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09.24.18 | SALT Chat

Regular readers of SALT TALK know that many states and localities follow a similar model in determining whether one will be a tax resident of the jurisdiction and subject to tax on one’s world-wide income. Two tests, domicile or, in the alternative, statutory residency are out to accept your tax dollars.

Focusing on the statutory residency test, if one has a permanent place of abode (a term of art in itself, but for sake of simplicity let’s simply view it for this blog as a place for you to stay that you have unfettered access to) and is present in the jurisdiction for more than 183 days, the test is met (or failed, depending on your perspective) and a resident of the jurisdiction you will be.

I have had more than one potential resident make the statement to me that because I walked down the street in New York City one afternoon that cost me $5 million. My answer: Well, maybe. That one-day putting taxpayers over the edge of the day count can result in one of the most costly strolls ever down Fifth Avenue. Hence the importance of documenting one’s days through some straightforward and not so straightforward documentation techniques.

If you are the paranoid-government-conspiracy-theory-loving-type, this post is not for you. You will cringe at the very thought of the suggestions and ideas contained herein and will insist that I am an integral part of the treachery. For the more practical-minded reader who thinks they may have a residency issue, read on.

We have discussed how the burden is placed on you, the taxpayer, to document your whereabouts. I was inspired by my discovery, that unbeknownst to me, Google Maps was tracking my every move to discuss some of the more novel ways that taxpayers have verified where they were or weren’t.

Well, there is Google Maps, of course. But let’s back up to the good old days before Google. Biometric scanners were all the rage in the eighties and nineties. Just scan your fingerprint morning, noon, and night (the more the better) and hopefully your high net worth individual with a lot at stake would pass the audition with flying colors.

Then, of course, we had the more economically-minded taxpayers who would take pictures of themselves in front of clearly identifiable landmarks (their home?) holding that days newspaper. Nothing was quite as exciting as seeing an auditor’s face when you presented them with a thousand or more photos for a three-year audit.

Visiting an ATM three or four times a day was a popular technique. Running a close second was charging every purchase imaginable. Making unnecessary phone calls also worked, as long as they were long distance as most phone bills back in the day didn’t detail the local calls. Of course, the Tax Department could always subpoena your phone records to get that detail. I will always remember the audit where the auditor presented me with a several thousand page printout of phone calls and insisted the taxpayer was present in New York for every one of them. Thanks to my awesome IT Department, I was able to get the records scanned and sorted by phone number. It became quickly apparent that about 99% of the calls were made to an AOL dial up access number (remember those?) and we were easily able to prove it was the taxpayer’s adult son using the dial up service.

As you can imagine, none of these methods are perfect. There are software offerings which will gather the data from your smart phone (or I’m told even your ancient non-smart flip phone) and track your every move. Not for the faint of heart or those worried this information might get into the wrong hands, you say. Well, unfortunately the cost of privacy needs to be weighed against the cost of a tax bill.

If I have raised questions about your circumstances, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.