Webinar Transcript (5/12/2026): Hot Topics in State Tax Residency: Audit Enforcement and Wealth Taxes
Host: Jonathan I. Shenkman, President & Chief Investment Officer of ParkBridge Wealth Management (Contact: jonathan@parkbridgewealth.com)
Speaker: Timothy P. Noonan, Esq. Partner, Hodgson Russ LLP (Contact: TNoonan@hodgsonruss.com)
Jonathan Shenkman: Good morning, and welcome to the Park Bridge Wealth Management Spring Webinar Series. This program is entitled, Hot Topics in State Tax Residency, Audit Enforcement and Wealth Taxes. As always, my name is Jonathan Shankman, I'm the President and Chief Investment Officer of Park Bridge Wealth Management.
Jonathan Shenkman: In that role, I serve in a fiduciary capacity to help my clients achieve their financial objectives.
Jonathan Shenkman: The goal of my programs is to bring professionals together to help them better serve their clients, and this is done by educating attendees on the latest topics in wealth planning, and by encouraging collaboration between a client's attorney, CPA, and financial advisor where appropriate.
Jonathan Shenkman: My practice focuses on working with high net worth families, businesses, and not-for-profits. I manage individual investment portfolios, trust accounts, corporate retirement plans, and endowments to help my clients achieve their financial goals. In addition to the 20 or so events I run every year.
Jonathan Shenkman: I also do a fair amount of writing on the topics of investing and financial planning, and you can read my work in a variety of periodicals, including Barron, CNBC, Forbes, Kiplinger, The Wall Street Journal, and Trust and Estates Magazine, to name just a few.
Jonathan Shenkman: You can see all my work on my website at parkbridgewealth.com forward slash articles, or by following me on social media at Jonathan on Money.
Jonathan Shenkman: Additionally, you can check out my weekly podcast, which is also called Jonathan on Money, and you can listen to that on Apple, Spotify, or wherever you get your podcasts. And finally, I published my first book, Thieves for Diversification, The ABCs of Personal Finance, which can now be purchased on Amazon or JonathanOnMoney.com, and it's a great way to support these programs.
Jonathan Shenkman: Today, we're privileged to hear from Timothy Noonan from Hodgson Rust, based in Buffalo and New York City. By way of background, Tim is a partner and tax residency practice leader at his firm.
Jonathan Shenkman: He focuses his practice in the state and local tax area. His work primarily involves New York State and New York City tax litigation and controversy. Over the past 20-plus years, he has handled more than 3,000 personal income tax, sales tax, corporate tax, or other New York tax audits.
Jonathan Shenkman: Tim also has handled about 100 cases in New York's Division of Tax and Appeals.
Jonathan Shenkman: He has handled some of the most high-profile residency cases in New York over the past decade or so, including the 2014 win in the Guy Ed case, one of the first New York residency cases to ever reach New York's highest court. He's often quoted by media outlets, including the Wall Street Journal, the New York Times, and Forbes on residency and other tax, state tax issues.
Jonathan Shenkman: As the Noonan in Noonan's Notes, a monthly column in Tax Notes state, Tim is a nationally recognized author and speaker on state tax issues. And today, Tim will be speaking on hot topics in state tax residency, audit enforcement and wealth taxes.
