A SECOND APPELLATE COURT UPHOLDS THE CONSTITUTIONALITY OF NEW YORK’S STATUTORY RESIDENCY SCHEME -

The New York Appellate Division, Third Department, has upheld the dismissal of a declaratory judgment action brought by out-of-state domiciliaries challenging the constitutionality of New York’s system for taxing the income of statutory residents. Chamberlain v. N.Y.S. Dep’t of Taxation & Fin., No. 525967, 2018 NY Slip Op. 07383 (3d Dep’t, Nov. 1, 2018). The court agreed with a decision by the First Department in Edelman v. New York State Department of Taxation & Finance, 162 A.D.3d 574 (1st Dep’t, 2018), and found that the U.S. Supreme Court’s decision in Comptroller of the Treasury v. Wynne, 135 S. Ct. 1787 (2015), does not affect the constitutionality of New York’s statutory residency scheme.

Statutory Background. Under New York’s personal income tax law, individuals who are domiciled outside New York may be taxed as “statutory residents” of New York if they maintain a permanent place of abode in New York and are present in New York for more than 183 days during a year. Tax Law § 605(b). While New York, like many states, provides a tax credit for income taxes paid by its residents to other states, the credit is only available where the taxes paid to the other state arise from income “derived” from (i.e., earned within) that other state. Tax Law § 620. The credit is generally not available for intangible or investment income, which is usually not treated as having been directly derived from any specific state.