TAF-43-09-00023-P Definition of Resident for Personal Income Tax

10/28/09 N.Y. St. Reg. TAF-43-09-00023-P

NEW YORK STATE REGISTER

VOLUME XXXI, ISSUE 43

October 28, 2009

RULE MAKING ACTIVITIES

DEPARTMENT OF TAXATION AND FINANCE

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. TAF-43-09-00023-P

Definition of Resident for Personal Income Tax

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Amendment of section 105.20(e)(1) of Title 20 NYCRR.

Statutory authority:

Tax Law, sections 171, subd. First, 697(a), and 605(b)(1)

Subject:

Definition of resident for personal income tax.

Purpose:

To except dwellings maintained by full-time undergraduate students from the definition of permanent place of abode.

Text of proposed rule:

Section 1. Paragraph (1) of subdivision (e) of section 105.20 of such regulations is amended to read as follows:

(1) A permanent place of abode means a dwelling place [permanently] of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer, and will generally include a dwelling place owned or leased by such taxpayer's spouse. However, a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode. Furthermore a barracks or any construction which does not contain facilities ordinarily found in a dwelling, such as facilities for cooking, bathing, etc., will generally not be deemed a permanent place of abode. A dwelling place maintained by a full-time student enrolled at an institution of higher education, as defined in section 606(t)(3) of the Tax Law, in an undergraduate degree program leading to a baccalaureate degree, and occupied by the student while attending the institution is not a permanent place of abode with respect to that student. A full-time student is an individual who is carrying a minimum courseload in such program of 12 credit hours per semester for at least 2 semesters, or the equivalent, during the individual's taxable year.

Section 2. These amendments shall take effect on the date that the Notice of Adoption is published in the State Register, and shall apply to taxable years ending on or after December 31, 2009.

Text of proposed rule and any required statements and analyses may be obtained from:

John W. Bartlett, Tax Regulations Specialist 4, Department of Taxation and Finance, Taxpayer Guidance Division, Building 9, W. A. Harriman Campus, Albany, NY 12227, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Summary of Regulatory Impact Statement

1. Statutory authority: Tax Law, sections 171, subdivision First; 697(a); and 605(b)(1). Section 171, Subdivision First authorizes the Commissioner to make reasonable rules and regulations that may be necessary for the exercise of the Commissioner's powers and performance of the Commissioner's duties. Section 697(a) authorizes the Commissioner to adopt regulations relating specifically to the personal income tax. Section 605(b)(1) provides that an individual who is not domiciled in New York is considered a resident if the individual maintains a permanent place of abode in the State and spends more than 183 days of the taxable year in the State.

2. Legislative objectives: This rule is being proposed pursuant to this authority to exclude dwelling places maintained and occupied by full-time undergraduate students pursuing a baccalaureate degree while enrolled at an institution of higher education from the definition of permanent place of abode under 20 NYCRR 105.20(e)(1).

3. Needs and benefits: The purpose of these amendments is to exclude places of abode maintained and occupied by full-time undergraduate students pursuing a baccalaureate degree while enrolled at an institution of higher education from the definition of permanent place of abode for purposes of determining residency status for personal income tax purposes. A dwelling, such as a traditional dormitory room that does not contain basic facilities, such as those for cooking or bathing, is currently not deemed a permanent place of abode for residency purposes under 20 NYCRR 105.20(e)(1).

In 2008, the regulations were amended to eliminate the "temporary stay" concept from the definition of "permanent place of abode". Prior to the 2008 amendment, a place of abode was not considered permanent under section 105.20(e)(1) if it was maintained only during a temporary stay for the accomplishment of a particular purpose. Both a "particular purpose" and "fixed and limited period" test had to be satisfied in order for a stay to be considered temporary. Removing the temporary stay concept from the regulations rendered many college students previously not taxed as residents subject to personal income tax as statutory residents. Students living in traditional dormitories have not been taxed as statutory residents because dormitories lack the facilities to be deemed permanent places of abode under the regulations. This creates artificial distinctions among students who may or may not have the option of choosing between living in a dormitory and living elsewhere.

The Department conducts regular taxpayer outreach programs to assist taxpayers in complying with the Tax Law, and works with New York State colleges and universities to present programs directed toward their students. In the course of these outreach efforts, it became apparent that students were being required to determine their residency status for personal income tax based on subtle distinctions among housing situations.

Undergraduate student housing has evolved so that fine distinctions would have to be made between traditional dormitory housing and other styles of student residence to determine residency for personal income tax purposes. Moreover, students do not always have the option of choosing to live in a dormitory, depending upon the housing situation at a particular institution. These amendments would resolve these issues.

