New York's temporary stay rules can be tricky to navigate. Many KPMG clients have foreign nationals who have been assigned to New York for two to three years. It is possible that they have taken advantage of the New York temporary stay exception to 'statutory residency' so that they are taxed as a nonresident of New York. If so, the increasingly strict interpretation of these temporary stay rules by the New York State Department means that extra care should be taken when planning New York assignments.

This article discusses the rules, describes executive-level and judicial interpretations, and sheds light on the options available for companies with foreign workers in New York.

Statutory Residency

Section 605(b)(1)(B) of the New York state tax law provides that a "resident individual" includes an individual who is not domiciled in New York but maintains a permanent place of abode in New York and spends in the aggregate more than 183 days of the taxable year in New York.

Therefore, if an individual who spends more than 183 days in New York during a calendar year can show that he or she does not have a permanent place of abode in New York, he or she would not fall within the statutory residency rule.

Permanent Place of Abode

Section 105.20(e)(1) of the Personal Income Tax Regulations ("Regulations") defines a "permanent place of abode" as a dwelling place permanently maintained by the taxpayer, whether or not owned by the taxpayer.

However, a place of abode, whether in New York or elsewhere, is not deemed permanent if it is maintained only during a temporary stay, for the accomplishment of a particular purpose.

The Regulations give an example where an individual domiciled in another state may be assigned to his or her employer's New York office for a fixed and limited period, after which the individual is to return to his or her permanent location. In this example, if the individual takes an apartment in New York during this period, the individual is not deemed a resident, even though he or she spends more than 183 days of the taxable year in New York, because the individual's place of abode is not permanent.

However, if the individual's assignment to the employer's New York office is not for a fixed or limited period, the individual's New York apartment will be deemed a permanent place of abode and the individual will be a resident if he or she spends more than 183 days of the year in New York.

Fixed and Limited Period

Section 105.20(e)(1) of the Regulations provides guidance on the term "temporary." Accordingly, it means a fixed and limited period as opposed to a stay of indefinite duration. The Regulations specify that an employee's stay in New York will be presumed to be temporary (i.e., the presence in New York is for a fixed and limited period) if the duration of the stay in New York is reasonably expected to last for three years or less, in the absence of facts and circumstances that would indicate otherwise. In the alternative, a stay is of indefinite duration if the stay is realistically expected to last for more than three years, even if it does not actually exceed three years.

However, it should be noted that the New York State Department has permitted a longer 'temporary stay'—that is, longer than three years. In the Jones advisory opinion [Maria T. Jones, Esq., Petition No. I970707B, TSB-A-97(8)I], a mother and child who were planning to be in New York for four years were not considered statutory residents. The main purpose of the stay was so that the child could attend a certain religious school. Furthermore, in the facts and circumstances presented, their presence in New York was considered for a fixed and limited time and for a particular purpose. Again, the Regulations' guidance for "temporary" is three years or less. If the taxpayer is in New York on a temporary basis to accomplish a particular purpose (child's schooling), the taxpayer will be deemed a nonresident of New York. Interestingly, however, in the Jones case, the mother and child were in New York for four years, in order for the child to complete school. The taxpayer was still deemed a nonresident, even though she was in New York for more than three years.

Particular Purpose

Section 105.20(e)(1) of the Regulations also provides guidance on the meaning of the phrase "particular purpose." Where an individual is present in New York to accomplish a specific assignment that has readily ascertainable and specific goals and conclusions, as opposed to a general assignment with general goals and conclusions, he or she will be considered to be in New York for a particular purpose.

The Regulations give the example of an individual working in California who is assigned to New York to install a piece of equipment. Once the equipment is installed, the individual returns to California. That assignment would be for a particular purpose.

However the department's 1997 Audit Manual cites an example where a salesman with years of experience in a particular product line is assigned to New York as a sales manager because New York sales are weak with regard to that product. It is expected that the individual will devote substantial efforts towards improving those sales. However, work performed as a sales manager constitutes general duties as opposed to a particular purpose, since it is the general goal of every company to sell its products. In these circumstances, the assignment would not be for a particular purpose.

Advisory Opinions

There have been a couple of recent advisory opinions¹ regarding assignees of an Italian bank, which confirm the department's strict approach to the interpretation of "temporary stay for a particular purpose."

In both instances, the temporary transfer of an employee to an employer's New York branch to "enlarge the employee's knowledge of multinational banking" was deemed to be general in nature with general goals and conclusions, and not for particular purpose as intended by section 105.20(e)(1) of the Personal Income Tax Regulations. In addition, as the assignment was open-ended, the individual's stay in New York was not for a fixed and limited period.

Conclusions

The New York State Department has made it more difficult at the audit level to defend a nonresident filing position using the temporary stay exception. In addition, the rule has not yet been tested in court.

As ever, the burden of proof rests on the claimant. The individual must show evidence of intention to stay for a fixed and limited time. After the Italian bank opinions, it is difficult to see how much the presumption of temporary stay can be relied upon in instances where there is an open-ended contract unless there is compelling evidence to show that similar assignments last for less than three years. On the other hand, it would also seem that there is scope to extend this three-year period.

Even so, proving a particular purpose within the narrow definitions set by the department may be the sticking point for any claim. Clearly, employers must be aware that extra care must be taken when drafting assignment documentation to help ensure that the term of the assignment is specified, and that ascertainable and specific goals and conclusions are expressed.

Footnotes:
¹Banca Nazionale del Lavoro, Petition No.: I980618B, TSB-A-98(10)I; Roberto Mancone, Petition No.:I980618C, TSB-A-98(11)I.

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