New York Taxman Should Hope Trump’s Criminal Trial Runs Long

The Manhattan District Attorney’s office unknowingly entered the world of state taxation by indicting Donald Trump, who could become a New York statutory resident as a result of his criminal indictment for allegedly falsifying business records.

Individuals are considered New York residents for tax purposes if they are domiciled in New York, or if they spend more than 183 days in the state and have a New York permanent place of abode for substantially all the taxable year.

Trump isn’t domiciled in New York, but he owns a residential unit in Trump Tower and feasibly could be in the state for more than 183 days due to his legal problems.

For anyone in a similar position—including executives who are subpoenaed for civil matters that require in-person attendance in New York—these factors add complexity to the state taxation analysis. The question hinges on whether New York considers court appearances, in-person interviews, or even potential incarceration (however unlikely) are exempt for state tax purposes.

Residency Tests

New York only taxes nonresidents on their New York-source income using one of two tests to determine residency.

The domicile test looks to the individual’s “home” and considers five primary factors: the actual home, active business involvement, time spent, items near and dear, and family connections. Involuntary stays shouldn’t impact this factor so long as the taxpayer isn’t choosing to spend their time in the state.

The statutory test looks at whether an individual has a permanent place of abode in New York for substantially all the taxable year and spends more than 183 days in the state. New York City adopts the same rule for residents but doesn’t impose a tax on nonresidents. Any portion of a day spent in New York is considered a full day for purposes of determining a “New York” day, except for traveling through the state and being required to stay in the state for medical reasons.

While involuntary stays due to medical conditions have been addressed, there appears to be no guidance in New York addressing the domicile test or statutory residence test for individuals who are incarcerated or fighting charges submitted by New York or its localities.

Involuntary Stays

Despite the lack of guidance addressing involuntary stays in any context outside medical conditions, the same logic should apply to other involuntary stays.

A morbid but obvious example would be that a nonresident who is kidnapped couldn’t trigger New York residency because their abductor held them in the state. The reason is that the stay was clearly involuntary and not the intent of the individual to make New York their residence, which is no different than the guidance provided for involuntary medical stays.

The same logic for both the medical exception and the kidnapping example should apply to mandatory court appearances and incarceration. If an individual isn’t choosing to be in the state but is otherwise there involuntarily—whether for medical reasons or judicial reasons—New York shouldn’t consider those days to count for the 183-day rule.

For Trump, the issue may be in the details when determining a New York “day” and what is involuntary. Judge Juan Merchan, who is presiding over Trump’s criminal case, said he was “required to be here.” For purposes of the trial, Merchan made clear that attendance isn’t voluntary.

Other days spent in New York may not be so clear—a voluntary meeting with his attorneys in New York may or may not count as a New York “day.” The issue is whether any meeting or event relating to the indictment counts as a New York “day” because Trump isn’t choosing to be in the state for reasons other than the indictment itself.

The question is whether Trump should be able to optimize his chances of success in defending the indictment without risking such days being counted toward New York residency.

The argument in favor of Trump (or others in a similar position) is that but for the indictment, he wouldn’t be meeting with the District Attorney, attending a court hearing, or otherwise defending the charges regardless of where or how he chooses to defend the case. The argument against is that he could have remote meetings if he chooses.

Civil Case Questions

We would expect most individuals who are looking at incarceration to argue that the reasoning applies to involuntary days spent in jail. However, the same logic may apply to court-ordered civil subpoenas where an individual (such as a corporate executive) is required to attend an in-person interview in New York.

For court-ordered appearances or incarceration, the state could try to distinguish whether the individual could have known the consequences of illegal actions could include being in New York to defend such action.

For example, one argument may be that voluntarily committing an illegal act doesn’t change to an involuntary stay in New York by virtue of being required to be accountable for that act. The counter would be that the individual committed an illegal act, but never intended to stay in New York because of it. Could similar arguments apply for civil subpoenas?

Could the state argue that a corporate executive foresaw being subpoenaed in New York because their company conducted business in the state? There is no direct guidance addressing this question.

However, in Stranahan v. New York State Tax Commission, a New York appellate court held that involuntary time spent in a medical facility for treatment of an illness didn’t count as a day in New York for the statutory residence test.

The case involved a woman from outside New York who chose to go to Sloan Kettering Memorial Hospital in New York because it offered “the most advanced facilities for treatment of her condition.” Once there, the doctors advised her not to leave.

While the statutory residency day count issue may not be of primary interest to Trump or to the New York District Attorney, it raises an interesting question for anyone that may be “involuntary” entering New York. The main question comes down to whether their stay is actually involuntary and whether it is akin to Stranahan.

(17th paragraph updated with additional explanation about voluntary stays and subpoenas)

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

David Pope is a state and local tax partner at DLA Piper in New York.

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