So you have decided to move out of New York and make your primary home in another state or country. You may expect to reduce your income tax liability since New York taxes all income earned by its residents but only taxes nonresidents on income derived from New York sources or allocated to days worked within the state. Obtaining nonresident status could yield substantial savings as New York's marginal income tax rates can be as high as 10.9% (without even considering separate New York City income taxes). But are you a nonresident? The New York Department of Taxation and Finance has a sophisticated residency audit program that frequently audits taxpayers who claim to have relocated.

The Subjective Domicile Standard

An individual's domicile determines status as a resident or nonresident for New York tax purposes. Domicile is the fixed and permanent home to which a person intends to return whenever absent. Where an individual has multiple homes or travels frequently, determining domicile can be highly subjective, often requiring a fact-intensive inquiry to form a picture of intent.

When a New York resident moves out of state, the taxpayer bears the burden to prove the change of domicile by clear and convincing evidence. Bodfish v. Gallman, 378 N.Y.S.2d 138 (NY App. Div. 1976). An individual can only have one domicile at any given time. States, however, can differ in their views on where someone is domiciled and are not bound to respect the determination of another state. Matter of Rudolph (deceased) & Loretta Zapka, DTA No. 804111. Upon audit, the taxpayer must present sufficient evidence to convince the Department that another home has supplanted a New York home as the taxpayer's domicile. If the taxpayer is still in a New York state of mind, domicile may not have changed despite spending significant time in one or more homes outside of New York. The taxpayer cannot shift the burden by merely filing New York nonresident income tax returns that do not get audited. Each tax year stands alone, and a failure to audit a prior-year return does not imply acceptance of the taxpayer's position that domicile has changed or shift the burden of proof if the Department audits a nonresident income tax return for a subsequent year. Matter of Richard & Carolyn Farkas, DTA No. 809927.