In the Matter of John Gaied, Appellant,v.New York State Tax Appeals Tribunal, et al., Respondents.BriefN.Y.January 16, 2014APL-2013-00038 To be Argued by: TIMOTHYP. NOONAN (Time Requested: 20 Minutes) Division of Tax Appeals No. 821727 Qtnurt nf Appeals nft}fe §,tate nf New 1Jnrk -------.-·.------- In the Matter of the Petition by JOHNGAIED, -against- Petitioner-Appellant, NEW YORK STATE TAX APPEALS TRIBUNAL; NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE; and THOMAS H. MATTOX as New York State Commissioner of the Department of Taxation and Finance, in his official capacity, Respondents-Respondents. To Review a Decision in the Matter of John Gaied for a Redetermination of a Deficiency or for Refund of New York State and New York City Personal Income Taxes under Article 22 of the Tax Law and the Administrative Code of the City of New York for the Years 2001, 2002 and 2003. Pursuant to N.Y. Tax Law Section 2016 and N.Y. Civil Practice Law and Rules, Article 78. BRIEF FOR PETITIONER-APPELLANT Date Completed: June 25, 2013 HODGSON Russ LLP TIMOTHY P. NOONAN, ESQ., and JOSHUA K. LAWRENCE, ESQ., of Counsel Attorneys for Petitioner-Appellant 677 Broadway, Suite 301 Albany, New York 12207 Tel.: (518) 465-2333 Fax: (518) 465-1567 TABLE OF CONTENTS Page(s) QUESTIONS PRESENTED ............................................................................................................ 1 STATEMENT OF JURISDICTION ................................................................................................ 2 I. INTRODUCTION ............................................................................................................... 3 II. BACKGROUND AND PROCEDURAL HISTORY .......................................................... 5 A. Statement ofFacts .................................................................................................... 5 B. Procedural History ................................................................................................. 10 III. ARGUMENT ..................................................................................................................... 16 A. Mr. Gaied Did Not Maintain a "Permanent Place of Abode" Under a Proper Interpretation of New York's Residency Statute .................................................. .16 B. The Third Department did not Apply the Same Test that was Employed by the Tax Appeals Tribunal in Gaied II ......................................................................... .27 IV. CONCLUSION .................................................................................................................. 35 1 TABLE OF AUTHORITIES Page(s) STATE CASES DaimlerChrysler Corp. v. Spitzer, 7 N.Y.3d 653 (2006) ................................................................................................................ 19 Doctors Council v New York City Employees' Retirement Sys., 71 N.Y.2d 669 (1988) .............................................................................................................. 17 Jennings v. New Y ark State Office of Mental Health et al., 90 N.Y.2d 227 (1997) .............................................................................................................. 34 Matter of 1605 Book Ctr. v Tax Appeals Trib. ofState of New York, 83 N.Y.2d 240 (1994) .............................................................................................................. 17 Matter of Evans v. Tax Appeals Trib. ofState of New York, 199 A.D.2d 840 (3d Dept. 1993) ....................................... 11, 12, 13, 18, 28, 29, 30, 31, 32,33 Matter ofGaiedv. New York Tax Appeals Trib., 101 A.D.3d. 1492 (3d Dept. 2012) ..................................................... .12, 14, 15, 21, 25, 26, 31 Matter ofSedacca v. Mangano, 18 N.Y.3d 609 (2012) .............................................................................................................. 19 MatterofSIN Inc. v. Dep'tofFin. ofCityofNew York, 71 N.Y.2d 616 (1988) .............................................................................................................. 18 Matter ofTamagni v. Tax Appeals Trib., 91 NY2d 530 (1998), cert denied 525 U.S. 931 ................................................................ 20, 21 Matter of Yellow Book of New York, Inc. v. Comm 'r ofTaxation & Fin., 75 A.D.3d 931 (3d Dept. 2010) ............................................................................................... 19 Metropolitan Life Ins. Co. v. Durkin, 276 A.D. 394 (1st Dept. 1950), aff'd 301 N.Y. 376 (1950) .................................................... .19 New York City Tr. Auth. v. New York State Pub. Empl. Relations Bd, 8 N.Y.3d 226 (2007) ................................................................................................................ 19 New York Times Co. v. New York Comm 'non Human Rights, 41 N.Y.2d 345 (1977) .............................................................................................................. 33 People of the State of New York ex rel. John D. Ryan v. Thomas M Lynch et al, 262 N.Y. 1 (1933) .............................................................................................................. 20, 22 11 Riley v. County of Broome, 95 NY2d 455 (2000) ................................................................................................................ 19 Tamagni v. Tax Appeals Trib. of State of NY, 91 N.Y.2d 530 (1988) .............................................................................................................. 20 STATE STATUTES CPLR § 5601(a) ............................................................................................................................... 2 Tax Law § 605(b ) ........................................................................................................................... 18 Tax Law§ 605(b)(1)(B) ....................................................................... 11, 12, 17, 19, 25, 28, 29, 34 REGULATIONS 20 NYCRR § 105.20(e)(1) ............................................................................................................. 18 20 NYCRR § 105.20(a)(1) ............................................................................................................. 17 20 NYCRR § 105.20(d) ................................................................................................................. 17 20 NYCRR § 105.20(e) ................................................................................................................. 17 22 NYCRR § 500.11 ...................................................................................................................... 16 ADDENDUM A- Matter of Evans, New York Tax Appeals Trib., June 18, 1992 ADDENDUM B - Citations to Evans 111 Questions Presented Question One: To be considered a New York statutory resident for tax purposes, one of the requisites is that an individual maintain a "permanent place of abode" in the State. Did the Tax Appeals Tribunal employ the wrong legal standard to find that Mr. Gaied "maintained a permanent place of abode" merely because he owned an apartment in Staten Island that he did not reside in and that he maintained exclusively for his elderly parents? Answer: Yes. The Tax Appeals Tribunal applied an erroneous legal standard that ignored this Court's prior determinations and that distorted the intent ofNew York's statutory residency rules when it held that mere legal ownership of the apartment was sufficient to establish the apartment as Mr. Gaied's permanent place of abode, even though he did not maintain any living arrangements there. Question Two: Did the Third Department err in holding that the Tax Appeals Tribunal's second decision in this matter was supported by substantial evidence in the record? Answer: Yes. The "permanent place of abode" test employed by the Third Department was categorically NOT the test employed by the Tribunal in its "Gaied If' decision. The Third Department should have annulled the Tribunal's Gaied II decision on the basis that the Tribunal employed the wrong test. 1 Statement of Jurisdiction This appeal is taken from an order of the Appellate Division which finally determined the action. There was a dissent by two justices on a question of law in favor of the Petitioner-Appellant. Therefore, the Court has jurisdiction over this appeal pursuant to CPLR § 5601(a). 2 I. INTRODUCTION This is a case of first impression. Never before has this Court analyzed the scope ofNew York's "statutory residency" rules. In 1999, John Gaied, a New Jersey resident, took advantage of a business opportunity and bought a multifamily property near a business he owned on Staten Island. It looked like a great investment, and allowed him to make some extra money by renting the apartments. It also allowed him to give his elderly parents-who had been living with him in New Jersey and depended on him for support-a place to call their own. But what was meant as a gesture of familial goodwill wound up resulting in a $300,000 tax bill, based on a claim that he was a "resident" of New York, and triggering years of litigation. The Tax Appeals Tribunal initially realized the absurdity of this result and, in a sound ruling premised on settled law and the spirit ofNew York's residency rules, found that Mr. Gaied maintained a residence for his parents, not himself, and thus was not a resident ofNew York. But in a troubling about-face, the same Tribunal later revisited the decision and (over a rare dissent) issued a ruling that announced a new mechanical standard for determining whether a taxpayer maintains a "permanent place of abode." Under this new standard, if a taxpayer maintains property rights in a dwelling place, all that matters is whether such dwelling is suitable for usage. 3 On appeal, the Third Department confirmed the second decision of the Tribunal, in another divided ruling. But in doing so, the Third Department overlooked the new mechanical standard announced by the Tribunal and applied its own, different test. More importantly, the Third Department's holding that a taxpayer can be deemed to have a "permanent place of abode" and be taxed as a resident of New York even when the taxpayer actually maintains no living arrangements in New York runs contrary to the underlying purposes ofNew York's residency rules because it results in the State imposing resident taxation on a taxpayer who really, for all intents and purposes, didn't live here. This is why the case is so important. This Court has yet to address what it means for a taxpayer to maintain a "permanent place of abode." The decisions of both the Third Department and the Tribunal expand the scope of New York's residency rules, and will result in the State being able to tax people like Mr. Gaied-people who don't reside here-as residents of New York. 4 II. BACKGROUND AND PROCEDURAL HISTORY A. Statement of Facts 1. Introduction At all times relevant to this proceeding, Mr. Gaied was a domiciliary of Old Bridge, New Jersey. 