Jonathan Shenkman: And with that introduction, I now turn the program over to Tim. Timothy Noonan: Thanks, Jonathan. Glad to be back here. This might be year 10 or 12 or 15 that I've been with you, so I appreciate getting the call back. Hey, everybody. Timothy Noonan: Good to be here. You could also sort of call the topic, Tax the Rich. That seems to be, all the rage, especially in, our favorite states of New York and California and the like. So, I'm going to be talking about that today. Really two topics underneath that. One… Timothy Noonan: residency, and how… what's sort of happening in the residency space, and what states are doing there. And then second, sort of the other shoe that often falls in these cases, which is non-resident allocation. Even if you're a non-resident of a state, states can still tax you, or states can still tax you. So, Timothy Noonan: Not a lot of time, not a lot to cover, let's… we've got a lot to cover, so let's go. So yeah, first thing is residency, and how states, you know, they're sad when people leave, so they want to, you know, make sure that they really did leave. So, and the reason this has become… becoming such a big issue, and has… I mean, it has been for the 27 years I've been doing this, it's always been an issue, especially in New York, but it's growing post-COVID, and you see on this Timothy Noonan: map, this is people leaving. And, like, the red, sort of the opposite, frankly. They should… this is from the Tax Foundation. They sort of have the colors backwards, but the red states are states where people are leaving. And the darker the state, the more people are… the more people have left, and you see our two industry leaders there are New York and California. Well, why are they leaving? Well, here's the next state. Timothy Noonan: also, color shaded. The darker the color, the more tax there is. So you can see, shockingly, that folks are leaving the, sort of, particularly the, sort of, the more redder states. Again, very confusing, because they're really leaving the blue states, but I think you get the gist. Although it is funny, you see, go back here, lots of people are leaving Alaska. Okay, great. They don't even have an income tax, so the Timothy Noonan: weather must really be bad there for people to be leaving. Otherwise, I think it's these high tax rates that are causing the exodus. Why is that? So, the reason that is, is because when you think about state taxes. Timothy Noonan: It's really centered on this question of state residency. And it is because… actually, the math is really simple. If you're a resident of a state, you're only taxed on one thing. Timothy Noonan: Only one thing, but that one thing happens to be everything. You're taxed on all of your income, regardless of its source, if the state deems you to be a resident. If you're a non-resident, you still might have to pay tax, but only on so-called sourced income. So we'll talk about that in a few minutes, but, so… but residency is huge. It's also huge, and you won't care because you'll be dead, but for estate tax purposes, it's a big deal. Timothy Noonan: Residency really domicile, where the decedent was domiciled at day to death, is also a trigger for, state, you know, state, estate taxes. Timothy Noonan: So, we care about this residency topic a lot, especially in the high net worth states, or high net worth clients. Timothy Noonan: So, again, then they're also… the states also care about these folks, too, right? That's… that's the focus of their… a lot of their, you know, tax provisions and tax enforcement efforts are on the wealthy. You know, there's a stat in New York City, something like. Timothy Noonan: the less than 1% of the taxpayers pay more than 47% of all the New York City income tax, right? So, you can see why there's a focus on this high net worth set. And what we're seeing across the country. Timothy Noonan: again, only in certain pockets is rates going up, or new taxes. Like, Washington, just passed a sort of full, regular old state income tax. They had a capital gains tax that they put into place a few years ago. Now they're just a regular old state that's got a tax rate of about 10%. Timothy Noonan: So… and not shockingly, my phone's been ringing with people wanting to leave Washington. Massachusetts, a few years ago, raised their tax for, sort of, so-called millionaire tax to upwards to 9%, Timothy Noonan: And wouldn't you know it, now Massachusetts is doing a lot more residency audits than they used to, and now more people are calling us to move out, so there's been a flurry of activity there. Timothy Noonan: The other thing going on, we'll talk about a couple of these for a second. California wealth tax, want to spend a couple minutes talking about that. And all the rage the past couple weeks, has been, the New York City pied-a-Terre tax, and Timothy Noonan: videos by the mayor outside a taxpayer's apartment, naming that taxpayer, which you're kind of not supposed to do that, but I'll talk about those, too. But the idea is states are sort of getting… trying to get more creative, and there's no better example of this than what's going on right now in California. Timothy Noonan: So, in California, again, it's been in the news probably since around Thanksgiving last year. There is a proposal. Now, it's not a proposal by the governor or by the legislator. Timothy Noonan: or by the