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New York state income tax audit Q&A

Posted on January 28th, 2010 by bunilaw

If you’re a salaried employee and perform any work in New York state you are subject to New York state income tax. Executives and other highly compensated individuals are common targets for audit.

If you move in or out of New York state in conjunction with the sale of a business or a contract to end employment, you should consult with a tax attorney. These issues are beyond the scope of this Q&A.

Common New York income tax audit Q&A for salaried employees:

Why is New York state auditing me?
New York state guards its income tax base by conducting audits that can find either residency or New York source income. Residents of New York are liable for tax on their worldwide income. Non-residents are liable for tax on their New York source income. Typical targets for audit are executives and other high income earners who travel to New York state and file non-resident returns, or fail to file any return.

How could I be found resident of New York?
Two ways.

First you may be domiciled in New York state and spend at least 30 days in the state during the year. Domicile is a legal concept that refers roughly to where you’re from. You can change your domicile, but only if you move somewhere that is not temporary.

Second, you may be a statutory resident of New York. You are a statutory resident if you maintain a home in New York (including an apartment you rent) and spend more than 183 days in the state. With narrow exceptions, any portion of a day spent in the state (even a minute) counts as a whole day. Travel days in or out of New York always count as New York days.

If I’m not domiciled in New York and not a statutory resident, can New York state still tax me?
Yes. New York can and will tax you on your New York source income. If you earn salary or wages, your New York source income is the portion of your earnings from days spent in New York state.

How will the state prove I was in New York?
They won’t. The examiners will rely on you to prove you weren’t in New York. Each day you can’t prove that you spent the entire day outside of New York will count as a day in New York.

How do I prove I wasn’t in New York?
If you work or maintain a place to stay in New York and file a resident return in another state, you need to maintain 1) a contemporaneous calendar that records your location on every day of the year, 2) travel records, including tickets and itineraries that establish the times you entered and exited the state. The calendar you rely on needs to be maintained in the regular course of your trade or business. If you assemble it in preparation for an examination, it’s too late– the examiners will not have to accept it, and probably won’t accept it.

Can I avoid New York source income by working at home outside of New York?
Probably not. If your employer is based in New York, working at home, even if it is outside New York state, will still count as New York income unless your employer requires you to work at home on that day. For more about New York state’s position on the source of income when you work from a home office, see TSB-M-065(5)I . Do not confuse the “convenience of the employer” test discussed there with the source rules discussed above that apply when you are not working in your home.

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One Response to “New York state income tax audit Q&A”

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