1 He timely filed New York Nonresident Income Tax Returns (Form IT-203) for the 2001, 2002, and 2003 tax years (the "audit period").2 On each return, Mr. Gaied responded "No" to the question of whether he maintained living quarters in New York State.3 Though Mr. Gaied showed substantial federal taxable income on his tax returns for each tax year, he also reported significant losses.4 For the most part, the income and losses related to gambling "wins" and "losses" incurred by Mr. Gaied in each of the audit years.5 Unfortunately for Mr. Gaied, his losses exceeded his gains in all three years. Thus, to the extent he had gambling income on the federal level, it was completely offset by his gambling losses. On the New York level, Mr. Gaied was required to show his gambling wins as part ofhis federal income; however, because New York limits the extent to which gambling 2 3 4 5 R. 158-160,258,277,571. R. 456-471, 472-488, 497-513. R. 458, 474, 499. R. 970-981. R. 302-305, 318-322. 5 losses can be used as an itemized deduction, Mr. Gaied could not offset all of his gambling income with gambling losses like he did on the federallevel.6 2. The Staten Island Dwelling and Mr. Gaied's Living Situation During the audit period, and for a number of years before that, Mr. Gaied owned two automotive service and repair stations in Staten Island.7 His businesses were located roughly 28 miles from his home in Old Bridge, New Jersey, which he had owned since about 1994.8 In operating his businesses, Mr. Gaied was often required to work long hours because the stations were open 24 hours-a-day and he was on call at all times.9 Nevertheless, he commuted from New Jersey to Staten Island on a daily basis. 10 In November 1999, Mr. Gaied purchased a multi-family dwelling in Staten Island (the "Staten Island dwelling"), which was located in the same neighborhood as his businesses. 11 His motivation for purchasing the property was two-fold: as an investment and also to provide living quarters for his elderly 6 R. 456-513. 7 R. 161-162, 260. 8 R. 159, 165. 9 R. 163-167. 10 R. 165-175. 11 R. 119-120, 167-169. 6 parents. 12 The Staten Island dwelling was made up of three-separate apartment units. Two of the three units were rented to tenants during the audit period. 13 The third unit was occupied by Mr. Gaied's elderly parents who relied upon him for 100% of their financial support. 14 Once every month or two months, at the request of his parents, he would stay overnight at his parents' apartment in order to provide physical support for them. 15 However, because he preferred to be at his New Jersey home, Mr. Gaied only stayed overnight at the apartment when his parents requested. 16 When he did stay overnight he was forced to sleep on the couch, because he did not have a bed or bedroom in the apartment. 17 Additionally, Mr. Gaied kept no clothing or personal belongings in the apartment and did not carry a key to the apartment. 18 12 R. 169. 13 R. 177-183,750,753-772,982. 14 R. 170-179, 195. 15 R. 175, 229-230. 16 R. 175. 17 R. 174-175, 230. 18 R. 173, 228-229. 7 3. Sale of the Commercial Property and the New Jersey Home During 2001, one ofMr. Gaied's two businesses, Repairs Plus, closed. 19 Later in the same year, he purchased the land on which Repairs Plus had been located and leased it to a third-party.Z0 On December 27, 2002, he sold the land and, as a result, reported a large capital gain on his 2002 federal income tax retum.21 Unfortunately, this capital gain triggered a large federal tax obligation that Mr. Gaied could not afford to pay, and in December 2003, he was forced to sell his New Jersey home in order to satisfy this outstanding tax obligation.22 After he sold his New Jersey home, Mr. Gaied put his furniture and belongings in storage in New Jersey and stayed with his uncle- who also lived in New Jersey- until he was able to renovate the boiler room at the Staten Island dwelling to make an additional apartment.23 After the years at issue herein, Mr. Gaied began residing in the boiler room apartment at the Staten Island dwelling. 24 19 R. 222. 20 R. 57, 184-185. 21 R. 57,975. 22 R. 183-185, 222. 23 R. 187-193. 24 R. 194. 8 4. The Tax Department's Audit and Assessment The Respondent New York State Department of Taxation and Finance (the "Department") conducted a personal income tax audit of Mr. Gaied covering each of the tax years in the audit period.25 As a result of the audit, the Department concluded that Mr. Gaied was a "statutory resident" ofNew York State and New York City based on its conclusion that he spent more than 183 days in New York and maintained a permanent place of abode in New York.26 Mr. Gaied did not dispute that he spent more than 183 days in New York during each year of the audit period.27 At the culmination of the audit, the Department issued a Notice of Deficiency (the "Notice") to Mr. Gaied asserting additional New York State and City personal income tax due in the aggregate amount of $253,062, plus interest.28 As explained above, because ofNew York's rules limiting the deduction for gambling losses, this tax was not being assessed on income he actually received because, in each audit year, his gambling losses swallowed up his wins. 25 26 27 28 R. 359. R. 260-262,271,331. R. 258. R. 37-39. 9 Thus, this set up an unusual situation: Mr. Gaied was faced with an assessment of personal income tax on "income" that he didn't actually receive, based on the Department's conclusion that he was a resident ofNew York, a place where he didn't actually live. B. Procedural History 1. Determination of the Administrative Law Judge Mr. Gaied timely protested the Notice by filing a petition in the New York State Division of Tax Appeals (the "DTA") seeking redetermination ofthe deficiency asserted due by the Department.29 On October 16, 2008, a full evidentiary hearing was held before an Administrative Law Judge (the "ALJ").30 On August 6, 2009, the ALJ issued a determination sustaining the Notice on the grounds that Mr. Gaied maintained a permanent place of abode for his parents and "would on occasion stay overnight during the years at issue."31 2. The First Decision of the Tax Appeals Tribunal- "Gaied I' Mr. Gaied filed an exception to the determination of the ALJ and the Department submitted an opposition thereto.32 This led to the Tribunal's decision 29 R. 238-252. 30 R. 139-234. 31 R. 40-51. 32 R.131-137. 10 in Gaied I. Relying on the longstanding and well-settled interpretation of Tax Law § 605(b )(1 )(B), the Tribunal granted Mr. Gaied's exception and reversed the ALJ's d . . 33 etermmat10n. In doing so, the Tribunal, citing Matter of Evans, 34 a case that has long been the standard bearer in the statutory-residency area, 35 noted that determinations of whether an individual "maintains a permanent place of abode" must address both the "maintenance" and the "permanence" of that abode. As to the permanence test, the Tribunal looked to Evans for the notion that the inquiry "must encompass the physical aspects of the dwelling place as well as the individual's relationship to the place."36 Based on this, the Tribunal held that although Mr. Gaied "maintained" an apartment in New York, the abode didn't meet the "permanence" requirement because he did not maintain any living arrangements for himself there, and maintained it exclusively as a residence for his elderly parents. Thus, the Tribunal found that the apartment could not constitute a 33 34 35 36 R. 52-65. New York State Tax Appeals Tribunal, June 18, 1992, confirmed 199 A.D.2d 840 (3d Dept. 1993) (see Addendum A for a complete copy of the Tribunal's decision in Evans). See Addendum B, which is a list of more than 50 cases from the Division of Tax Appeals and the Third Department that have cited the Evans decision as precedent for the permanent place of abode tests. This same addendum was included in Mr. Gaied's brief to the Third Department. R. 62-63. 11 "permanent place of abode" for Mr. Gaied within the meaning of Tax Law § 605(b)(1)(B). 3. The Second Decision of the Tax Appeals Tribunal- "Gaied If' After the Tribunal issued its first decision in Gaied I, the Department took the rare step of requesting reargument of the case.37 The Tribunal granted the Department's motion and, on reargument, reversed its own decision.38 This decision was so controversial that the President of the Tribunal issued an equally- rare dissent. 39 On June 16, 2011, in Gaied II, the Tribunal announced an entirely new standard for determining when a dwelling constitutes a permanent place of abode. 40 In its unprecedented decision, the Tribunal said that the Evans standard- requiring an inquiry into an individual's "relationship to the place"-was inapplicable in situations where a taxpayer owns his abode. Instead, the Tribunal held that so long as a property is suitable for usage, a property right in a dwelling is sufficient for a finding that the dwelling constitutes a permanent place of abode for 37 38 39 40 R.103-113. R. 98-102; 14-36. R. 33-36. We are aware of only two other instances since the Tribunal convened its first quorum more than twenty-five years ago that it has granted a party's motion to reconsider one of its decisions. See Matter ofStuckless, New York State Tax Appeals Trib., Dec. 15, 2005; Matter ofSchulkin, New York State Tax Appeals Trib., Nov. 20, 1997. See Matter ofGaied, New York Tax Appeals Trib., June 16,2011. 12 a person, regardless of whether that person ever dwells in it, and regardless of any other factors affecting the person's relationship to the dwelling: where a taxpayer has a property right to the subject premises, it is neither necessary nor appropriate to look beyond the physical aspects of the dwelling place to inquire into the taxpayer's subjective use of the premises.41 The Tribunal used this new standard to rule that the Staten Island dwelling constituted a permanent place of abode for Mr. Gaied, even though it was occupied exclusively by his parents; he kept no personal belongings there; he did not have a bed or bedroom for his own use; and he stayed overnight only on rare occasions when his parents' medical needs required his presence. In the dissenting opinion, President James Tully concluded that the proper legal standards regarding "permanence," as set forth by the Tribunal in Evans, were applied in Gaied I. Citing Evans, President Tully noted that the "permanence" inquiry must necessarily depend on "a variety of circumstances which differ widely as the peculiarities of individuals."42 41 R. 29. 