New York Homeowners: A Taxing Situation

It’s no secret that more than a few New York homeowners actually live beyond the boundaries of the Empire State. They own a small apartment in the five boroughs, or a vacation home on Long Island or in the Hudson Valley, but they actually live in New Jersey or Connecticut or Pennsylvania.

Owning a piece of New York real estate doesn’t make you a real New Yorker, any more than investing in a vineyard in Tuscany makes you Italian. But according to a recent court decision, owning a second home in New York may not make you a citizen of the Empire State, but it does make you a New York taxpayer. Whatever happened to the notion of “no taxation without representation?”

Incredibly, a New York court recently ruled that a couple from Connecticut must pay New York state income tax based on their ownership of a beach house on Long Island. The couple was hit with a bill for $1 million in back taxes. The court affirmed an early decision, equally bizarre and potentially destructive, that contended that ownership of a vacation home that could be used year-round counts as a permanent residence, even if the owners spend little or no time there.

Experts say that the absurd ruling very likely will depress real estate values in Manhattan and the Hamptons, where many out-of-state businesspeople own small apartments or vacation homes. This would be a disaster at any time, but especially so in the midst of a slow and possibly faltering economic recovery.

Never before has New York tax law been interpreted to include vacation homes as permanent abodes. But now, with the state eager for new revenue sources, out-of-state residents may be required to pay New York taxes, including those on capital gains, in addition to the taxes they pay in their actual state of residence.

The State Department of Taxation is thrilled with the court’s ruling. It should not be, nor should the governor and Legislature. Albany has no shortage of urgent priorities to dispose of by the summer. Fixing this tax mess should move to the very top of the agenda.

New York Homeowners: A Taxing Situation