legislature. It's a ballot measure, because in California, that's one of the ways they make new law. You can just get something on the ballot and leave it to the masses to vote for it, which is kind of nuts, but they can do that, and they have all sorts of Timothy Noonan: ballot measures all the time in California. Well, there's a ballot measure percolating right now. Timothy Noonan: That's designed to, establish the first of its kind tax on wealth. So not an income tax, but just a tax on wealth. Now. Timothy Noonan: You know, you might say, big deal, it's targeted at billionaires. And the California proposal, back in October, November 2025, indicated that there were something like 260 billionaires in California. Timothy Noonan: I might encourage them to run their math again, because in May of 2026, I don't think there's $250 billionaires in California anymore. Because of this proposal, lots of them are leaving. Lots of them have left. And the issue here is California is saying that if you were a resident, as of January 1st, 2026, Timothy Noonan: Again, the law isn't even in existence yet. It won't come into existence until possibly November of 2026, but never mind that. It looks back, retroactively, say, if you were a resident on January 1, 2026, defined under the California residency rules. Timothy Noonan: then we're gonna tax 5% of your wealth, above a billion dollars. So, you know, again, it's not like this wide-ranging tax that's going to apply across the board, but it's getting a lot of attention because it's the first of its kind. No state has ever imposed a wealth tax. Timothy Noonan: states like California have been kicking the tires on it, but no state's ever done it. So, that's… that's unusual. It could very well be unconstitutional. That's why no state's ever done it, because you can't tax wealth, you can only tax income. So there, you know, look, we can expect lots and lots of challenges. Timothy Noonan: This act is certainly generating a lot of work for lawyers, both in terms of folks like me who move people out of states, and other attorneys who might, you know, sue to get this thing overturned. So what's happening is they've got… they have to get enough signatures to get it on the ballot. They've gotten enough signatures. Timothy Noonan: And sometime in the next, I think by the end of June, we're gonna know if it's gonna be on the ballot or not. And then it's gotta pass, but it only needs 51% of the vote to pass. So, like… Timothy Noonan: It only affects 200 people, or maybe not 100 people, but, you know, who's gonna, you know, I don't think the sort of masses are gonna vote against this. Now, there are, interestingly, because California's crazy, like, competing ballot proposals, and basically there's, like, a ballot proposal that said you can't have a wealth tax, so… Timothy Noonan: It could be whichever one wins, but again, the fear is that Timothy Noonan: this thing's gonna pass, and who knows what's gonna happen. It's gonna be tied up in litigation for years. Interestingly, the governor doesn't want it, right? So the governor of that state does not want it. He thinks there's other ways to go about it. I think, rightly, he sees Timothy Noonan: the fear and the exodus from, you know, important taxpayers, taxpayers who pay lots of money. There's studies that have been done, since this came out to show, like, California, you might get a big slug of cash. Timothy Noonan: If this passes in 2020… 2026, but… Timothy Noonan: half of the billionaires who left aren't going to be paying you income tax for the next 20 years, so it's probably a bad thing. So in any case… Timothy Noonan: Look, other states are watching this, because what happens in California often starts to bleed into other states, including New York. So, again, New York doesn't make our law via ballot measure, thankfully, but, you know, there's chatter about it from different, folks in New York about doing something similar, so I think it's just a, you know, a fear that this could be coming to a state near you. Timothy Noonan: If it passes in California. And it's really kind of a game changer. Again, no state has ever done anything like this. Timothy Noonan: not so much of a game changer, but also, again, an example of sort of this tax-the-rich idea, and that's not really coming from me. The mayor of New York City said that in a video a couple weeks ago, that he was taxing the rich, and this was one of the ways he was going to do it. Timothy Noonan: So the idea is to impose what's sort of been called the pied-a-terre tax, which is… Timothy Noonan: on all of those people that I helped move out of New York to Florida or other places who kept a place in New York City, they're saying, well, since if it's your second home, we're going to tax it higher, we're going to impose a much higher real estate tax on you if this is your second home. Now. Timothy Noonan: full, sort of, clarification here, this is not the Piedre de-terre tax that's being bandied about, or it might be, we just don't know. They've had… there's all this… been all this chatter about a potential tax over the past couple of weeks. Timothy Noonan: And the thought is it's going to look something like the old version that's been bandied about, and this was the most recent version, bandied about, basically, a 4% tax on places valued more than $5 million. But again, if you have