42 R. 33, citing Matter of Evans, supra (citing Matter of Newcomb, 192 NY 238 (1908)). 13 4. The Appellate Division's Ruling Mr. Gaied then commenced an Article 78 proceeding in the Appellate Division, Third Department. 43 In divided memorandum and judgment, the Third Department confirmed the Tribunal's split-decision that Mr. Gaied maintained a permanent place of abode in the State.44 In doing so, the majority observed that "the issue distills to whether petitioner maintained a permanent place of abode in New York pursuant to the statute" and instructed that "a variety of factors and circumstances may be relevant" to this determination.45 The majority, however, did not then proceed to confirm the new legal standard set forth by the Tribunal in Gaied II, i.e., that where a taxpayer maintains property rights in a dwelling, subjective usage is irrelevant. Instead, the court proceeded to list examples of factors and circumstances that would be relevant to determining whether an individual maintained a permanent place of abode in New York-factors that looked a lot more like the "relationship" analysis set forth by the Tribunal in Gaied I: 43 44 45 the extent to which the person challenging the assessment paid living expenses, supplied furniture in the dwelling, had a key, had free and continuous access to the R. 3-13. Matter of Gaied v. New York Tax Appeals Trib., 101 A.D.3d. 1492, 1493-94 (3d Dept. 2012). R. 1034 (emphasis added). 14 dwelling, received visitors there, kept clothing and other personal belongings there, used the premises for convenient access to and from a place of employment, and maintained telephone and utility services there in his or her name, as well as whether the premises were suitable for year-round use. 46 With this as the backdrop, and without mention of the Tribunal's "property rights" standard, the majority confirmed Gaied II. In a dissenting opinion, Justice Malone focused instead on the legislative intent underlying the statutory residency rules, recognizing that the rules were intended to tax those who "really and [for] all intents and purposes [are] residents" of the State.47 To that end, Justice Malone noted that the paramount inquiry in determining whether a taxpayer is maintaining a permanent place of abode in New York should be focused on whether a taxpayer maintains "living arrangements" in a particular dwelling place. Applying this analysis, Justice Malone found that because Mr. Gaied did not live in the dwelling or have any personal residential interest there, the Tribunal's decision to hold him as a resident of New York was "irrational and unreasonable."48 46 47 48 Id Matter ofGaied v. Tax Appeals Trib., 101 A.D.3d at 1495 (Malone, J., dissenting) (citing Matter ofTamagni v. Tax Appeals Trib., 91 NY2d 530 (1998), cert denied 525 U.S. 931). ld at 1496. 15 5. Appeal to this Court Mr. Gaied commenced this appeal by filing a Notice of Appeal and a Preliminary Appeal Statement in this Court on February 1, 2013 and February 8, 2013, respectively.49 By letter dated February 14, 2013, the Court sua sponte initiated the alternative review procedure pursuant to 22 NYCRR 500.11 ("500.11 review"). In response, Mr. Gaied filed a letter submission on March 11, 2013 in support ofhis position on the merits and also in opposition to 500.11 review. Thereafter the respondents filed a submission dated March 28, 2013. By letter of April24, 2013, the parties were notified that the Court was terminating 500.11 review and that the appeal would proceed to a full briefing and oral argument, with this brief and the record materials to be filed and served by June 26, 2013. III. ARGUMENT A. Mr. Gaied Did Not Maintain a "Permanent Place of Abode" Under a Proper Interpretation ofNew York's Residency Statute. The issue in this case is fairly simple. It boils down to one question: were Mr. Gaied's contacts with the State sufficient to render him a "resident" of New York, thereby allowing the Department to tax him on all of his income? It is undisputed that Mr. Gaied was domiciled in New Jersey, and that his presence in New York was almost exclusively related to his job, to which he commuted on a 49 R. 1031-1032. 16 daily basis from his New Jersey home. So the only way Mr. Gaied can be taxed as a resident ofNew York in 2001 through 2003 is ifhe qualified as a "statutory resident." And to make that determination, this Court must determine whether Mr. Gaied maintained a "permanent place of abode" in New York within the meaning of Tax Law§ 605(b)(1)(B). 1. The Statute Was Designed to Tax Those "Who Really Are" Residents. Since the legal issue in this case is one of statutory interpretation, the statute itself is the appropriate starting place. 5° Under New York law, there are two ways a person can be taxed as a "resident" of New York. The first is based on "domicile," or where a taxpayer's permanent and primary home is located. 51 The alternative test for residency-the so-called "statutory residency" test-includes an individual who is not domiciled in this state but: (i) maintains a permanent place of abode in this state, and (ii) spends more than one hundred eighty-three days of the taxable year in this state. 52 The Tax Law does not include a definition of the term "permanent place of abode," but during the years at issue here, the regulations defined it as "a 50 51 52 See Matter of 1605 Book Ctr. v Tax Appeals Trib. of State of New York, 83 N.Y.2d 240, 244 (1994); Doctors Council v New York City Employees' Retirement Sys., 71 N.Y.2d 669, 674-75 (1988). See 20 NYCRR §§ 105.20(a)(l), (d). Tax Law§ 605(b)(l)(B); 20 NYCRR §§ 105.20(a)(l), (e). 17 dwelling place permanently 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."53 In December 2009, the Tax Department amended this regulation and removed the "permanently maintained" language contained in the first part of the regulation. In its place, the regulation now clarifies that a permanent place of abode "means a dwelling place of a permanent nature maintained by the taxpayer."54 Whatever the case, it is well-accepted that when the language employed by a statute is neither special nor technical, there is no need for a court to defer to the Department's interpretation or construction of these words. 55 This is especially so here, where the court below has already recognized that the Department is entitled to no special deference in interpreting the meaning and scope of the term "permanent place of abode" in Tax Law § 605(b ). 56 53 54 55 56 20 NYCRR 105.20(e)(l). See 31 N.Y. Reg. 28, Dec. 30,2009. See Matter of SIN Inc. v. Dep't of Fin. of City of New York, 71 N.Y.2d 616,620 (1988). See Matter of Evans v. Tax Appeals Trib. of State of New York, 199 A.D.2d 840, 841 (3d Dept. 1993). 18 The overarching goal in the interpretation of any statute "is to ascertain and give effect to the intention of the Legislature. "57 And to that end, ascertaining legislative intent involves consideration of "the spirit and purpose of the act and the objects to be accomplished [by it]."58 Where the Legislature's intent cannot be gleaned solely from the text of the law, this Court has recognized that the legislative history of the law's enactment should not be ignored. 59 This is a case of first impression. This Court has never interpreted the scope and meaning of the term "permanent place of abode" under Tax Law § 605(b)(l)(B). However, the Court has endeavored to determine what the Legislature was attempting to accomplish when the "statutory residency" provisions were enacted back in 1922. For instance, in a 1933 decision where this Court rejected a constitutional challenge to the statutory-residency rules, it noted that the term "resident" contemplates a situation where the taxpayer has acquired 57 58 59 DaimlerChrysler Corp. v. Spitzer, 7 N.Y.3d 653, 660 (2006); Riley v. County of Broome, 95 NY2d 455, 463 (2000); Matter of Yellow Book of New York, Inc. v. Comm 'r of Taxation & Fin., 75 A.D.3d 931, 932 (3d Dept. 201 0). Matter ofSedacca v. Mangano, 18 N.Y.3d 609, 615 (2012) (citing Ferres v. New Rochelle, 68 N.Y.2d 446, 451 (1986)); Metropolitan Life Ins. Co. v. Durkin, 276 A.D. 394, 397 (1st Dept. 1950), aff'd 301 N.Y. 376 (1950). See New York City Tr. Auth. v. New York State Pub. Empl. Relations Bd., 8 N.Y.3d 226, 236 (2007); Matter of Yellow Book, 75 AD3d at 932. 19 an abode here "of no transient character and so long continued, and so substantial, as to be of a permanent nature."60 Moreover, as this Court noted in Tamagni v. Tax Appeals Trib. of State of N.Y., 61 the Legislature's original aim in adopting the statutory residency provisions was to "discourage tax evasion by New York residents."62 The intention of the Legislature in adopting these provisions in 1922 was not to begin taxing persons who were undisputedly domiciled elsewhere and who had only a transitory connection and presence in New York. Rather, as the Court pointed out in Tamagni, the Legislature made clear when passing the law that it was needed to ensure that actual New York residents were not avoiding or evading resident taxation: 60 61 62 63 The statutory residence provision serves the important function of taxing those 'who while really and [for] all intents and purposes are residents of the state, have maintained a voting residence elsewhere and insist on paying taxes to us as nonresidents. ' 63 People of the State of New York ex rei. John D. Ryan v. Thomas M Lynch et al, 262 N.Y. 1, 4 (1933) (citing Bowring v. Bowers, 24 Fed. Rep. [2d] 918, 923, cert. denied, 277 U.S. 608). 91 N.Y.2d 530 (1988). ld at 535. ld at 535, citing Tax Department Memorandum in Support, Bill Jacket L. 1922, ch. 425. 