Arthur R. Rosen of Morrison & Foerster asked, on behalf of a hypothetical client ('Mr. Y'), what categories of income are included in the New York taxable income of a New York resident individual who is a nonresident alien for federal income tax purposes.

Plain-English summary

Arthur R. Rosen of Morrison & Foerster asked the Department, on behalf of a hypothetical client referred to as "Mr. Y," what categories of income would be included in the New York taxable income of a resident individual who is a nonresident alien for federal income tax purposes. Mr. Y is a citizen of a foreign country ("Country A"), not the United States. He lived and worked in New York, was employed by the New York office of "Company G," and established his domicile in New York. Before the end of 1989 he planned to leave the United States for foreign "Country B" to do consulting work for Company G in various countries worldwide, returning to New York only for short business visits. During 1990 he expected to spend more than 30 days in New York, keep the New York apartment he owned, and be present in the United States fewer than 183 days - making him a nonresident alien for federal income tax purposes for 1990, even though his federal "tax home" might remain New York. He believed he would cease to be a New York domiciliary but worried he might not be able to prove it, so he might still be treated as a New York resident for personal income tax purposes. His anticipated 1990 income included: consulting fees for services performed in the United States; consulting fees for services performed in Countries B and C; dividends on stock in United States corporations; dividends on stock in an alien corporation; interest on a United States bank deposit; and capital gain on the sale of corporate stock.

The Department first addressed domicile. Tax Law § 605(b)(1) treats an individual as a New York resident if domiciled in New York (unless a narrow exception applies for someone who maintains no New York abode, maintains one elsewhere, and spends no more than 30 days in New York) or if the person maintains a permanent New York abode and is present more than 183 days. Under the Income Tax Regulations (§ 102.2(d)(1)-(2)), domicile is the place a person intends as a permanent home - the place to which the person intends to return whenever absent - and once established it continues until the person actually moves to a new location with the bona fide intent to make that new place a fixed, permanent home; no change of domicile results from a move intended to be only temporary. Section 102.2(d)(3) adds that domicile doesn't depend on citizenship: an immigrant who has permanently established a home in New York is domiciled here regardless of whether that person has become a United States citizen or applied for citizenship. And under Minsky v. Tully, 78 AD2d 955, and Matter of Newcomb, 192 NY 238, changing domicile requires both the intent to make a new place a fixed and permanent home and actual residence there - intent without residence, or residence without intent, doesn't work. Applying these rules, the Department found that Mr. Y had not yet established a change of domicile: as of the facts presented, he was still maintaining his permanent New York place of abode and would spend more than 30 days in New York in 1990. So Mr. Y's domicile remained in New York - making him a New York resident - even though he would be treated as a nonresident alien for federal income tax purposes.

That set up the harder question: what income does a New York resident who is also a federal nonresident alien actually owe New York tax on? Tax Law § 612 defines a resident's New York adjusted gross income as federal adjusted gross income (as defined under IRC § 62), with New York's own modifications layered on top. For an ordinary nonresident alien, IRC § 872 limits federal gross income to (1) US-source income not effectively connected with a US trade or business, and (2) income effectively connected with a US trade or business. Applying that to Mr. Y's anticipated income, his US-source consulting fees would be effectively connected income, while his US corporate dividends, US bank interest, and US stock capital gain would be US-source income not effectively connected with a US business - all candidates for inclusion in federal gross income. But two further IRC provisions cut that list down: IRC § 871(i) exempts a nonresident alien's US bank deposit interest from federal tax entirely when it isn't effectively connected with a US business, and IRC § 871(a)(2) taxes a nonresident alien's non-effectively-connected US capital gains only if the person is present in the United States 183 days or more during the year - and Mr. Y expected to be present fewer than 183 days in 1990. So his federal adjusted gross income for 1990 would include only his US-source consulting fees and his US corporate dividends - not his foreign-source consulting fees (which aren't US-source to begin with), not his US bank interest, and not his US stock capital gain.

Because Tax Law § 612 contains no modification that adds back these federally-excluded, nonresident-alien-specific items, the Department concluded that Mr. Y's New York adjusted gross income - even though he is taxed as a New York resident - would likewise include only his US-source consulting fees and his US corporate dividends. His foreign-source consulting fees, his US bank interest, and his US stock capital gain would all escape New York tax as well, simply because they never entered his federal adjusted gross income in the first place. The Department noted that if Mr. Y's actual 1990 income turned out to differ from what he anticipated, his New York adjusted gross income would still track whatever items ended up in his federal adjusted gross income, modified as required by section 612.

