramifications in how future residency cases are decided in New York.

In a reversal of its previous decision in Matter of John Gaied, the tribunal decided that John Gaied, a New Jersey resident who maintained a Staten Island home for his elderly parents, is a New York resident for tax purposes and is therefore liable for state and city income taxes from 2001 to 2003, according to a 3–2 decision reached on June 16.

The NYSSCPA had filed an amicus brief stating its opposition to the proposed reargument, saying that "there is simply no basis for disturbing the well-reasoned and well-supported decision already issued by this tribunal," according to the brief. However, oral arguments were held on April 13 and, after review, the court chose to reverse its original July 2010 decision, which was decided in favor of the taxpayer.

The tribunal had originally ruled that while Gaied maintained the home by being the legal owner and paying for all its upkeep, it was not a permanent place of abode and therefore, for tax purposes, he was not a New York resident. The court looked at the apartment's use as the determining factor, despite Gaied's ownership and maintenance of the property, said the decision.

In the reargument of the case, the tax department successfully argued that Gaied did not adequately prove that the Staten Island apartment was not a permanent place of abode. He filed his federal tax returns as head of household, listing his parents as dependents; maintained a telephone number there in his name; and paid all bills associated with the home's maintenance, such as utility payments, according to the decision. He was also an active New York state voter.

Adding to this was the argument that, pursuant to the relevant statute, regulations, and controlling case law, there is no requirement that a petitioner actually live at the subject property for it to be considered a permanent place of abode. The tax department cited another state residency court case, Matter of Roth, in support of this claim.

The court agreed, saying in the majority opinion that the original July 2010 ruling was an "improper departure from the language of the statute, regulations and controlling case law." The court decided that it is neither necessary nor appropriate to examine the taxpayer's subjective use of the premises, according to the decision. The court rejected Gaied's argument that, for the home to count as a permanent place of abode, it must be maintained for his own use. The court said that such a position is inconsistent with a previous case, Matter of Boyd, "wherein we found that the taxpayer, who contributed more than 50 percent of the household expenses for his mother's house, maintained a permanent place of abode there, despite his assertion that he did not live there during his tenure in New York," the decision said.

Also, the court expressed skepticism regarding Gaied's claim that he didn't have unfettered access to the property, because, as owner, he also counted as a landlord, and landlords are allowed to enter apartments to perform work that they decide is necessary or desirable, such as repairs, inspections and exterminations, the decision said. The court also questioned Gaied's credibility when it noted that, in addition to his parents, other family members, such as his brother, also stayed at the property.

The court's decision is "bad policy," said Jonathan Horn, chair of the Taxation of Individuals Committee, who said that the state shouldn't be able to take "multiple bites at the apple" by having the tribunal to revisit the decision. That being said, Horn said that Gaied did not make for a particularly sympathetic defendant given the inconsistencies regarding whether he had unfettered access to the home, as well as the fact that other relatives besides the parents were staying there intermittently.

"Factually this case had a lot of holes in it from the perspective of the taxpayer and hopefully the way this will be applied in the future will be with a conservative view that puts the fact pattern in this case as a controlling factor," said Horn, adding that the decision could be seen as a reflection of the more aggressive stance the state has lately taken with regard to nonresident audits.

"You've got to be very careful. If you color slightly outside the lines, you get in trouble, so you've got to be very strict in making sure there's no potential way they can claim you are using, or have the right to use, the abode," he said.

The successful reargument of the case underscores what Louis E. Feinstein, a member of the New York, Multistate and Local Taxation Committee, said is an ambiguity in how tax law should be applied. In order to address this, Feinstein said that the state is going to need to eventually make a decision as to whether it wants to use the intent of the law as its guide for matters such as this or apply the letter of the law. Bundled into this decision, he said, will be question as to how this might affect the state's economy, as it might make real estate development choices in other states more appealing.

Background

New York established standards for residency in a previous court case, Matter of Evans, in which it was argued that a resident subject to state taxes must maintain a permanent place of abode and stay in the state for more than 183 days. During the initial arguments of Matter of Gaied, the court used this standard when deciding whether or not Gaied was a New York resident.

While Gaied admitted he did stay in New York for more than 183 days, he argued that the Staten Island apartment was not a permanent place of abode in New York because he would only stay with his parents when they asked, since they relied on him for 100 percent of their financial and physical support. Gaied testified that he did not have unfettered access to the apartment and noted that there was no bed for him there, meaning he would sleep on the couch whenever he did stay overnight, according to the decision. He also claimed that he didn't keep any personal property at the residence, and noted that when he sold his own home in New Jersey in 2003, he stayed with an uncle in New Jersey rather than at the Staten Island home.

Dissent in Reargument of Matter of Gaied

Dissenting from the opinion in the recent reargument of the case was James H. Tully, president and commissioner of the Tax Appeals Tribunal, as he said Matter of Evans, which "stands as the principle case guiding outcomes in matters involving statutory residence," is a "flexible, yet practical" way of determining residency.

"I would find that petitioner purchased the … residence with the intent of providing his parents with an independent place to live," he said in the minority opinion. "His lack of personal items and a bed in the first floor apartment support a finding that the apartment was used exclusively as his parents' residence."