The Manhattan District Attorney’s office has subtly treaded into the realm of state taxation by indicting former President Donald Trump. The indictment inadvertently places Trump on the precipice of possibly becoming a statutory resident of New York, following allegations of falsifying business records. New York classifies individuals as residents for tax purposes if they spend more than 183 days within its confines, whilst maintaining a permanent residence within the state for the majority of the taxable year. While Trump is not domiciled in the state, his ownership of a residential unit in Trump Tower and the potential requirement of spending an extensive amount of time in New York due to legal proceedings, introduces a unique complication to his tax situation.
The intricate calculation of state taxation for anyone in similar circumstance, including executives subpoenaed for civil lawsuits necessitating their physical presence in New York, may hinge on the state’s view of court appearances, face-to-face interviews, or even unlikely detention as tax-exempt. The critical element lies in whether these elements are considered “involuntary” and therefore not contributing to an individual’s time spent within state shores.
Nonresident incomes in New York are taxed according to one of two tests to determine residency. The domicile test examines an individual’s “home” and considers five primary factors: the actual home, active involvement in business, time spent in the state, items of significance, and family connections. On the other hand, the statutory test determines whether an individual stays at a permanent residence in New York for most of the taxable year while spending in excess of 183 days in the state. Incarceration or criminal proceedings do not currently have specific guidelines within these tests’ parameters.
An analysis of viable involuntary stays is compelled by the absence of guidance beyond medical conditions. Establishing a parallel logic between medical factors and other forms of involuntary stays would dictate that days spent on judicial requirements in the state would not count towards the 183-day rule.
However, given the cryptic nature of determining a New York “day” and what demands are involuntary, ambiguity still casts a shadow on Trump’s case. For instance, during Trump’s legal trial, he was mandated to appear in court, affirming the non-voluntary status of his attendance. Conversely, preliminary meetings with his attorneys that are held within state boundaries may not wield the same perception of obligation. Ultimately, the question that emerges is whether every event or meeting associated with the indictment should be classified as a New York “day,” given Trump’s presence within the state is not on his own accord, but resultant of the indictment itself.
In conjunction, these conundrums pose significant taxation queries not just for Trump but for others in a similar legal quagmire or fitting under the umbrella of “involuntary” entrance into New York. This could range from individuals facing incarceration, court-ordered civil subpoenas, to instances where corporate executives are mandated to present in-person interviews in the state. In each case, the vital discussion centres on the genuine involuntariness of their stay and its resemblance to the precedent-setting case,
Stranahan v. New York State Tax Commission.
For more information, please refer to the original article written by David Pope, a state and local tax partner at DLA Piper in New York, at Bloomberg Tax News.