20 This point was further highlighted in 1954, when the Legislature amended the "seven month" test for presence in New York and substituted it with the current 183-day rule. In explaining the justification for the proposed change, the Sponsor's Memorandum noted that "there have been many cases of tax avoidance, and even evasion" and that "persons who really are residents nevertheless manage to comply with the present seven-months rule by spending long weekends, holidays and vacations outside the state."64 Thus, as outlined both in 1922 and 1954, and as recognized by this Court in Tamagni, the goal ofNew York's "statutory residency" provisions was not to greatly expand the scope ofNew York's residency laws, but instead to tax only those people whose connections with the State reflected those of other residents-taxpayers who had a substantial and permanent connection to New York. It is for this reason, as outlined in Justice Malone's dissenting opinion below, that a determination as to whether an abode is permanently maintained by a taxpayer should focus on whether a taxpayer is "doing whatever is necessary to continue one's living arrangements in a particular dwelling place."65 Merely 64 65 Sponsor's Memorandum, Bill Jacket, L 1954, ch. 99 (emphasis added). Matter ofGaied, 101 A.D.3d at 1495 (Malone, J. dissenting) (emphasis in original) (internal citations omitted). 21 maintaining a dwelling isn't enough to subject a taxpayer to resident taxation; rather, as recognized by Justice Malone, the question is whether a taxpayer was "living or residing" in such a dwelling. Indeed, such a question seems like a natural predicate to deciding whether a taxpayer "really is a resident" of New York for tax purposes and whether his abode is, in the words of this Court in Ryan, "so long continued and so substantial as to be of a permanent nature. "66 Whether an individual actually lives or resides in a property is irrelevant under the incorrect mechanical formulation of the permanent abode test adopted by the Tribunal in Gaied II, which the Appellate Division majority felt constrained to affirm. Instead, under Gaied II all that matters is whether the individual has an ownership interest in a property that is suitable for habitation. If such an ownership interest is established, then - under this erroneous standard - even if the individual never actually uses the property the individual is deemed to be a resident. It is respectfully requested that this Court reject this unsupported extension ofNew York's residency rules and make clear, as Justice Malone pointedly observed in his dissent below: "Maintaining a dwelling does not necessarily equate to living or residing in such dwelling." 66 People ex rei. Ryan v. Lynch, 262 N.Y. at 5. 22 2. Because Mr. Gaied Did Not Maintain Living Arrangements in New York, He Really Was Not a Resident. With that background in place, the question of whether Mr. Gaied maintained a permanent place of abode in New York should tum on whether he maintained living arrangements for himself at the Staten Island dwelling. And as recognized by Justice Malone in his dissenting opinion, Mr. Gaied did not acquire or use the property as living quarters for himself or otherwise live or reside there; instead, he acquired the property for his parents, and as an investment. This is supported by several undisputed facts in the record, including the following: 67 R. 19. 68 R. 19-20. 69 R. 19. 70 R. 20. 71 /d. • Mr. Gaied's parents, who lived in the first floor apartment, were 100% dependent on Mr. Gaied for support ;67 • Mr. Gaied occasionally stayed overnight at the apartment, but only at the request of his parents when his father needed help due to a medical condition;68 • Overnight stays were infrequent (once every one or two months);69 • There was no bed for Mr. Gaied when he stayed there, requiring him to sleep on the couch; 70 • He did not leave personal items there; 71 23 • Other apartments in the building were rented and Mr. Gaied claimed the rental income on his filed tax returns. 72 Again, none of these facts are disputed, and all reflect the fact that Mr. Gaied did not live or reside in the dwelling, and that he did not have a personal residential interest in the place. He acquired it as an investment and for use for his parents. Under the circumstances- and considering the legislative intent underlying New York's statutory residency rules-the Tax Appeal's Tribunal's determination that Mr. Gaied maintained a permanent place of abode in New York, and that he "really was a resident" of New York, was both irrational and unreasonable. 72 R. 18. 24 3. The Third Department Relied on the Wrong Facts The Third Department did note that some of the factual findings here were "significantly disputed" by Mr. Gaied.73 But, as will be further outlined below, the question here should not be one of "substantial evidence," looking to whether there was evidentiary support in the record for the factual findings made by the Tribunal in Gaied II. Instead, this is principally a question of statutory interpretation, requiring an examination as to what facts are actually relevant in determining if an abode qualifies as a "permanent place of abode" within the meaning of Tax Law§ 605(B)(l)(B). In other words, in order to determine what evidence is important in making such a determination, we first have to correctly define the test. And as noted above, if the "permanent place of abode" test is premised on whether a taxpayer maintains living arrangements in a dwelling, then the focus should be on those facts outlined in the dissenting opinion- looking to whether or not Mr. Gaied maintained any "personal residential interest" for himself in the dwelling place. 74 The Appellate Division, however, focused on other facts, most of them wholly unconnected to the question of whether Mr. Gaied actually lived or 73 74 See Matter ofGaied, 101 A.D.3d at 1494. Matter ofGaied, 101 A.D.3d at 1495-96. 25 resided in the dwelling, including: the fact that he was a registered voter in New York; that he maintained the telephone service and utilities in his own name; that he paid bills and other expenses for the apartment; that he had unfettered access to the apartment; and that he occasionally slept at the apartment. 75 None of those facts, however, bear any significant relevance to the question of whether or not Mr. Gaied actually lived or resided in the dwelling place. Indeed, in any situation where a parent maintains a dwelling for a child, or a grown child maintains a dwelling for a parent, these same factual circumstances would be present. But such facts don't actually tell us whether or not a taxpayer is actually living or residing in a dwelling. And such facts shouldn't permit a jurisdiction to treat that person as a resident and tax him on all of his income. This is really the crux of the dispute here. It is not a question of whether certain facts were adequately established, or the credibility of a particular witness. Rather, it is a question of which facts are relevant. The facts relied on by the dissenting opinion are squarely focused on whether or not Mr. Gaied maintained living arrangements in the dwelling, and the extent to which he lived or resided there. These are the facts that must be considered in any residency case. The facts relied on by the majority, however, are largely unconnected with that 75 !d. at 1494. 26 analysis, and result in the taxation of someone as a "resident" who lacks a continued, substantial, and permanent abode in New York. B. The Third Department did not Apply the Same Test that was Employed by the Tax Appeals Tribunal in Gaied II There is, however, a completely separate and distinct reason why the Third Department's confirmation of the Tax Appeals Tribunal's decision in Gaied II was in error. This issue has less to do with statutory interpretation, and' more to do with a basic procedural issue: the Third Department and the Tribunal in Gaied II applied different "permanent place of abode" tests. point. This argument requires a review of the procedural history up to this 1. The Tribunal's Gaied I Decision: Focus on the Taxpayer's "Relationship to the Place." In its first decision in this matter, the Tax Appeals Tribunal explicitly noted that determinations of whether an individual maintains a permanent place of abode must address both the "maintenance" and the "permanence" of that abode, and that, in this context, the "permanence" inquiry "must encompass the physical aspects of the dwelling place as well as the individual's relationship to the place."76 76 R. 62 (citing Matter of Evans, Tax Appeals Tribunal, June 18, 1992, attached hereto at Addendum A). 27 This approach to interpreting Tax Law § 605(b )(1 )(B) stems directly from the Tax Appeals Tribunal's seminal decision in Matter of Evans, which as noted above has stood as the guiding authority in "permanent place of abode" cases for more than 20 years. The taxpayer in that case was found to have maintained a permanent place of abode in New York City even though his living quarters in the City-a room in a church rectory provided by a friend-were neither owned or rented by him. In analyzing whether the taxpayer could have "maintained" an abode despite having no property interest, the Evans Tribunal held that making household contributions in a shared living situation could be interpreted as "maintaining" an abode if made with the goal of continuing one's living . d 11" 77 arrangements m a we mg. But the Tribunal didn't end its inquiry there. In analyzing the "permanence" prong of the test, the Tribunal looked at both the physical aspects of the quarters and the taxpayer's relation to them. Ultimately, the Tribunal found sufficient facts to conclude that the taxpayer's living arrangements were of a permanent nature-significantly, that the taxpayer had a dedicated room to which he had unrestricted access, that he kept clothing and personal belongings there, including his own furniture, he treated the abode as his base for the entire work 77 !d. 28 week, vacating only on weekends. 78 This decision was upheld by the Third Department on appeal. 79 Following the framework set forth by Evans, the Tribunal in Gaied I held that although Mr. Gaied "maintained" an apartment in New York, he maintained it exclusively as a residence for his elderly parents who resided there and relied on him for support. He didn't have a bed or bedroom in the apartment; he would only stay there when required because of his father's poor health; and he kept no clothing or personal effects in the apartment. This analysis, as explicitly noted by the Tribunal in its decision, focused on Mr. Gaied's "relationship to the place," and looked squarely to whether or not he maintained living arrangements or a residential interest in the property. 80 2. Gaied II: A New Standard In taking the extremely unusual step of agreeing to rehear its decision in Gaied I and then reversing itself (over a dissent), the Tax Appeals Tribunal in Gaied II announced an entirely-new standard for residency determinations under Tax Law§ 605(b)(l)(B). Specifically, the Tribunal in Gaied II expressly rejected the "relationship to the place" standard it previously set forth in Gaied I and in 78 79 80 Matter of Evans, Tax Appeals Tribunal, June 18, 1992, attached hereto at Addendum A. See Matter of Evans v. New York Tax Appeals Trib., 199 A.D.2d 840. R. at 62-63. 