a, you know. Timothy Noonan: So if you have a $10 million place, you're gonna pay, you know, 4% tax on $5 million every year. Like, that's… that could be worse than an income tax, right? That could be… I'm no accountant, and I think that's, like, a couple hundred thousand dollars in tax every year, just… Timothy Noonan: for having a place. The math for co-ops and condos is funkier, because the way those things are assessed and appraised is different. The tax rate is 10% above $300,000, but it's weird, because I think if you have a $50 million co-op in New York City, it might only be sort of valued for appraisal purposes at, I don't even know, a million dollars or something. I'm not sure how that math works. Timothy Noonan: But those are things that I think they're working through. It won't apply, and this… Timothy Noonan: this was in the prior proposal, but some version of this will probably be in the new proposal. I mean, it won't apply if it's your primary residence, or if you have a kid who lives there and it's the kid's primary residence. Timothy Noonan: It won't apply if you're a landlord and you're renting it out to a primary resident, although, are they going to require landlords to then prove if their tenants are primary residents? I'm not honestly sure how that would work. But in any case, this is out there, and again, causing a lot of consternation for, Timothy Noonan: you know, folks in the city, or I should maybe say folks in Florida who have places in the city. So that's what's going on there. In terms of enforcement, it's kind of an interesting, state of play here. Timothy Noonan: New York, obviously, is super aggressive. They have hundreds of auditors, they do thousands of these audits a year, they collect billions, so it's a… it's a thing in New York. It's a whole industry. Timothy Noonan: I have lots of clients who contact us about moving, and I can pretty much tell them, based on their income level, if they're going to get audited. Sometimes, like, down to, like, the month. And maybe that… it's not that exact, but, you know, if the income is over a million bucks. Timothy Noonan: there's likely going to be an audit. I think that threshold might be going up a bit, it's just sort of… just… just in terms of… Timothy Noonan: so many people moving, there's only so many auditors to audit those people, so I think the threshold is up a little bit. Maybe it's $2 or $3 million, so if you're… if you make, you know. Timothy Noonan: $800,000 and you move to Florida, I mean, that's great and good for you. You know, you might save 80 grand in tax. You're probably not going to get audited, because they just can't chase after everybody. You make 10 million bucks, and you move. Timothy Noonan: saddle up, like, there's gonna be an audit. so that's… that's the state of play in New York. Timothy Noonan: Other states, you know, they kick at it, they poke at it. California certainly is there. They don't audit with the same, zeal as New York, honestly. But they do, and they're there. Connecticut is also fairly aggressive. They're a smaller tax department, but lots of folks have left California. We also see, sort of, a lot of, kind of, overflow from, like, New York audits. A Connecticut person gets audited in New York. Timothy Noonan: you know, maybe they're not still a resident of Connecticut, but they have to allocate more income to New York, so they go back to Connecticut and say, hey guys, I paid more tax to New York, can I get a refund? Connecticut doesn't like that very much, so they're going to do an audit of that. So, that results in a lot of Connecticut audit activity as well. Timothy Noonan: Then, you know, the rest of them, it's just kind of random. You know, I mentioned before, we're starting to see more Massachusetts enforcement activity, again, because the rate has gone up, so it's more… more there to audit in Massachusetts. Timothy Noonan: Washington, maybe. They've had a capital gains tax for a few years. Now they have an income tax. Again, we're probably going to see some enforcement there. Timothy Noonan: Then we have states like New Jersey, which has a very high income tax, and they have a, you know, regular old sort of tax department. They just really don't focus on residency. So you have folks who leave New Jersey, they move to Florida, they keep a place in New Jersey, they spend a lot of time in New Jersey, they're just not getting audited. I don't know why, I haven't sort of seen it, though, in Timothy Noonan: you know, 27 years of practice, I don't… I don't see New Jersey chasing after people. But… Timothy Noonan: you know, they might, so we gotta be careful. And they have the same rules as New York, so typically when we have a New Jersey person, we're like, alright, I don't know what's gonna happen in New Jersey, but if you follow the New York rules, which are the same as the New Jersey rules, we're gonna be okay. So at least that's the kind of game plan we set. Timothy Noonan: Okay, cool. A couple other things, just a few cases that have come out, in different states, just want to give you sort of a flavor of what's going on in some different states on this residency topic. So, first case is a case that came out, like, last fall, called Hoff. Timothy Noonan: Folks claim to move from, like, you know, kind of the… actually the western New York area, down to Naples. Timothy Noonan: It's kind