Connecticut and New Jersey residents with a Hamptons summer cottage or a Manhattan pied-a-terre are about to get a nasty surprise: New York state wants more taxes from them.
A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year. They have been hit with an additional tax bill of $1.06 million. [In re Barker, No. 822324 (NY Tax App. Jan. 13, 2011).] ....
For years, New York law stated that residents of another state who spend more than 183 days a year in New York have to pay taxes on any income they make in this state. But they generally haven't had to pay New York taxes on income they make outside of the state or on their spouses' income if they work elsewhere.
Under the recent ruling, this might change for many out-of-state residents who own vacation homes or apartments here. In effect, it reinterprets what counts as a permanent residence.
In defining a "permanent place of abode," New York tax code specifically excludes "a mere camp or cottage, which is suitable and used only for vacations." New York tax experts say the new ruling is the first they recall that counts summer homes as permanent residences. ....
[The judge] ruled that the couple's Long Island vacation home qualifies under the law as a permanent abode because it was suitable for living year-round—whether or not the couple actually stayed in the home wasn't relevant. Under the ruling, if an owner doesn't spend a single a day in a home it could still count toward a permanent residence.
The Napeague, Long Island, house was purchased by John and Laura Barker for $260,000 in 1997, according to court documents. From 2002 to 2004, the period that was assessed for back taxes, the Barkers said they spent only  days a year at the home, usually during the summer.