29 Evans, and instead held that a mere property right in a dwelling is sufficient for a finding that the dwelling constitutes a "permanent place of abode" for a person if it was otherwise suitable for usage.81 In essence, the Tribunal reduced the "permanent place of abode" analysis to a mere formula: Property Rights + Suitable Physical Aspects = "Permanent" Place of Abode Under this standard, it does not matter how much the taxpayer uses the abode, or even whether he uses it at all. It does not matter if he kept any personal items in the abode. It does not matter if the abode was used primarily or even exclusively by others. It does not matter if he used it in connection with his employment. And it does not matter at all what relationship the taxpayer had with the dwelling. Instead, where property rights exist, all that matters is whether the dwelling is suitable for somebody to use. 3. The Appellate Division's Decision: Affirming the Wrong Standard In its decision below, the Third Department, like the Tribunal in Gaied I and Gaied II, recognized that the issue distilled to whether or not Mr. Gaied maintained a permanent place of abode under the statute. As outlined above, the Tribunal in Gaied I said that this inquiry must necessarily look to a taxpayer's relationship to the place, and whether he maintained living 81 R. at 29. 30 arrangements there. Gaied II rejected that approach, and said that subjective use and a taxpayer's "relationship to the place" are irrelevant when a taxpayer maintains property rights in that dwelling and it is suitable for usage. The Third Department, however, did not confirm the new standard announced by the Tribunal in Gaied II. In fact, it did not even mention it. Instead, the court set forth its own analysis of the "permanent place of abode" test, noting that in making such a determination, "a variety of factors and circumstances may be relevant."82 Then, citing to its decision in Evans-a decision the Tribunal in Gaied II said had no applicability since Mr. Gaied owned his abode-the Third Department listed several other relevant facts and circumstances, including the extent to which the taxpayer paid living expenses; supplied furniture in the dwelling; had a key; had free and continuous access to the dwelling; received visitors there; kept clothing and other belongings there; used the premises for access to and from a place of employment; maintained telephone and utility services there; and whether the premises were suitable for year-round use. 83 This is undoubtedly not the standard set forth by the Tribunal in Gaied II. Again, the Tribunal in Gaied II indicated that all those factors (but for the 82 83 Matter ofGaied, 101 A.D.3d at 1493 (emphasis added). !d. 31 suitability of the dwelling) were irrelevant in making a determination as to whether an abode was a permanent place of abode. Instead, the Gaied II Tribunal determined that where a taxpayer had property rights in the dwelling, the only relevant fact in analyzing whether a place of abode was "permanent" was whether or not such dwelling was suitable for usage. And therein lies the second problem with the Third Department's decision below. In its zeal to confirm Gaied II, the Third Department failed to actually adjudge whether the legal standard applied by the Tribunal in Gaied II was appropriate. Rather than confronting the Tribunal's erroneous standard, the majority simply deferred to the Tribunal's decision as though it had been reached under a correct legal analysis, while it also recognized that a contrary determination by the Tribunal (such as the Tribunal's determination in Gaied I or the assessment reached by the Appellate Division minority) would have been reasonable. But the administrative ruling under review-the determination in Gaied If-was fatally infected by a legal error that the Third Department failed to correct. In fact, the Third Department's citation to its Evans decision, and its recognition that "a variety of factors and circumstances may be relevant" in making a permanent place of abode determination amounts to an outright rejection of the very standard set by the Tribunal in Gaied II. 32 4. Back to Gaied I. This should lead us squarely back to the result reached in Gaied I. There, citing to the Evans case and applying essentially the same "variety of factors" analysis employed by the Third Department below, the Tribunal held that Mr. Gaied's abode in New York was not a "permanent" place of abode. The only reason the Tribunal agreed to rehear and reverse its decision was because it believed that a different analysis-one not based on Evans and devoid of any factors beyond property rights and suitability-was required.84 Now we see, however, that not even the Third Department agrees with that legal standard. Thus, the Third Department should have annulled the Tribunal's decision in Gaied Il-but not because the Tribunal's analysis or understanding of the facts were unsupported by substantial evidence. A narrow "substantial evidence" standard is generally called for in cases where an agency's determination was based on facts from an evidentiary hearing. But this Court has made it clear that if the agency's determination is based on "conclusions of law drawn from an undisputed set of facts", then it would be "both wrong and inappropriate to apply the substantial evidence test."85 84 85 R. at 62-63 ("We have concluded upon further reflection that our July 8, 2010 decision is an improper departure from the language of the statue, regulations, and controlling precedent.") New York Times Co. v. New York Comm 'non Human Rights, 41 N.Y.2d 345, 349 (1977). 33 As noted above, though there are some disputed facts here, the facts relevant to Mr. Gaied's actual use of the McFarland Avenue apartment as living quarters for himself (that his parents lived there; that he only occasionally stayed overnight and did not use for commuting purposes to work; that there was no bed for him; that he did not keep personal items there; that other apartments were rented) are undisputed. Indeed, the only reason the Tax Appeals Tribunal agreed to initially rehear-and then reverse-its decision below was because it believed in got the legal standard wrong in Gaied I. This is not a factual question, but involves the statutory construction of Tax Law§ 605(b)(l)(B) and the proper test to determine whether a taxpayer maintains a "permanent place of abode." Thus, there was no basis for the Third Department to apply a "substantial evidence" standard. Where, like here, the dispute is over the agency's interpretation or application of a statute, this Court has applied an "arbitrary and capricious" standard. 86 Accordingly, the Gaied II decision should have been annulled because it was arbitrary and capricious, and because it was based the application of facts under a legal standard (i.e., property right + suitability = permanent place of abode) that finds no support in the law. 86 See id; Jennings v. New York State Office of Mental Health et al., 90 N.Y.2d 227, 239 (1997). 34 IV. CONCLUSION This is, indeed, a bizarre situation. We start it out with a taxpayer in an unusual predicament, where the question is whether he should be forced to pay taxes as a resident of New York, a place where he didn't actually live, on "income" that didn't actually exist. From there, it gets even more strange. First, the Tribunal rules for Mr. Gaied and cancels the assessment. Then, in a rare move, it grants the Department's request for reargument. Months later, the Tribunal overturns its prior decision and announces a new standard for determining whether an abode is a "permanent place of abode." But even in that reversal, the President of the Tribunal dissented, arguing for the affirmance of its original decision. Thereafter, in another divided ruling, the Third Department sustains the Tribunal's second determination, but using an analysis much similar to that employed in the first Tribunal case. But most troubling is the result of all this, where a taxpayer with no living arrangements in New York is being taxed as a resident of the State on all his income, phantom or otherwise. We therefore respectfully request that this Court reverse the decision of the court below, annul the Tribunal's Gaied II ruling, and restore some sanity to New York's residency rules. Dated: June 25, 2013 35 HODGSON RUSS LLP Attorney for Petitioner-Appellant r· oth P. Noonan 140 Pe 1 Street, Suite 100 Buffalo, NY 14202 (716) 848-1265 36 ADDENDUM A 37 STATE OF NEW YORK TAX APPEALS TRIBUNAL In the Matter of the Petition of JOHN M. EVANS for Redetermination of a Deficiency or for Refund of New York City Personal Income Tax under Chapter 46, Title T of the New York City Administrative Code for the Years 1985 and 1986. DECISION DTA No. 806515 The Division of Taxation filed an exception to the determination of the Administrative Law Judge issued on January 25, 1991 with respect to the petition of John M. Evans, , for redetermination of a deficiency or for refund of New York City personal income tax under Chapter 46, Title T of the New York City Administrative Code for the years 1985 and 1986. Petitioner appeared ID:Q se. The Division of Taxation appeared by William F. Collins, Esq. (Andrew J. Zalewski, Esq., of counsel). The Division of Taxation filed a brief in support of its exception. Petitioner filed a brief in reply. Oral argument, at the request of the Division of Taxation, was heard on October 10, 1991. Petitioner did not appear at oral argument; however, petitioner was permitted to submit a written reply to the oral argument made by the Division. After reviewing the entire record in this matter, the Tax Appeals Tribunal renders the following decision. ISSUES I. Whether petitioner was a New York City resident liable for City personal income tax because he maintained a permanent place of abode in New York City. II. Whether penalties should be abated. -2- FINDINGS OF FACT We find the facts as determined by the Administrative Law Judge except for finding of fact "14"! We also make additional findings of fact. The Administrative Law Judge's findings of fact and the additional findings of fact are set forth below. Petitioner, John M. Evans, an attorney, was employed during the years at issue by Mobil Corporation in its midtown Manhattan offices as supervisory tax counsel in the office of tax counsel. Petitioner timely filed City of New York nonresident earnings tax returns on Form NYC- 203 and reported and paid earnings tax of $496.41 on