of… just kind of like a weird case to litigate, honestly. You know, the residency, there's two residency tests. One is really black and white. If you spend more than 183 days in New York, in this instance, you're a resident. But even if you're under 183 days, the more important test is this concept of domicile. Timothy Noonan: where your permanent home is, where your primary home is. So, when I have someone moving to Florida, a lot of, you know, most of my advice is around questions of domicile. How do you prove that Florida has taken over as your permanent and primary home? And when you do that, how do you prove it so it's clear? Because if it's a close call in these Florida move cases, we're going to be in trouble. So, if you have a client who's like, oh, I'm going to spend 6 months and a day outside New York. Timothy Noonan: and change my driver's license, and I'm not gonna be a resident. It's like, it's not that easy. That doesn't… doing those things doesn't actually go that far to proving that Florida has become your permanent and primary home. Timothy Noonan: You know, you have to compare your housing in both places, and maybe have a nicer and more expensive place in Florida. You gotta look at your business ties in both places. You gotta look at where your stuff is, and your art, and your precious possessions, and things like that. Where's that stuff? These are the things that matter. And the thing that matters the most, actually, in these cases, is where someone's spending their time. Timothy Noonan: You know, because that's… if we're trying to determine where someone's primary home, primary domicile is, well, a good marker for that is where you're spending your time. So, in this case, these folks Timothy Noonan: You know… Timothy Noonan: They did the 6 months and a day thing, they weren't over 183 days, but they ended up spending more days in New York every year than Florida. It's not good. It's not good. And then that leads the judge down to other roads, like, oh, they had country clubs in New York, and, you know, looked at other things, and it's just… but ultimately, it's kind of hard for these folks to prove. Timothy Noonan: that they changed their domicile to Florida by clear and convincing evidence, and they really did it, when they ended up spending more days in New York than Florida. It's just really hard. The other lesson here is that if you litigate one of these cases in New York, the administrative law judge who issues the decision, which happened here, that decision gets posted on the internet. Timothy Noonan: And then that is free for everyone to look at. I mean, what happened to these guys is it wasn't even that big of a case, but somehow it got picked up, like, by Bloomberg, the New York Post got ahold of it, and just had this whole spread on these poor folks about, oh, they, you know, they, you know, they were on their yacht, there's pictures of, like, the wife from Facebook or something, like, sitting on the yacht with a drink with the little umbrella. It's just not good. Like, so, you gotta be careful, too. If you're gonna litigate. Timothy Noonan: You know, you gotta kind of want to be sure you're gonna win, because you don't want that splattered across the news everywhere. Timothy Noonan: Connecticut had a case a little bit sort of similar to the Hoff case. Timothy Noonan: it's a domicile… sorry, it's an estate tax case, so the question was where the decedent was domiciled. Has a little bit of flavor of the Hoff case, and the court sort of went through the domicile test. Again, the taxpayer was under the day count. I think they spent a hundred and, you know, they spent, you know, 170 days or something like that a year in Connecticut. Timothy Noonan: But he only spent 120 days in Florida every year. He did all the things, like the driver's license and the voter and all that sort of stuff, and changed his addresses. But the judge was like, man, I just don't think that's enough. Timothy Noonan: And I like the way the court put it, it's right on the slide here. It looked to, you know, where the taxpayer chose to spend his most valuable and limited resource, his time, right? So where the taxpayer spent his time, and that's where the focus was in this Daniels case. Timothy Noonan: Lastly, again, probably the third state where we see a lot of the action here is California. This is a 2021 California case. This is a good case for the notion that sometimes the issue isn't whether someone moved, and these taxpayers claim to move from California to Nevada, and California, the appeals Timothy Noonan: court here agreed that they did move from California to Nevada. It wasn't a question of whether they moved, it was a question of when they moved. They claimed to move in February 2008. Timothy Noonan: They had a big gain in July 2008. So naturally, California… and by the way, they sort of, you know, in September of 2008, that's when they sort of honestly looked like they kind of settled in to Nevada. In February, they did all the things, the driver's license and all that sort of stuff. Timothy Noonan: But one of the problems was, again, banging on the same theme. Timothy Noonan: Between July 2008 and July… I'm sorry, February 2008 and July 2008, they were in California a lot more than they were in Nevada. So California says, again, we agree that you moved, but not until September, and oh… Timothy Noonan: