Supreme Court lets New York taxes on part-time residents stand

The U.S. Supreme Court left intact New York’s rules for taxing people who work in the state but live there only part-time, rejecting two appeals including one filed by the founders of Edelman Shoe Inc.

The appeals argued unsuccessfully that New York is violating the Constitution by denying credits for some taxes paid in other states by people with dual residences. Critics said New York is improperly collecting millions, if not billions, of dollars, much of it from people who primarily live in Connecticut.

The fight involved so-called intangible income, which includes proceeds from the sale of a business. Dual residents who pay taxes elsewhere on intangible income get a credit in New York, but only if the money is derived from economic activities in the other state. The system means taxpayers in some cases might have to pay levies twice on the same income.

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The U.S. Supreme Court in Washington, D.C.

One of the cases involved the 2010 sale of Samuel and Louise Edelman’s shoe business to Brown Shoe Co., now known as Caleres Inc. The Edelmans paid taxes to Connecticut on the sale.

At the time, the Edelmans lived primarily in Connecticut but worked in Manhattan and had an apartment in the city. New York considered the Edelmans to be residents under that state’s law because they spent more than 183 days there. The couple was fighting an assessment of more than $6 million in back taxes.

Interstate commerce

The other case concerned Richard Chamberlain and Martha Crum, who were fighting a $2.7 million assessment stemming from their 2007 sale of Chamberlain’s communications company. Like the Edelmans, the couple lived mainly in Connecticut but had a townhouse in New York City and worked there.

The appeals contended that New York is discriminating against interstate commerce. The couples said the assessments can’t be squared with a 2015 Supreme Court ruling that a Maryland couple was being improperly double-taxed on income the husband received from a company he partially owned. That company was based in Maryland but earned income from other states.

New York officials urged the Supreme Court to reject the appeals. The state said it provides the type of tax credit that was missing in the Maryland case, shielding taxpayers when the income stems from commercial activity in another state. New York state courts upheld the assessments.

The cases are Chamberlain v. New York State Department of Taxation and Finance, 18-1569, and Edelman v. New York State Department of Taxation and Finance, 18-1570.

Greg Stohr
Bloomberg News