gross wages and other employee compensation of $109,503.36 and earnings tax of $532.35 on gross wages and other employee compensation of $118,300.00 for 1985 and 1986, respectively. On both returns, petitioner checked off the box "No" in response to the query, "Did you or your spouse maintain an apartment or other living quarters in the City ofNew York during any part of the year?" The Division of Taxation issued a revised Statement of Personal Income Tax Audit Changes dated August 25, 1988 showing additional tax due of $2,944.58 plus penalty and interest and of $3,297.06 plus penalty and interest for 1985 and 1986, respectively. The following explanation was provided: "Taxpayer is deemed to be New York City Statutory Resident in accordance with New York State Tax Law, Section 1305(a)(2)." Therefore, according to the Division of Taxation, petitioner was liable for the higher New York City personal income tax and not the lower nonresident earnings tax.2 1The Administrative Law Judge's finding of fact "14" has been deleted because the Administrative Law Judge's comments on petitioner's proposed findings of fact contained therein are unnecessary to this decision and the factual findings contained therein have been incorporated into the additional findings of fact. 2During the years at issue, the tax rate for New York City nonresident earnings tax on wages was .45% and for New York City nonresident earnings tax on net earnings from self-employment was .65%. (In 1985, petitioner reported a small amount of income, $560.00, which he had earned as a religious educator which was subject to the higher rate.) In contrast, the tax rate for New York City personal income tax was substantially higher, $675.00 plus 4.3% on excess over $25,000.00 for each of the ye~s at issue. .J. The Division of Taxation then issued a Notice of Deficiency dated November 4, 1988 asserting tax due of$6,241.64 plus penalty and interest. The auditor spent 25 hours on the audit, interviewing petitioner (whom he described as cooperative) two or three times in person and speaking with petitioner over the telephone many times. According to the auditor's report, petitioner maintained a permanent place of abode within New York City because he shared a Manhattan apartment with a friend and paid "different household expenses", and "[t]hese living arrangements have been in existence since he moved out from his rented apartment [in Manhattan] in 1978." The Divisi.on of Taxation conceded that petitioner was domiciled in Pawling (Dutchess County), New York during the years at issue. At the hearing herein, the Division's representative withdrew the argument asserted in the answer that petitioner was domiciled in New York City during the years at issue. Nonetheless, petitioner introduced much evidence to establish that he changed his domicile to Pond Cottage, Quaker Hill Road, Pawling (Dutchess County), New York in the spring of 1978, and that this Pawling residence remained his domicile up to the date ofthe hearing.3 Petitioner purchased the Pawling residence in December 1976. However, it was not until the spring of 1978 that it became his domicile when he vacated his rental apartment in Manhattan. Nevertheless, petitioner continued to live in Manhattan during his workweek at the rectory of the Church of the Good Shepherd (hereinafter "Good Shepherd"), an Episcopalian church located at 236 East 31st Street. In the spring of 1974, petitioner became acquainted with Father Vincent Alfred Ioppolo, who at the time was a Roman Catholic priest in the Philadelphia archdiocese. In January 1975, Father Ioppolo moved from Philadelphia to Manhattan intending to apply to the Episcopal Diocese of New York for acceptance into its priesthood. For about a year and a half, Father Ioppolo lived at petitioner's Manhattan apartment until he moved to the curate's apartment at St. Peter's Church in the Bronx where he was employed as an assistant priest: In March 1978 3Petitioner recently notified the Division of Tax Appeals that his business address has changed from Manhattan to Fairfax, Virginia, which is near Washington, D.C. -4- (after serving for a brief time as an assistant priest to the Church of the Ascension in Manhattan), Father Ioppolo was offered the position of rector at the Good Shepherd. In May 1978, he took up residence in the rectory of the Good Shepherd. At about the same time, petitioner took up residency during his workweek in the rectory at Father Ioppolo's invitation. This living arrangement continued for 12 years. The rectory is a four-story brownstone building next to the church. The church office and rector's study is on the ground floor with a garden behind. The next floor has a kitchen, dining room, outer room, and sitting room. Five bedrooms are located on the top two floors. As rector of the Good Shepherd and as part of his compensation, Father loppolo was provided with the exclusive use of the living quarters in the rectory. The space in the rectory used as a church office had a separate entrance from the living quarters. Petitioner occupied a bedroom on the top floor of the rectory which he described as follows: "There is a bath there. There are bookshelves for books. There is a desk. There is a bed. There are two lamps on either side, a sofa and a television." Father Ioppolo testified that he handled household expenses "since it is my household." On a regular basis, mostly monthly or bimonthly, Father Ioppolo "would submit to petitioner the expenses and he would bear half of it." The shared expenses included expenditures at supermarkets for food, toiletries, and household cleaning products, and the expenses incurred in paying a housekeeper to clean the living quarters of the rectory on a regular basis. For 1985, petitioner and Father loppolo shared household expenses in the amount of $7,014.00, and for 1986, household expenses of$5,770.00 were divided up. (Some small portion ofthese amounts apparently also included petitioner's payment of personal telephone charges.) Further, petitioner furnished the living quarters ofthe rectory with some ofthe furniture from his Manhattan apartment including a desk, a wing-back chair and a drop-leaf table. He also purchased furnishings for the rectory including, according to the testimony of Father loppolo, "a settee, mirror, two regency chairs, dining room furniture, a lot ofthings." -5- Consequently, it is reasonable to find that petitioner and Father Ioppolo shared a household. Petitioner did not hold himself out as living at the rectory and did not use the rectory as his address. In fact, the Manhattan telephone directory for 1987 shows petitioner's Pawling address and phone number, and petitioner testified that this same information had been contained in the Manhattan directory since 1979. Petitioner conceded that he spent in the aggregate more than 183 days of each of the years at issue in New York City. We make the following additional findings of fact: There was no lease or other written agreement between Father Ioppolo and petitioner, or between petitioner and the Good Shepherd parish requiring petitioner to compensate either Father Ioppolo or the parish for his use of the rectory. The parish paid for the utilities for the rectory and for any major repairs. Father loppolo testified that he invited petitioner to stay at the rectory with him because he was not used to being alone and he and petitioner got along "famously". Because of petitioner's interest in the church, Father Ioppolo thought petitioner's help and advice would be "invaluable". In addition, father Ioppolo testified that since petitioner had previously provided him with a place to stay in petitioner's apartment, this was an opportunity for him to "return the favor". Father Ioppolo testified that he "had a number of priests and laymen who were friends of mine come and stay and live for a time, the most recent being Father George Brant, who ... stayed with me for fifteen, sixteen months", and, that he "had a friend who lived in Rome, and he came and stayed for ... a year and a half or something like that." There was no testimony that these individuals contributed to the household expenses or supplied furnishings to the living quarters. -6- Petitioner typically stayed at the rectory from Sunday or Monday night to Friday. Weekends and vacations which were not spent traveling were typically spent at petitioner's home in Pawling. Petitioner kept most of his business suits at the rectory. Petitioner testi tied that his teenage son visited petitioner at the rectory "occasionally" and, that "As he's [the son] gotten older, he's more interested in being in the City than being in Pawling." OPINION The Administrative Law Judge held that petitioner was not subject to the personal income tax for the City ofNew York as a city resident individual because he did not maintain a permanent place of abode in the city as required by Tax Law § 1305(a)(2) and Administrative Code (former) T46-l 05.0.4 The Administrative Law Judge found that the living quarters in the rectory were not a permanent place of abode maintained by petitioner because they were maintained by Father Ioppolo and petitioner was not contributing to Father Ioppolo's "general support." On exception, the Division of Taxation (hereinafter "the Division") argues that petitioner's use of the living quarters in the rectory over a substantial period of time supports the conclusion that the living quarters were a permanent place of abode maintained by petitioner. The Division asserts that petitioner's regular payment of household expenses and purchases of furniture for the living quarters, and the presence in the living quarters of personal items and furniture from petitioner's former abode, all support the conclusion that petitioner maintained a place of abode at the rectory. The Division argues that the phrase "maintains a permanent place of abode" has a broader meaning than that ascribed to it by the Administrative Law Judge and would include petitioner's use and occupancy of the rectory here. In response, petitioner asserts that the Administrative Law Judge's determination was not in error and that the Division is attempting to add an additional test to the requirements for 4Renumbered Administrative Code§ ll-1705(b)(l )(B), effective September I, 1986. -7- establishing residency by suggesting that the amount of time during the year and the number of years petitioner spent as a guest of Father Ioppolo converted petitioner's status into that of one maintaining a permanent place of abode. Petitioner argues that the requirements which must be met in order for