Darn it all, you had a big gain in July, so we get to tax all that. So again, when someone moves is a huge part of these cases. Timothy Noonan: And a lot of times when folks are coming to us for guidance, it's because they have a big transaction coming up, or something like that. So sticking to sort of the landing, hitting the target, and doing that before the big income event during the year is massive. So that's super important whenever you're sort of planning a move for folks, is to focus Timothy Noonan: So much on the timing of it. Timothy Noonan: In order to make sure you get out before you have that big income event. Okay. Timothy Noonan: So, let's assume we're out. Timothy Noonan: We're not a resident, awesome, good for you. Non-residents still pay tax on sourced income. So that's, like, wages from services performed in the state. If you sell a building in the state, obviously that's going to be sourced income. Timothy Noonan: Also, business income, flow-through income from an S-corporation or LLC. That's going to be sourced income. Non-residents don't pay tax on sort of so-called unsourced income. Investment income, interest, dividends, capital gains, carried interest from the hedge fund or private equity world, that's typically not. Timothy Noonan: deemed to be sourced income, that's more sort of investment and tangible income. The issue is… Timothy Noonan: States are sort of looking at intangible-type income now, too. We'll hit a couple of those topics in a second to sort of say, well, it looks like an investment income, but we still think it could be sourced income. So… Timothy Noonan: Couple special things just to talk about on the non-resident allocation piece. First is the beloved convenience of the employer rule. It really is a New York thing. About 6 states have a rule like this. During COVID, like, 15 states created a convenience-type rule. The idea is sort of around remote work. Timothy Noonan: Normally, if you're a W-2 wage earner. Timothy Noonan: and you're a non-resident of a state, so you live in Connecticut, let's say, and work in New York, you're gonna pay tax to New York based on the number of days you work in New York. It's pretty simple math, right? The numerator is days worked in New York, the denominator is total days worked in the year. So, that's… that's a simple concept. New York has a twist that says, well, look, if you're working remotely. Timothy Noonan: If you're working from home, for your own convenience, and not out of any employer necessity, we're gonna treat that as a New York day as well, even though you're not physically present in New York. And over the years. Timothy Noonan: That sort of convenience-necessity, distinction isn't really all that relevant. Timothy Noonan: New York would say, if you're working from home. Timothy Noonan: And your… your employer is in New York. Timothy Noonan: We're gonna treat it as a… we're gonna treat it as a New York day. Like, that, sort of, by definition, is convenience. If your employer says, hey. Timothy Noonan: you know, go, you know, go to the ABC company, down the road in Connecticut and have a meeting with them, okay, that's… that's a Connecticut day. But if you're working from home, even if your employer forces you to work from home, New York has said that's not… that that's a convenience day. Timothy Noonan: And… Timothy Noonan: this has naturally sort of exploded since COVID, this issue, and there's litigation right now. The Zelensky case is one case, the Myers case is a case we're handling another case. These are cases where, during COVID, Timothy Noonan: the employee was forced to work at home, because in the Zelensky case, the governor closed the guy's office, like, he worked for a law school, a school in New York. Timothy Noonan: governor closed the school. He couldn't go there. In the Myers case, it was a bank. The bank closed their doors for a year and a half. These… these employees could not Timothy Noonan: actually go into their office. And yet, so far, New York's Tax Appeals Tribunal, which is like the New York Administrative Court, has said, no, sorry, those are convenience days, even though you couldn't go into New York. Timothy Noonan: I don't… these cases are now in the appeals court level. Timothy Noonan: I mean, I'm… I'm a hopeful guy. I sort of think the courts are gonna sort of see some reason for that, and if the government or the employer closes the office, it can't be a convenience day. Timothy Noonan: Otherwise, of course, thank God COVID's over. The convenience rule is still out there, right? So you still have the situation where if you're working remotely for your New York employer, you might have to pay tax in New York, so you move to Florida, but you keep the same job, and you work remotely, because you can. Timothy Noonan: You gotta be careful. So there's ways around it. If… if your employer assigns you to a different office outside New York, and that becomes your primary office, convenience rule could, you know, could not apply. Timothy Noonan: There's a way to create a bonafide office. Timothy Noonan: of your employer in your home, so that's a… that's steps you, you know, we've taken with employers and employees to do that. If you never go to New York at all during the year, there's no convenience rule either. It's sort of the cold turkey option. So there's ways around it, but again, this