New York Court of Appeals Refuses to Hear Challenge to Tax Credit Denied to Dual Residents

April 23, 2019

By Harold Hecht and Seth Rabe

New York’s highest court refused to consider appeals in two cases that had challenged a law permitting New York to tax intangible investment income already taxed by another state without allowing a credit for taxes paid to that other state.

In both Edelman v. Department of Taxation and Finance and Chamberlain v. Department of Taxation and Finance, the taxpayers were dual residents, domiciled in Connecticut but also with permanent places of abode in, and having spent more than 183 days per year in New York, making them “statutory residents” of New York.

New York allows a credit for taxes paid to other states on income earned in that state, such as wages, business income, partnership income, etc., but the taxpayers were denied a credit for taxes on income from personal investments and intangibles paid to Connecticut, because the court concluded that the income was not earned in Connecticut.   As a result, the same intangible income was taxed twice – by Connecticut and New York.

It was hoped that the U.S. Supreme Court decision rendered in 2015 in Comptroller of the Treasury of Maryland v. Wynne would provide the necessary rationale and relief from what many believe is now an impermissible imposition of double taxation that negatively impacts interstate commerce.   Those hopes have at least been temporarily dashed by the Court of Appeals’ decision to take no action on the taxpayers’ appeals.

Mazars Insight

The next option for the taxpayers in Edelman and Chamberlain would be to file a writ of certiorari for the U.S. Supreme Court to hear an appeal of their case.  It is unclear at this point whether or not the Supreme Court would grant certiorari.  In the meantime, New York’s existing law and its interpretation continues to remain in effect.

Contact your Mazars USA LLP professional for additional information.

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