What this means for you

New York domiciliaries who become nonresident aliens for federal tax purposes

If you established your domicile in New York and haven't yet actually moved away with the bona fide intent to make somewhere else your permanent home, you remain a New York resident for personal income tax purposes - full stop - regardless of your citizenship or your federal residency status. Believing you've abandoned New York domicile isn't enough; under Minsky v. Tully and Matter of Newcomb you need both the intent and the actual move. But this opinion's real payoff is on the income side: if you also happen to be a nonresident alien for federal purposes (for example, because you're abroad more than 183 days in the year), your New York tax base can end up narrower than an ordinary resident's, because New York starts from federal adjusted gross income and federal law itself excludes certain items - like foreign-source income, US bank deposit interest under IRC § 871(i), and short-stay US capital gains under IRC § 871(a)(2) - from a nonresident alien's gross income.

Multinational executives and consultants who keep a New York foothold while working abroad

If you're relocating abroad for work but retain a New York apartment, spend more than a trivial number of days in New York each year, and haven't formally established a new domicile elsewhere, don't assume that simply becoming a federal nonresident alien changes your New York tax treatment on the residency question - it doesn't, by itself. What it can change is the composition of your New York taxable income, since items excluded from your federal adjusted gross income as a nonresident alien (foreign consulting fees, US bank interest, certain capital gains) generally stay excluded for New York purposes too, absent a specific New York add-back modification.

Tax preparers and advisors handling dual-status or nonresident-alien clients with New York ties

When a client is a New York domiciliary but also qualifies as a nonresident alien for federal purposes, don't default to treating their full economic income as New York taxable. Start from what actually lands in federal adjusted gross income under IRC §§ 62 and 872, taking into account nonresident-alien-specific exclusions like IRC § 871(i) (bank interest) and IRC § 871(a)(2) (the 183-day capital-gains threshold), and then apply Tax Law § 612's modifications. Because New York conforms to federal AGI rather than taxing worldwide income independently, foreign-source income and certain US-source items that never reach federal AGI won't show up on the New York return either - even for a client who is unambiguously a New York resident.

Common questions

Q: How can someone be a New York resident and a federal nonresident alien at the same time?
A: New York residency and federal residency for tax purposes are determined by entirely different tests. New York looks at domicile (or a permanent-abode-plus-183-days test) under Tax Law § 605(b)(1); federal law looks at the substantial-presence and green-card tests to decide alien residency status. Someone can be domiciled in New York (making them a New York resident) while spending fewer than 183 days in the United States in a given year (making them a nonresident alien for federal purposes). That mismatch is exactly Mr. Y's situation in this opinion.

Q: Why didn't Mr. Y succeed in changing his domicile away from New York?
A: Under Minsky v. Tully, 78 AD2d 955, and Matter of Newcomb, 192 NY 238, changing domicile requires both the bona fide intent to make a new location a fixed, permanent home and actual residence there. As of the facts presented to the Department, Mr. Y hadn't yet moved to Country B - he was still maintaining his permanent New York abode and expected to spend more than 30 days in New York during 1990. Intent to leave, without the actual move and residence abroad, doesn't change domicile under 20 NYCRR § 102.2(d)(2).

Q: Does Mr. Y's noncitizen status affect whether he's domiciled in New York?
A: No. Section 102.2(d)(3) of the Income Tax Regulations specifically states that domicile doesn't depend on citizenship - an immigrant who has permanently established a home in New York is domiciled there regardless of whether that person has become a US citizen or applied for citizenship. Mr. Y's citizenship in a foreign country played no role in the domicile analysis.

Q: Why do Mr. Y's foreign consulting fees, US bank interest, and capital gain escape New York tax even though he's a New York resident?
A: Tax Law § 612 defines a resident's New York adjusted gross income as federal adjusted gross income, with only the specific modifications listed in section 612 added on top. As a nonresident alien, Mr. Y's federal gross income under IRC § 872 would never have included his foreign-source consulting fees (not US-source), and IRC §§ 871(i) and 871(a)(2) specifically exclude his US bank interest and his US stock capital gain (given his under-183-day presence) from federal tax. Because section 612 has no modification requiring these items to be added back, they never enter Mr. Y's New York adjusted gross income either.

Q: Would the answer change if Mr. Y's actual 1990 income differed from what he anticipated?
A: The Department noted that it would not change the method of analysis - if Mr. Y's actual income differed from his anticipated income, his New York adjusted gross income would still include whatever items were included in his federal adjusted gross income, as modified under Tax Law § 612. The opinion is limited to the facts as presented, so a materially different fact pattern (for example, more than 183 days of US presence, which would trigger federal capital-gains tax under IRC § 871(a)(2)) could change which items flow through to New York income.

