Wealthy New Yorkers thinking of fleeing the city now that Zohran Mamdani has been elected mayor should know that state tax auditors will have a list of probing questions, each a bit more invasive than the last.
Where did you spend your holidays?
Where did you stay after returning from an overseas trip?
Where are your dog’s ashes?
Where is your burial plot?
To avoid New York’s high state and city income taxes — which can climb to nearly 15 percent, the highest combined rate in the nation — it is not enough to simply file a change of address or spend more than 183 days of the year in another state, a common misconception. You really have to move — and a lot more.
Even then, a high earner filing a tax return from a new address could attract auditors’ attention, and just one misstep can cause an audit defense to fall apart or become a lot more challenging. Like when a wealthy man moved to Florida but returned to New York to go fly-fishing. Eager for a discount on his fishing license (which currently costs $50 for nonresidents and $25 for residents), he checked the box indicating he was a New York resident.
“The auditor has just one question: Were you lying then, or are you lying now?” said Mark S. Klein, a tax lawyer at Hodgson Russ who represented the man. (He ultimately won the case but owed more in legal fees than he had saved on the license.) “I would suggest that’s a very bad way to start an audit.”
For decades in New York City, pundits, business leaders and the uber-wealthy have warned of a looming exodus among its richest residents — driven, they claim, by the city’s progressive politics or the suggestion of tax increases.
The refrain has been resurrected by the success of Mr. Mamdani. The mayor-elect’s tax-the-rich pledge, which includes a 2 percent personal income tax on anyone making more than $1 million a year, helped propel him to victory with the most votes in a New York City mayoral election in 60 years.
A city of nearly 8.5 million people, New York has more billionaires than anywhere else in the world: 123, according to Forbes, up from 78 a decade ago. In 2022, roughly 33,600 of its residents reported incomes greater than $1 million; several thousand made more than $10 million.
At those income levels, state and city taxes can climb into the hundreds of thousands of dollars and beyond. Millionaire earners collectively paid $5.4 billion in city income taxes in 2022.
But it’s one thing to threaten to leave. It’s another to follow through.
According to tax lawyers and financial planners who advise the city’s upper echelon, many wealthy New Yorkers who want to avoid taxes by moving are often unwilling to go to the lengths required to pass auditors’ scrutiny.
Their lives are deeply woven into the city, where they have networks of family, friends, medical care and social activities, and those ties would have to be significantly curtailed or severed entirely. Moving would uproot not just their lives but also those of their family members, including children, who would have to be enrolled in new schools.
Kenneth T. Zemsky, a tax lawyer whose clients have included Martha Stewart, said that in his decades of practice, for every 10 people who have inquired about leaving New York, about one has ended up actually doing so.
The requirements are too steep, he said, for people who thought it would be as simple as spending more time in a second home outside the city.
“They’ll push back and say, ‘Well, I don’t want to do all that. How little can I do to sever?’” he said. “If you’re thinking in those terms, you’re probably not going to do enough at the end of the day.”
“Not enough” is trouble when a letter arrives from the state’s Department of Taxation and Finance. With about 600 auditors, the department is particularly aggressive and thorough, Mr. Zemsky and other experts said. Auditors demand reams of information — cellphone records, credit card receipts, E-Z Pass logs, diary entries — that could support or disprove a change-of-residency claim.
“I had a client who said to me, ‘What is this, Stalinist Russia?’” Mr. Zemsky said. “Yes, when it comes to tax matters, you’re considered guilty before innocent.”
A spokesman at the Department of Taxation and Finance, which collects both state and city income taxes, declined to discuss its approach to audits or the income thresholds it flags for further review.
But tax lawyers and accountants said that an audit was almost guaranteed for any former New Yorker who made more than $1 million in a year in which they claim to have moved. At $10 million, the odds are 100 percent, they said. Over a five-year period ending in 2024, auditors recouped $13.8 billion in unpaid taxes, including income taxes and others collected by the state, such as sales tax.
Timothy P. Noonan, who oversees the tax residency division at Hodgson Russ, said his team had helped roughly 500 wealthy New Yorkers move since the start of the pandemic, many of them spurred by the ability to work remotely.
Inquiries picked up after Mr. Mamdani won the Democratic primary in June, Mr. Noonan said. One person who called Mr. Noonan asked if it was possible to escape city taxes by moving into an upstate vacation home while keeping a property in the city.
After Mr. Noonan explained the rules, that person decided to stay. That happens often, he said.
“I had a client tell me once, ‘In order to move to Florida, I actually have to move to Florida, right?’” he said.
A challenge for a taxpayer is that an auditor’s decision about who owes New York taxes can be a subjective one. In the eyes of an auditor, someone’s true home is not determined as much by physical whereabouts as it is by intention: Did this person intend to make a new home elsewhere? If home is where the heart is, where is this person’s heart?
To answer that question, auditors examine several areas of someone’s life, including the home itself, the person’s work, where they spend time and the location of family connections. If the new home is less expensive and smaller than the one a taxpayer kept in New York, that is a red flag to auditors. Likewise if someone’s day-to-day job is connected with a New York company.
There is also the “near and dear” test. Think of it this way: If you had 15 minutes to grab your most prized possessions, what would they be and where are they today?
For Gregory R. Blatt, the answer to that question saved his audit case.
In 2009, Mr. Blatt accepted a job in Dallas as the chief executive of Match.com, then a subsidiary of New York City company where he had worked. He rented an apartment in Texas and traveled between there and New York.
For the next two years, he filed New York tax returns indicating he was a nonresident.
Soon after he moved back to New York City in 2011, a letter from the Department of Taxation and Finance arrived in the mail. His 2009 and 2010 tax returns were being audited. The inquiry lasted two years and resulted in a tax bill of $430,000.
Mr. Blatt appealed the case, and four years later, an administrative law judge ruled in his favor. The judge cited Mr. Blatt’s decision to take his dog, an Italian greyhound mix named Thelma, with him to Dallas.
“Petitioner’s dog was his near and dear item which reflected his ultimate change in domicile,” the judge wrote.
In an interview, Mr. Blatt said: “There are people who move places for the tax benefit, and I assume those people go about this much more methodically than I did. But I got a new job, and I just assumed that I had moved and that it wasn’t very complicated.”
Another test is the formally named Statutory Residency Test, which says that if someone moves but keeps a “permanent place of abode” in New York where they spend more than half the year, that person will be considered a resident and will owe taxes. (Mr. Klein, the tax lawyer, advises his clients to download smartphone apps that track days spent in a location.)
The numerous pitfalls are why Corey L. Rosenthal, an accountant and lawyer at CohnReznick, an accounting firm, said he starts conversations with potential movers with a 28-point checklist of best practices.
They include obvious things like obtaining a new driver’s license, registering to vote and forwarding mail. But there are also obscure steps: changing the address on a pet’s microchip, updating burial plans, finding new doctors and switching to out-of-state club memberships.
Mr. Rosenthal said many clients ultimately decide to stay put because of a spouse who does not want to give up their lifestyle. But others are willing to make it work, he said, even if it means one partner stays in New York while the primary earner moves to another state and files separate state tax returns.
“I’ve successfully defended these cases,” Mr. Rosenthal said. “All the holidays are going to be in Florida, all the birthdays in Florida.”
Matthew Haag is a Times reporter covering the New York City economy and the intersection of real estate and politics in the region.
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