DT&F Proposed Repeal of Temporary Stay Exemption
November 25, 2008
Mr. William Ryan
Director, Taxpayer Guidance Division
New York State Department of Taxation and Finance
State Office Campus
Albany, New York 12227
Dear Mr. Ryan:
RE: TAF-42-08-00016-P/Definition of Resident
The Business Council opposes the Department's proposal to amend current regulatory description of what constitutes a “place of abode” for purposes of defining residency status of personal income taxpayers.
The Business Council is New York's largest statewide employer association, representing more than three thousand private sector businesses in all industry sectors.
As such, we are concerned about regulatory actions that will have the effect of increasing costs of doing business, or otherwise impose new regulatory hurdle to investments or job growth in the state. We are especially concerned when regulatory proposals have minimal public policy benefits.
- Adverse Impact on Business - Eliminating this exemption will have an adverse impact on New York business. A number of Business Council members have raised concerns about the impact of this regulatory proposal on their in-state operations. The practical effect of this is that certain individuals on work assignments in New York State will be taxed as residents rather than non-residents. Such employees in New York City, which does not tax non-residents, would be subject to that city's income tax as well. This proposed change will increase an employers cost of transferring a non-resident to New York for a temporary work assignment and/or make it more difficult for an employer to make such transfers. In either case, this proposal would establish one more regulatory hurdle to conducting business in New York. By its nature, this rule change will impact multi-jurisdiction employers that can choose to locate existing or expanded business activities out of state.
These temporary assignments are increasingly important to private-sector employers, as the state's economy continues to shift from manufacturing to services. These practices are particularly prevalent in the New York City area, with its concentration of multinational employers in financial and other service industries. We have heard from a number of member companies that routinely bring non-residents into New York for temporary work assignments. This proposed rule change will interfere with this common business practice, and impact an already struggling financial services industry.
- Statutory Basis - The current regulatory language helps define the statutory distinction in the residency status of non-domicile taxpayers.
The Department's regulatory impact statement says that its proposal is justified because the statute “does not contemplate a temporary stay exception.” While no explicit “temporary stay exemption” is provided in statute, it clearly sets two criteria for determining resident status of a non-domicile taxpayer, including length of stay within New York (183 days in a given tax year) and on whether the taxpayer maintains a permanent place of abode within the state. This second key criteria, undefined in statute, is given more specific definition in the Department's regulation. As the current Section 105.20(e)(1) provides Departmental interpretation of this key statutory terms, we believe its continuance is supported by statute.
We would stress that the statute uses the term "permanent" place of abode, and that removing the “temporary stay” language from the rule does not remove the word "permanent" from the statute. If the legislature wanted a temporary abode to qualify, it would not have qualified the term by adding the word "permanent". That term is found in several places in the personal income tax, not just in the statutory resident language (e.g., the 450 day rule and 30 day rules which are applicable to domiciliaries who might not be taxable as residents.) It is a rule of construction that terms are deemed to have a meaning, and it is clear that this qualifier limits the term "abode" to places deemed "permanent". Transitory quarters while on assignment in New York do not qualify as "permanent", regardless of whether the regulation is changed.
In summary, even with the Department's proposed redaction of the “temporary stay” language, a taxpayer with a “temporary place of abode” in New York would still not be considered a resident for PIT purposes, and taxpayers would be left seeking a definition of “permanent place of abode.” The current rule at least offers further definition of that key criteria.
- Minimal Public Benefits – We see no clear and compelling need for this proposed rule change.
We have heard no complaints from taxpayers or practitioners regarding the existence of the current rule; to the contrary, Business Council members support its continuation. And frankly, we do not see the regulatory provision as particularly confusing. Its provisions are fairly straightforward – a taxpayer must be in New York temporarily and must be in New York for a particular purpose. To the extent that there is confusion regarding its applicability, our members have suggested that such confusion is the result of Department auditors interpreting the rule using factors not found in statute or regulation.
Likewise, we do not believe the added costs or complications imposed on employers by this proposed rule change is justified by the limited potential state revenue gain calculated in the RIS. In fact, we question whether this gain would be realized, if the effect of this rule change is to discourage the temporary assignment of non-residents to in-state work assignments.
- Retroactivity – We would also like to comment on a a practical problem with the proposed change, in that it appears to apply retroactively to tax years in 2008. This raises concerns about the ability of a regulatory agency to make retroactive rule changes under existing administrative procedure. It also raises compliance issues. Taxpayers relying on the “temporary stay” rule in 2008 may find, under this amendment, that they have not have made proper estimates or have had enough tax withheld to cover the potential increase in their tax liability. Additional interest and penalties may apply here because of potential underpayments.
As always, we appreciate the Department's willingness to consult with the regulated community in developing policy, guidance and regulations.
In this case, we believe that the regulation in questions should be preserved, and any significant uncertainty in its applicability addressed through non-regulatory guidance.
Further, we believe that the proposed rule change would subject New York State employers to unnecessary regulatory hassles, which are unjustified by statutory or state financial considerations.
For these reasons, The Business Council recommends against adoption of this proposed rule change.
Please feel free to contact me with any questions, or if you would like to discuss these comments.
Kenneth J. Pokalsky