Citations and references

• Tax Law § 605(b)(1) - defines a New York resident individual as one domiciled in New York (absent the narrow abroad/30-day exception) or one who maintains a permanent New York abode and is present more than 183 days in the year
• 20 NYCRR § 102.2(d)(1) - domicile is the place a person intends as a permanent home, the place to which the person intends to return whenever absent
• 20 NYCRR § 102.2(d)(2) - domicile, once established, continues until an actual move to a new location with the bona fide intent to make it permanent; a temporary move doesn't change domicile
• 20 NYCRR § 102.2(d)(3) - domicile doesn't depend on citizenship; an immigrant who has permanently established a home in New York is domiciled here regardless of citizenship status
• 20 NYCRR § 102.2(b) - a New York domiciliary remains a resident for the year unless the 30-day-abroad test or the 548-consecutive-day foreign-presence test is satisfied
• Minsky v Tully, 78 AD2d 955 - changing domicile requires both the intent to make a new place a fixed, permanent home and actual residence there
• Matter of Newcomb, 192 NY 238 (see 49 NY Jur 2d, Domicile and Residence, § 9) - residence without intent, or intent without residence, does not change domicile
• Tax Law § 612 - a resident's New York adjusted gross income is federal adjusted gross income, as modified by the provisions of section 612
• IRC § 62 - defines federal adjusted gross income as gross income minus certain enumerated deductions
• IRC § 872 - limits a nonresident alien's federal gross income to US-source income not effectively connected with a US trade or business, plus income effectively connected with a US trade or business
• IRC § 871(i) - exempts a nonresident alien's US bank deposit interest from federal tax when not effectively connected with a US trade or business
• IRC § 871(a)(2) - taxes a nonresident alien's non-effectively-connected US-source capital gains only if the person is present in the United States 183 days or more during the taxable year

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a90_6i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-90 (6) I
Income Tax
April 16, 1990

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I891204A

On December 4, 1989, a Petition for Advisory Opinion was received from Arthur R. Rosen,
Morrison & Foerster, 1290 Avenue of the Americas, New York, New York 10104.
The issue raised by Petitioner, Arthur R. Rosen, is what categories of income, based on the
hypothetical facts presented, are included in New York taxable income of a resident individual who
is a nonresident alien for federal income tax purposes.
Mr. Y is a citizen of country A (not the United States). He has lived and worked in New
York, has been employed by the New York office of Company G, and has established his domicile
in New York. Before the end of 1989, Mr. Y intends to leave the United States and move to foreign
country B. He will do consulting work for Company G in various countries throughout the world.
From time to time, he will come to New York for short periods of time to meet with Company G
executives. During 1990, Mr. Y will spend more than 30 days in New York. He will retain the
apartment he owns in New York. While he believes he will cease to be a New York domiciliary, he
may not be able to establish that fact. Accordingly, he may continue to be treated as a resident of
New York for personal income tax purposes. He will be present in the United States for less than
183 days in 1990, and he will be a nonresident of the United States for federal income tax purposes
for 1990, although his tax home for federal income tax purposes may remain in New York.
During 1990, Mr. Y expects to receive the following kinds of income:

1. Consulting fees for services performed in the United States.
2. Consulting fees for services performed in countries B and C.
   3.

Dividends from stock in United States corporations.

4. Dividends from stock in alien corporations.
5. Interest on deposits held in a United States bank account.
6. Capital gain on the sale of corporate stock.

TP-9 (9/88)

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Income Tax
April 16, 1990
Section 605(b)(1) of the Tax Law defines the term "resident individual" as an individual:
(A) who is domiciled in this state, unless (i) he maintains no permanent place
of abode in this state, maintains a permanent place of abode elsewhere, and spends
in the aggregate not more than thirty days of the taxable year in this state.., or
(B) who is not domiciled in this state but maintains a permanent place of
abode in this state and spends in the aggregate more than one hundred eighty-three
days of the taxable year in this state ....
Section 102.2(d)(1) of the Income Tax Regulations provides that, in general, domicile is the
place which an individual intends to be such individual's permanent home - the place to which the
individual intends to return whenever such individual may be absent.
Section 102.2(d)(2) of the Income Tax Regulations provides that a domicile once established
continues until the person in question moves to a new location with the bona fide intention of
making such individual's fixed and permanent home there. No change of domicile results from a
removal to a new location if the intention is to remain there only for a limited time.
Section 102.2(d)(3) of the Income Tax Regulations states that "domicile is not dependent on
citizenship; that is, an immigrant who has permanently established his home in New York State is
domiciled here regardless of whether he has become a United States citizen or has applied for
citizenship."
It is well established that to create a change of domicile, both the intention to make a new
location a fixed and permanent home and actual residence at that location must be present. (Minsky
v Tully, 78 AD2d 955.) Residence without intention or intention without residence, is of no avail.(49
NY Jur 2d, Domicile and Residence, § 9; see Matter of Newcomb, 192 NY 238.)
Section 102.2(b) provides that:
Any person domiciled in New York State is a resident for income tax
purposes for a specific taxable year, unless for that year he satisfies
all three of the requirements in paragraph (1) or all three requirements
in paragraph (2) of this subdivision:
(1) For a specific taxable year all three of the following requirements
are met:
(i) he maintains no permanent place of abode inside
New York State during such year;
(ii) he maintains a permanent place of abode outside
this State during such entire year; and