4. Costs:

(a) Costs to regulated parties: The rule does not impose any new compliance costs on the regulated parties, who will continue to be required to file a New York State income tax return as either residents or nonresidents, or be relieved of the obligation to file altogether. The rule may have an impact on the personal income tax liability and reporting responsibilities of particular taxpayers. The impact will depend on the particular circumstances of the taxpayer. Some undergraduate students currently taxed as residents as a result of the 2008 amendments will now be considered nonresidents. Treatment as a nonresident could result in a reduction of tax liability, because unearned income would generally not be considered New York source income. On the other hand, some who are currently eligible to claim the New York State college tuition credit as residents will not be able to do so because the credit is not available to nonresidents. Additionally, some students currently required to file a New York State income tax return will no longer need to do so.

(b) Costs to the agency and to the State and local governments: It is estimated that the implementation and continued administration of this rule will not impose any compliance costs upon this agency, New York State or its local governments. It is estimated that the implementation and continued administration of the proposed rule will result in a revenue gain to the State of $375,000 in State fiscal year (SFY) 2009-10 and $1.5 million annually in subsequent fiscal years and a $500,000 revenue loss to New York City in SFY 2009-10 and $2 million annually in subsequent fiscal years. In context, last year's amendments were estimated to result in an annual gain to New York City of $30 million.

(c) Information and methodology: The methodology employed to estimate the impact of the proposed rule is set forth in detail in the discussion of costs in the Regulatory Impact Statement. This analysis is based on a review of the rule, on discussions among personnel from the Department's Taxpayer Guidance Division, Office of Counsel, Office of Tax Policy Analysis, and Office of Budget and Management Analysis, and on data obtained from the Department's records, the New York State Department of Education's Office of Higher Education, the State University of New York at Buffalo, and the United States Census.

5. Local government mandates: This rule imposes no mandates upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: This rule imposes no new reporting requirements, forms, or other paperwork upon regulated parties. Certain students may have to file Form IT-203, New York State Nonresident and Part Year Resident income tax return, rather than Form IT-201, Resident Income Tax return. Others will no longer need to file a New York State income tax return.

7. Duplication: There are no relevant rules or other legal requirements of the Federal or State governments that duplicate, overlap, or conflict with this rule.

8. Alternatives: The Department considered various alternatives, including extending the exclusion to graduate students, limiting the exclusion to places of abode provided by the educational institution, and taking no action. After assessing comments received from the New York State Bar Association Tax Section, a certified public accountant, and certain institutions of higher education, the Department concluded that the approach in the proposed rule was the most appropriate to achieving the objectives and declined to adopt such alternative approaches. For a detailed discussion of the Department's analysis, see the Regulatory Impact Statement.

9. Federal standards: This rule does not exceed any minimum standards of the federal government for the same or similar subject areas.

10. Compliance schedule: These amendments will take effect when the Notice of Adoption is published in the State Register, and apply to taxable years ending on or after December 31, 2009.

Regulatory Flexibility Analysis

(1) Effect of rule: This rule amends section 105.20(e)(1) of the personal income tax regulations to except dwelling places maintained and occupied by full-time undergraduate students pursuing a baccalaureate degree while enrolled at an institution of higher education from the definition of permanent place of abode.

This rule will not impose any requirements on local governments or small businesses. It will have an effect on New York City personal income tax discussed in the Regulatory Impact Statement. The rule imposes no reporting requirements, forms, or other paperwork upon small businesses beyond those required by existing law and regulations. The impact of the rule is not on small businesses but on certain non-domiciliary full-time undergraduate students who maintain and occupy places of abode while enrolled at institutions of higher education in pursuit of a baccalaureate degree.

(2) Compliance requirements: The promulgation of this rule will not require small businesses or local governments to submit any new information, forms, or other paperwork.

3. Professional services: No small business or local government will be required to employ professional services to comply with this rule.

4. Compliance costs: These changes will place no additional burdens on small businesses and local governments. The change in the definition of permanent place of abode will affect certain full-time undergraduate students who are not domiciled in the State. See the Regulatory Impact Statement for a discussion of the impact on these individuals.

5. Economic and technological feasibility: This rule does not impose any economic or technological compliance burdens on small businesses or local governments.

6. Minimizing adverse impact: The rule does not adversely impact small businesses or local governments. It will result in a revenue loss of approximately $500,000 to New York City in State fiscal year 2009-10 and $2 million in subsequent fiscal years. This is a result of returning some students to the status quo regarding their resident status as it existed prior to the 2008 amendments, which were estimated to increase New York City revenue by $30 million annually.

7. Small business and local government participation: The following organizations were notified that the Department was in the process of developing this rule and were given an opportunity to participate in its development: the Association of Towns of New York State; the Office of Coastal, Local Government, and Community Sustainability of New York State Department of State; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; the Retail Council of New York State; and the New York Association of Convenience Stores. The Division also notified the New York City Department of Finance.

