If residents of a state change domicile to another state and earn income in the new state, are they off the hook for state income tax in the state where they no longer reside?

Not necessarily, according to New York State’s Division of Taxation. However, an administrative judge in the Division of Tax Appeals said otherwise.

Patrick Carr, an attorney licensed to practice law in New York and New Jersey, lived in Florida where he was admitted to practice pro hac vice, that is, for this one particular occasion. He provided legal services from his Florida home address, and filed and paid federal income taxes during the years 2007 to 2009. The New York Division of Taxation determined that Carr was subject to New York income tax, even though it conceded that he had changed his domicile to Florida.

It stated: “However, the taxpayer is not licensed to practice law in the State of Florida. It was determined that he was admitted as counsel pro hac vice in the Circuit Court of the 12th Judicial Circuit in Sarasota County, Florida. This means that he was given special permission to help litigate this particular case even though you [sic] are not licensed to practice law in the state of Florida.

“Therefore, all of your income is subject to New York income tax, since your income was attributable to a profession carried out in New York State pursuant to Tax Law article 22, Section 631 as explained by the Court’s decisions in the Vigliano and Carpenter cases.”

The Division of Taxation issued Carr a Notice of Deficiency for $68,260 plus interest for the years 2007, 2008 and 2009. Barbara Russo, an administrative law judge for the Division of Tax Appeals, disagreed, finding that an attorney cannot be deemed to be engaged in the practice of law within the state merely because he is licensed in that jurisdiction.

“The Division’s contention that merely holding a license to practice law in New York subjects all income from legal services to New York’s taxing authority is without merit,” she stated. “Income from intangible personal property [the license to practice law] of a nonresident individual does not constitute items of income connected with New York sources, except to the extent attributable to property employed in a business, trade, profession or occupation carried on in New York. As such, the Division cannot assert tax merely based on a New York license.”

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