Man's Best Friend
Ogden Nash’s poem, An Introduction to Dogs, begins with the prescient first verse:
The dog is man's best friend.
He has a tail on one end.
Up in front he has teeth.
And four legs underneath.
Dogs like to bark.
They like it best after dark.
They not only frighten prowlers away
But also hold the sandman at bay.
Little did Nash know when he wrote these words that he could add the NY State Department of Revenue to the list of people dogs can hold at bay.
Domicile is a key concept in tax planning. The technical tax definition is your domicile is the place in which you intend to have your permanent home or where you intend to return to after being away. And you can only have one tax domicile.
Twenty-eight states have even more detailed definition. But the definition in question here belongs to the State Revenue Department of NY – long considered one of the most aggressive states in terms of domicile. Their definition of domicile is simple and straightforward – you must have a permanent place of abode and spend more than 183 days of the tax year in New York.
In order to enforce the rules of domicile, the State of NY consistently and aggressively seeks out residency audits. BNA Bloomberg recently noted that they take on 5,000 such audits annually and have 300 field officers working on these audits.
So with such a defined posture on the concept of domicile, how does man’s best friend have any impact on whether an individual is a New York State taxpayer?
The taxpayer in question, Gregory Blatt, was the owner of an elderly rescue dog. He and his dog had spent 15 years building a life in NYC and a successful career – Blatt was General Counsel at a major media company and he owned his NY apartment.
In 2009, his role at the company changed, and he was offered the position of CEO of one of their companies in Dallas. The idea of moving to Texas stopped Mr. Blatt in his tracks. Was he ready to move to a completely different part of the country? Could he possibly leave the hustle and bustle of NYC for life in Texas? In early 2009, the answer to that question was “not yet.”
So his company made accommodations for him to commute to Texas while continuing to live in NYC. He kept his NYC apartment and obtained an apartment in Dallas. He also leased a Porsche in Dallas. And his company reimbursed him these expenses so he was able to live between the two locations. This worked for Mr. Blatt – especially since his dear dog was getting up there in years. He kept the dog in his apartment in NYC.
And then something happened that Mr. Blatt was not expecting – he started to really like living in Dallas. It was cosmopolitan and interesting. He made friends and started dating. And his role as CEO took off. All of a sudden, he began to see things differently. Perhaps he was okay moving to Dallas. So he told his employers and they changed his contract – no longer were they going to pay for his Dallas apartment. Further, they had him execute a new employment agreement stating his place of business was Dallas.
But he didn’t stop there. Mr. Blatt told his friends he was moving. He obtained a Texas license. He changed the address on all his bills and mail to Dallas. And finally in the fall of 2009, he moved his beloved dog there. It had been a tough decision as his dog was quite elderly and not in the greatest shape. He was worried about the humidity and changes on the dog. But the dog was ‘near and dear’ to him and he finally moved the dog to Texas. In fact, in late 2009, he wrote an email to a friend that stated: “Dog is the final step that I haven't been able to come to grips with until now. So Big D is my new home.”
And it was the moving of his dog to Texas that allowed the State of NY, Division of Tax Appeals to find that Mr. Blatt was not a resident for part of 2009 and 2010 and therefore he was not liable for the $430,000 in taxes that NY had been after.
So what’s the takeaway? While having a dog is always a good idea, it’s really about documentation of what is near and dear to you. In the Blatt situation, he was a single man, so other ways of documenting domicile like putting your children in school in a new state or moving your spouse really wasn’t applicable. It was a very personal aspect of his life – dog ownership – that created his new domicile in Texas. If you are considering a change of domicile, it’s important to review what is near and dear to your personal situation and document the steps taken to change its location.
And remember, In re Blatt isn’t a binding case as it is from an Administrative Law Judge. But it does show that with the right documentation and thoughtfulness applied to a situation, the taxpayer may actually prevail.
Mr. Sandman – move over and make room for the New York State Department of Revenue.
New Case Clarifies Approach To New York Residency Audits, by John Herzfeld, BNA Bloomberg, Feb 7, 2017 https://www.bna.com/new-case-clarifies-n57982083461/
In re Blatt https://www.dta.ny.gov/pdf/determinations/826504.det.pdf