The New York State Bar Association Tax Section submitted comments. The Bar Association reiterated the position expressed in its comments on the 2008 amendments, to the effect that the temporary stay rule should not have been eliminated. For the reasons articulated in the Department's Assessment of Public Comment at the time, the 2008 amendments were adopted over this objection. The Bar Association also noted that this rule seems to be a return to the temporary stay concept for certain taxpayers. Notwithstanding these concerns, the Bar Association stated that the exception to the definition of permanent place of abode should be available to all full-time students, including graduate students. A certified public accountant made a similar comment. In a similar vein, the Bar Association recommended that the definition of full-time students contained in the amendments be changed to reduce the number of semesters a student must be enrolled at an institution of higher education during the taxable year from two semesters to one. The Department considered these alternatives and concluded that the exception should be limited.

The Bar Association also voiced concern that the amendments change the basic terminology of section 105.20(e)(1) by focusing on the nature of the place of abode in determining permanency. Section 105.20(e)(1) states that "a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode. Furthermore, a barracks or any construction which does not contain facilities ordinarily found in a dwelling, such as facilities for cooking, bathing, etc., will generally not be deemed a permanent place of abode." The language of the current regulation clearly links permanency to the nature of the abode, rather than the period over which it is maintained. Section 105.20(a)(2) defines a resident individual as one who is not domiciled in New York State, but who maintains a permanent place of abode for substantially all of the taxable year and spends in the aggregate more than 183 days of the taxable year in New York State. The temporal requirements for residency are separate from the requirement that an individual must maintain a permanent place of abode in New York State to be considered a resident. Whether a dwelling is permanent or not hinges on its suitability for habitation on a permanent basis.

The Bar Association also suggested that the Department make clear that the amendments do not require that the student's dwelling be provided by the institution of higher education to be considered non-permanent, and that a domiciliary would continue to be considered a resident whether or not enrolled at an institution of higher education in New York State. We do not believe these changes are necessary.

Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas: This rule amends section 105.20(e)(1) of the personal income tax regulations to except dwellings maintained and occupied by full-time undergraduate students pursuing a baccalaureate degree while enrolled at an institution of higher education from the definition of permanent place of abode for purposes of determining residency status. The change will affect some students, depending upon their particular circumstances. Some of these students may be enrolled at institutions of higher education in rural areas, and maintaining places of abode in those areas. There are 44 counties in the State that are rural areas (having a population of less than 200,000) and 9 more counties having towns that are rural areas (with population densities of 150 or fewer people per square mile).

2. Reporting, recordkeeping and other compliance requirements; and professional services: The rule may affect the reporting requirements on certain students enrolled at institutions of higher education who maintain and occupy a permanent place of abode within the state while pursuing a baccalaureate degree. As a result of this rule, certain students living in rural areas may have to file Form IT-203, New York State Nonresident and Part Year Resident income tax return, rather than Form IT-201, Resident Income Tax return. Others will no longer need to file a New York State income tax return.

3. Costs: These changes will place no additional burdens on rural areas. The impact on tax liability depends on the particular circumstances of the taxpayer. Some undergraduate students currently taxed as residents as a result of the 2008 amendments will now be considered nonresidents. Treatment as a nonresident could result in a reduction of tax liability because unearned income would generally not be considered New York source income. On the other hand, some who are currently eligible to claim the New York State college tuition credit as residents will not be able to do so because the credit is not available to nonresidents. Additionally, some students currently required to file a New York State income tax return will no longer need to do so.

4. Minimizing adverse impact: The rule does not adversely impact rural areas. It will eliminate the need to make fine distinctions among students based on the style of their housing. The rule will provide student taxpayers with clear, objective, and easily applied rules for assessing their residency status for New York State personal income tax purposes.

5. Rural area participation: The following organizations are being given an opportunity to participate in the rule's development: the Association of Towns of New York State; the Division of Local Government Services of New York State Department of State; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; the Retail Council of New York State; and the New York Association of Convenience Stores.

Job Impact Statement

A Job Impact Statement is not being submitted with this rule because it is evident from the subject matter of the rule that it could have no impact on jobs and employment opportunities.

The primary purpose of these amendments is to except places of abode maintained and occupied by full-time undergraduate students pursuing a baccalaureate degree while enrolled at an institution of higher education from the definition of permanent place of abode for purposes of determining residency status. Student housing has evolved to a point at which dormitory and other on-campus residence options may have essentially the same facilities as off-campus housing, making it difficult to distinguish one from another in terms of the permanency of the abode. These amendments will eliminate the need to make such fine distinctions with respect to students living in a dormitory and students living elsewhere.