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TSB-A-90 (6) I
Income Tax
April 16, 1990
(iii) he spends in the aggregate not more than 30 days of the
taxable year in this State; or
(2) For a specific taxable year beginning after December 31, 1977, all
three of the following requirements are met:
(i) within any period of 548 consecutive days he is present
in a foreign country or countries for at least 450 days;
(ii) during such period of 548 consecutive days he is not
present in New York State for more than 90 days, does not
maintain a permanent place of abode in this State at which his
spouse (unless such spouse is legally separated) or minor
children are present for more than 90 days; and
(iii) during any period of less than 12 months, which would
be treated as a separate taxable period pursuant to Part 148 of
this Subchapter, and which is contained within such period of
548 consecutive days, he is present in New York State for a
number of days which does not exceed an amount which
bears the same ratio of 90 as the number of days contained in
such period of less than 12 months bears to 548.
As long as an individual who is domiciled in New York State
continues to meet the requirements of either paragraph (1) of
paragraph (2) of this subdivision, he will be considered a nonresident
of New York State for income tax purposes. However, if for any
taxable year he fails to meet those conditions, he will be subject to
New York State personal income tax as a resident for that year.
Where an individual domiciled in New York State claims to be a
nonresident for any taxable year, the burden is upon him to show that
during that year he satisfied the requirements set forth in paragraph
(1) or paragraph (2) of this subdivision.
Herein, it has not been established that Mr. Y changed his domicile. Therefore, since Mr.
Y has established his domicile in New York State, Mr. Y's domicile remains in New York State. In
addition, Hr. Y is maintaining his permanent place of abode in New York State and will spend more
than 30 days in New York State in 1990. Accordingly, Mr. Y is a resident of New York State even
though he is considered a nonresident alien for federal income tax purposes.
Section 612 of the Tax Law provides that the New York adjusted gross income of a resident
individual is the individual's "federal adjusted gross income as defined in the laws of the United
States for the taxable year, with the modifications specified in this section."

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Income Tax
April 16, 1990
Section 62 of the Internal Revenue Code (hereinafter "IRC") defines "adjusted gross income"
of an individual as gross income minus certain enumerated deductions.
Section 872 of the IRC states that gross income of a nonresident alien individual "includes
only ­
(1) gross income which is derived from sources within the United States and which
is not effectively connected with the conduct of a trade or business within the United
States, and
(2) gross income which is effectively connected with the conduct of a trade or
business within the United States."
Therefore, for federal income tax purposes, Mr. Y would have effectively connected income
consisting of consulting fees for services performed in the United States and United States source
not effectively connected income consisting of dividends from stock in United States corporations,
interest on deposits held in a United States bank account and capital gains on the sale of United
States corporation stock.
However, section 871(i) of the IRC provides that for a nonresident alien individual, no tax
shall be imposed on amounts consisting of interest on deposits, if such interest is not effectively
connected with the conduct of a trade or business within the United States.
Section 871(a)(2) of the IRC provides that net capital gains derived from sources within the
United States, but not connected with the conduct of a trade or business derived in the United States,
are subject to tax if a nonresident alien individual is present in the United States 183 days or more
in the aggregate during the taxable year.
Accordingly, for purposes of section 61£(a) of the Tax Law, Mr. Y's federal adjusted gross
income would include his consulting fees for services performed in the United States and the
dividends from stock in United States corporations. There is no modification contained in section
612 of the Tax Law to include the United States source not effectively connected income that would
be exempt for federal income tax purposes, that is, the interest on deposits held in a United States
bank and the net capital gains from the sale of United States corporate stock.
In conclusion, as a resident of New York State, Mr. Y's New York adjusted gross income
pursuant to section 612 of the Tax Law would include the items included in Mr. Y's federal adjusted
gross income; that is, his consulting fees for services performed in the United States and the
dividends from the stock in United States corporations.

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It should be noted that if Mr. Y's actual income in 1990 is different than his anticipated
income, Mr. Y's New York adjusted gross income would include all items of income included in
federal adjusted gross income as determined herein, and modified as required by section 612 of the
Tax Law.

DATED: April 16, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.