a nondomiciliary to be taxed as a city resident are separate and distinct. Petitioner asserts that meeting the first requirement, being present in the city for more than 183 days during the taxable year, is irrelevant to determining whether the taxpayer has met the second requirement, maintaining a permanent place of abode in the city during the taxable year. Petitioner defines "maintaining a permanent place of abode" as owning or leasing a dwelling, or occupying a dwelling to which the taxpayer has some legal right (such as a dwelling furnished as part of one's employment). Petitioner argues that without such a clear and unambiguous standard, a taxpayer would not know how to determine when a temporary living arrangement, such as being a guest, rose to the level of permanency for which the filing of a resident return would be required. Petitioner asserts that his living quarters at the rectory were neither "maintained" by him, nor were they "permanent." We reverse the determination of the Administrative Law Judge. Pursuant to the authority of Article 30 of the Tax Law, the City ofNew York imposes a personal income tax on residents ofNew York City. Administrative Code (former) T46-105.0 contains the definition of resident individual applicable here: "[an individual] who is not domiciled in this city but maintains a permanent place of abode in this city and spends in the aggregate more than one hundred eighty-three days of the taxable year in this city .... " As petitioner has conceded that he spent more than 183 days in the city during the tax years at issue, we are concerned only with whether petitioner was maintaining a permanent place of abode in the city at the rectory of the Church of the Good Shepherd. To answer this question we must decide the meaning of the phrase "maintains a permanent place of abode" as it is used in Tax Law§ 1305(a)(2) and Administrative Code (former) T46-105.0. Primarily we must determine what the Legislature meant by the word "maintains", and whether petitioner's living quarters at the rectory were "maintained" by him. However, we must also determine whether petitioner's living arrangements were within the statute's meaning of "permanent." -8- The term "maintains" is not defined in the statute or regulations. The previous decisions of this Tribunal cited by the Division involved dwellings which were either leased or owned by the petitioners (Matter of Roth, Tax Appeals Tribunal, March 2, 1989; Matter of Feldman, Tax Appeals Tribunal, December 15, 1988) which distinguishes them from the facts presented here. We have not found any cases defining the word "maintains" in the context of residency which conclusively resolve the issue presented here.5 The legislative history of this statutory language provides limited guidance. The statutory language at issue was not in the original personal income tax statute (Article 16) enacted in 1919 (L. 1919, ch. 677), but was added a few years later (L. 1922, ch. 425). When the current personal income tax statute (Article 22) was enacted in 1960 (L. 1960, ch. 563), the provision defining a resident individual was included without change. The Division notes that the Department ofTaxation and Finance had consistently interpreted the Article 16 provision in the manner it urges us to adopt here (see "State of New York, Department of Taxation and Finance, Income Tax Bureau, Manual of Audit Policy", Article 503, August 25, 1958; Opinion of Deputy Commissioner and Counsel, July 24, 1941 ); however, there is nothing in the 5The Division cites the fonner State Tax Commission's decision in Matter ofBrazin (State Tax Commission, January 24, 1983) in support of its argument that "maintain" means "to keep effective." This Commission decision (even with its misstatement of the holding in Matter ofRothfield v. Graves [264 App Div 54, 34 NYS2d 895, affd 289 NY 583]) is consistent with the Division's position in the matter before us that an individual may have as his pennanent place of abode, a dwelling supplied by and paid for by another, and that "maintain" means "to keep effective." The Division does not argue, however, that this decision is detenninative of the matter before us. The Administrative Law Judge cited MacKill v. Bates (278 App Div 724, 103 NYS2d 31) apparently for the proposition that the taxpayer's contribution must be in the form of "general support" in order for the taxpayer to be found as maintaining a pennanent place of abode. In MacKill, the taxpayer-husband moved to Washington, D.C., while his wife continued to live in their New York City apartment. The taxpayer had access to the apartment and was contributing to the wife's "general support." Upon completion of his employment assignment in Washington, he returned to the New York City apartment. The Court found that: "The factual decision of the Commission that petitioner 'maintained' a permanent place 'of abode' in New York while he worked in Washington is not unreasonable in view of the arrangement by which the New York apartment was occupied by his wife; nor is the conclusion unreasonable that the living arrangements of petitioner in Washington did not constitute the maintenance of a pennanent place of abode there. This is the extent of our inquiry into the detennination of the Commission" (287 A.D. at 724, 103 NYS2d at 32). The Administrative Law Judge concluded that since petitioner was not contributing to Father's Ioppolo's "general support," he was not maintaining a permanent place of abode at Father Ioppolo's residence. We do not agree that MacKill can be read as articulating a rule that contributions to "general support" (a phrase undefined in the Mackill opinion) are reguired for a finding that a pennanent place of abode is maintained. -9- legislative history that would indicate that the Legislature reenacted this provision based upon these interpretations. The 1960 statute made major changes to the tax on personal incomes. While the bill was pending before the Legislature and while it was awaiting the Governor's signature, it was closely examined by many groups, i.e., the tax sections of various bar associations and business groups. Many comments were submitted, including technical suggestions which were incorporated into the final bill; however no one commented on this unchanged aspect of the law (Bill Jacket, L. 1960, ch 563). The issue then is one of statutory construction and interpretation. "In statutory construction, commonly used words must be given their usual and ordinary meaning, unless it is plain from the statute that a different meaning is intended (citations omitted)" (Regan v. Heimbach, 91 AD2d 71, 458 NYS2d 286, 287, lv denied 58 NY2d 610, 462 NYS2d 1 027; see also, Matter of Leisure Vue v. Commissioner of Taxation & Fin., 172 AD2d 872, 568 NYS2d 175, 176). However, in this case, lexicological scholarship does not provide us with one "usual and ordinary meaning" of the word "maintain." Petitioner and the Division have each found a meaning which fits the conclusion they urge us to reach.6 In fact, among the fourteen different definitions of the word "maintain" found in The Oxford English Dictionary ( 1978), any of the following might be applied to the Legislature's use of the word in this statute: "To keep up, preserve, cause to continue in being (a state of things, a condition or activity, etc.); to keep vigorous, effective or unimpaired; to 6Petitioner cites Hoeganaes Com. v. Director of Division ofTaxation (145 N.J. Super. 352, 367 A.2d 1182) in support of his definition of "maintain." This case was not about residency; the issue was whether for purposes of the apportionment provisions of the New Jersey corporate franchise tax, the taxpayer was maintaining a regular place of business outside the state within the meaning of the New Jersey Division of Taxation's regulation. Petitioner is correct that the court states in its opinion that "'[m]aintain' means 'to bear the expense of the subject, i.e., pay rent," citing Webster's Third New International Dictionary (Hoeganaes, supra, 367 A.2d at 1186). However, given that the other dictionary definitions cited below convey a broader meaning to the word, we do not see how this court's reference to one particular meaning in the context of the regulation at issue in that case, requires us to conclude that "maintain" means only "to bear the expense of' in the case before us. We note further that the New Jersey court did not find that the home offices used part-time by taxpayer's employees were not regular places of business for the taxpayer solely because the taxpayer did not pay the rent. Rather, the court found that since a regulation must be general and cannot possibly anticipate every factual situation, there were many factors that might constitute the maintenance of an office for the purpose of allocation. The court found that the question depended entirely on the particular circumstances. As discussed below, we agree with this analysis. -10- guard from loss or derogation. With concrete obj.: To preserve in existence. "To cause to continue in a specified state, relation, or position. "To support (one's state in life) by expenditure, etc. "To pay for the keeping up of, bear the expense of; to keep supplied or equipped (e.g. a ship, a garrison; to keep (a road, building) in repair." Determinations of a taxpayer's status as a resident or nonresident individual for purposes of the personal income tax have long been based on the principle that the result "frequently depends on a variety of circumstances which differ as widely as the peculiarities of individuals" (Matter of Newcomb, 192 NY 238, 84 NE 950 at 954). Given the various meanings of the word "maintain" and the lack of any definitional specificity on the part of the Legislature, we presume that the Legislature intended, with this principle in mind, to use the word in a practical way that did not limit its meaning to a particular usage so that the provision might apply to the "variety of circumstances" inherent to this subject matter. In our view, one maintains a place of abode by doing whatever is necessary to continue one's living arrangements in a particular dwelling place. This would include making contributions to the household, in money or otherwise. We, therefore, reject petitioner's assertion that since he did not pay for many of the operating expenses of the dwelling (such as the utilities or major repairs, or any costs of ownership such as mortgage payments), he was not "maintaining" the living quarters as required by the statute. We find no support tor the conclusion that the Legislature intended to define a resident