has become a big deal, really post-COVID, since remote work is still kind of a big thing. Timothy Noonan: Okay, so the last two topics, just to hit them quick as I have a couple more minutes here. First, we talk about sourced income. Timothy Noonan: So, let's say you're a partner of a partnership, or a shareholder in an S corporation. Timothy Noonan: And that entity is doing some sort of business in New York. You're going to pay tax, but instead of paying tax based on where you are, or based on sort of the workday method that employees use, it's actually going to be based on where the company is. And when you determine that, it'll be based on the company's allocation percentage. Timothy Noonan: So not based on where individuals are working. So for partnerships, and again, this is, this is my New York example, partnerships Timothy Noonan: the ordinary income of a partnership gets taxed based on the partnership allocation rules, which is sort of an arcane three-factor formula, where they're going to look at where the property of the company is, where the payroll of the company is, and then essentially where the, you know, the primary office of the company is. That's called the origin rule for sourcing, so that's the receipts factor. So normally, let's say you have a company that, you know. Timothy Noonan: sell sneakers, and the facilities in New York, the, Timothy Noonan: all the employees are… most of the employees are in New York, and, you know, the main office of the company is in New York. What's the allocation percentage of that sneaker company? Even if, let's say, 90% of their sales of sneakers are to people across the country. Timothy Noonan: That percentage is gonna be, like, 100%, or pretty darn close to it, because Timothy Noonan: If all the properties in New York, all their payroll is in New York, and all of their sales originate out of New York. Timothy Noonan: The partnership rules say we get to tax the whole thing, which is insane. If you're an S corporation, it's vastly different. So if you're a non-resident shareholder of an S corporation, same kind of company, sneaker company, selling across the country. Timothy Noonan: It's only one factor, so there's no payroll factor, there's no property factor, and we're only looking to where the sales go to, destination-based. That's both for services, so-called market-based sourcing, and for sneakers and things, destination-based sourcing. So, in that example, if you're an S corporation, your allocation's gonna be, like, 10%, if you're a non-resident. So, that is such a huge thing, but especially a lot of states. Timothy Noonan: have kind of consistency between how partnerships and S-corporations and LLCs or whatever are taxed, and who are allocated, how they allocate income. Not so in New York. It gets really complicated. Timothy Noonan: The other thing, just to close here, if you have a non-resident selling business assets, well, that's… the result there is going to vary, and again, a lot of times we're approached by people who are moving, and they want to move to Florida because they're selling their company, right? Well, if it's an asset sale. Timothy Noonan: the gain still could be taxable based on that company's allocation percentage in the year of sale, or in the couple years before the year of sale. So you gotta look at that. If it's an asset sale, there might not be a lot of savings. If it's a stock sale, well, then you'll get your savings. That'd be great. The problem is, if it's a stock sale, so-called stock sale, that's treated as an asset sale. Timothy Noonan: Either in the S corporation context, or sometimes even in the partnership context, if the buyer gets a step up in basis, New York at least, will say. Timothy Noonan: We're gonna tax that as an asset sale, too. So, just to watch out for that, if you have a non-resident or someone who move… a resident who's moving before the sale of a business, be super careful. You have to look at the… not only the sourcing rules, but again, you have to Timothy Noonan: Focus intently on the difference between a stock sale and an asset sale. Timothy Noonan: That's it. Wild and woolly, guys, 30 minutes. We sort of gave a good summary. All my contact information is there. You guys, anyone have questions, feel free to give me a call or shoot me an email, and happy to… happy to answer any of them. Jonathan, back to you.
Jonathan Shenkman: Great, thanks so much, Tim, and if anyone has any specific questions, new business opportunities, or any other issues they'd like to discuss, please feel free to reach out directly to Tim or myself, where appropriate, and I'll be sure to include his contact information in the following…
Jonathan Shenkman: More quick items before I let you go. First, my next webinar's on Thursday, May 28th at 8.30 a.m. on designing resilient Estate Plans, Planning to Avoid Litigation, featuring Asha Lowenstein, founder of Lowenstein Legal, based on Long Island, New York, and I'll be sure to send out the invitation to this program in the coming days. In the meantime, if you have a friend or colleague who'd find these webinars of interest.
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Jonathan Shenkman: and interesting content to attendees, and I thank you in advance for that. And with that, this concludes today's session. Please stay safe and healthy, and have a wonderful day, everybody.