individual solely by the types of expenses incurred by the individual and to limit the definition only to individuals who incur the types of expenses suggested by petitioner. As there can be many financial or other arrangements that determine how the costs of a dwelling are paid for (such as where expenses are shared or provided by another, or where an individual's contribution to the household is not in the form of money), the nature of the expenses incurred in and of themselves cannot determine whether an individual is maintaining a place of abode in the city. -11- With regard to whether a place of abode is "permanent" within the meaning ofthe statute, we do not agree with petitioner that the statute requires that the place of abode be owned, leased or otherwise based upon some legal right in order for it to be permanent. Petitioner argues that he was not maintaining a permanent place of abode in the living quarters ofthe rectory because he had no legal right to reside there and could have been asked to leave at any time by Father Ioppolo. In petitioner's view, his presence in the rectory was "impermanent by its very nature" (Petitioner's brief to the Administrative Law Judge, p. 15). In our view, the permanence of a dwelling place for purposes of the personal income tax can depend on a variety of factors and cannot be limited to circumstances which establish a property right in the dwelling place. Permanence, in this context, must encompass the physical aspects of the dwelling place as well as the individual's relationship to the place.7 For example, it seems clear that an apartment leased by one individual and shared with other unrelated individuals may be the permanent place of abode of those who are not named on the lease, given other appropriate facts. The Division's regulations (which are applicable to the city personal income tax [see 20 NYCRR 290.2]) make it clear that the physical attributes of the abode as well as its use by the taxpayer are determining factors in defining whether it is permanent. Thus, a "permanent place of abode" is defined generally as "a dwelling place permanently maintained by the taxpayer, whether or not owned by him ... " (20 NYCRR 102[6][e]). A "mere camp or cottage, which is suitable and used only for vacations is not a permanent place of abode" (20 NYCRR 102[6][e]). Similarly, "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" (20 NYCRR 102[6][e]). Moreover, a place of abode, whether in New York or 7As stated in an opinion by the Attorney General (1940 Op. Att'y Gen. p. 246, March 28, 1940): "If one were to give the fullest effect to the word 'permanent,' then a person maintaining a 'permanent place of abode' in New York should be considered as a domiciliary. But, careful study of the language of section 350 (7) ofthe Tax Law compels the conclusion that the Legislature did not intend that the word 'permanent' should be construed as meaning the ultimate in the way of a residence established for all time to come. Obviously, it intended rather an abiding place, established either by a domiciliary or a nondomiciliary, having a fixed or established character as distinguished from intermittent or transitory." -12- elsewhere, "is not deemed permanent if it is maintained only during a temporary stay for the accomplishment of a particular purpose" (20 NYCRR 1 02[ 6][e]). As previously noted, a determination of a taxpayer's status as a resident or nonresident individual for purposes of the personal income tax by its nature depends on the totality of the facts in a particular case. A review of the facts concerning petitioner's living arrangements supports the conclusion that petitioner maintained a permanent place of abode in New York City in the rectory living quarters. Petitioner "maintained" the place of abode by making monetary contributions to the household, i.e., he paid one-half of the household expenses. Petitioner also made contributions in kind to the household. The rectory living quarters were furnished extensively with his furniture, either moved from his former apartment in the city or purchased specifically for the rectory living quarters. Moreover, it appears that petitioner was also receiving some return for providing housing to Father Ioppolo in prior years. Petitioner treated the rectory as his permanent dwelling place in New York City during this period; nothing in petitioner's living arrangements suggests that they were temporary. Petitioner kept personal items in the rectory including his business suits and presumably the other clothes he wore to his employment during the week. His use of the rectory living quarters was unlimited; he had a key and was free to come and go at will; he used whatever areas of the living quarters he wished, i.e., the kitchen, dining room, sitting room, etc. He was apparently free to have his own guests visit him at the rectory as evidenced by the visits from his minor son. Petitioner has stated that for the taxable years at issue and for many years prior to the years at issue, he lived during the week at the rectory, returning to his home in Pawling only on the weekends and for vacations. We agree with petitioner that the number of years his arrangement with Father loppolo continued and his presence in the city for more that 183 days in the taxable year do not by themselves support the conclusion that he was maintaining a place of abode in the city. However, we do not agree that these factors in combination with others cannot be evidence of the relative permanence of petitioner's living arrangements. The long- -13- standing ( 12 years) and regular nature of petitioner's arrangements are certainly evidence of what can reasonably be described as "permanence." Petitioner argues that this determination results in uncertainty for a taxpayer who would not be able to know during the taxable year if his living arrangements were going to continue long enough to be considered permanent. While it may be true that during any particular taxable year, a taxpayer may not know with certainty what his living arrangements will be, nevertheless, by the end of the year, and certainly prior to the due date for filing a return, a taxpayer will always be able to evaluate the facts pertaining to his relationship to his place or places of abode during that year and make appropriate decisions concerning his status for tax purposes. We find that reasonable cause exists for waiver of penalties in this matter. Petitioner's interpretation of the statute and regulations as applied to his circumstances, while in error, can be said to appear to a person of ordinary prudence and intelligence to be reasonable (20 NYCRR 102.7[c][4]). The facts here support the conclusion that petitioner's actions do not indicate willful neglect of his tax responsibilities. Accordingly, it is ORDERED, ADJUDGED and DECREED that; 1. The exception of the Division of Taxation is granted except as stated in paragraph "4" below; 2. The determination of the Administrative Law Judge is reversed except as stated in paragraph "4" below; 3. The petition of John M. Evans is denied except as stated in paragraph "4" below; and -14- 4. The Notice of Deficiency dated November 4, 1988 issued to petitioner John M. Evans is upheld except that the penalties assessed are abated. DATED: Troy, New York June 18, 1 992 Is/John P. Dugan John P. Dugan President /siMaria T. Jones Maria T. Jones Commissioner ADDENDUMB 38 CITATIONS TO MATTER OF EVANS TAX APPEALS TRIBUNAL, JUNE 18,1992 Third Department Cases El-Tersli v. Commissioner of Taxation and Finance, 787 NYS 2d 787 (N.Y. App. Div. 2005). Tax Appeals Tribunal Cases Matter of Barker, Tax Appeals Tribunal. January 13, 2011 Matter of Knight, Tax Appeals Tribunal, November 9, 2006 Matter of Donovan, Tax Appeals Tribunal, February 26, 2004 Matter of El-Tersli, Tax Appeals Tribunal, January 23, 2003 Matter of Rutigliano, Tax Appeals Tribunal, December 18, 1997 Matter of Labow, Tax Appeals Tribunal, March 20, 1997 Matter of Tamagni, Tax Appeals Tribunal, November 30, 1995 Matter of Moed, Tax Appeals Tribunal, January 26, 1995 Matter of DeMilt, Tax Appeals Tribunal, December 12, 1994 Matter of Boyd, Tax Appeals Tribunal, July 7, 1994 Administrative Law Judge Cases Matter of Barker, Administrative Law Judge, November 11, 2009 Matter of Terranova, Administrative Law Judge, October 27, 2011 Matter of Holt, Administrative Law Judge, November 1, 2007 Matter of Slavin, Administrative Law Judge, June 7, 2007 Matter of Einav, Administrative Law Judge, March 1, 2007 MatterofGallagher, Administrative Law Judge, February 22,2007 Matter of Halim, Administrative Law Judge, February 15, 2007 Matter of Razdan, Administrative Law Judge, January 18, 2007 Matter of Ramacltamlran, Administrative Law Judge, January 18, 2007 Matter of Kalia, Administrative Law Judge, January 4, 2007 Matter of Legorreta and Campero, Administrative Law Judge, November 13, 2006 Matter of Pritchard, Administrative Law Judge, November 13, 2006 Matter of Nav/akha, Administrative Law Judge, June 29, 2006 Matter of Goldberg, Administrative Law Judge, February 2, 2006 Matter of Sebah, Administrative Law Judge, September 22, 2005 Matter of Knight, Administrative Law Judge, June 9, 2005 Matter of Vazquez, Administrative Law Judge, May 5, 2005 Matter of Ludwig, Administrative Law Judge, August 19,2004 Matter of Gass, Administrative Law Judge, May 27, 2004 Matter of Jay, Administrative Law Judge, October 23,2003 Matter of Donovan, Administrative Law Judge, June 19, 2003 Matter of Brodman and Grimm, Administrative Law Judge, November 7, 2002 Matter of El-Tersli, Administrative Law Judge, May 9, 2002 Matter of Brush, Administrative Law Judge, April 12, 2001 Matter of Brawer, Administrative Law Judge, July 19, 2001 Matter of Giuffre, Administrative Law Judge, July 6, 2000 Matter of Brush, Administrative Law Judge, March 13, 2000 Matter of Esikoff, Administrative Law Judge, June 10, 1999 Matter of Siskind, Administrative Law Judge, March 11, 1999 MatterofSchibuk, Administrative Law Judge, May 7, 1998 Matter of Lepley, Administrative Law Judge, June 19, 1997 Matter of Alfus, Administrative Law Judge, October 17, 1995 Matter of Stei11, Administrative Law Judge, September 7, 1995 Matter of Calvano, Administrative Law Judge, February 27, 1995 Matter of DeMilt, Administrative Law Judge, December 12, 1994 Matter of Lerner, Administrative Law Judge, Sept. 15, 1994 Matter of Ciechanover, Administrative Law Judge, March 17, 1994 Matter of Moed, Administrative Law Judge, November 18, 1993 Matter of Boyd, Administrative Law Judge, November 4, 1993 000160.01330 Business 9898558vl