Category: State Tax

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Estate Administration Estate Planning Estate Tax State Tax

Making Sense of New York’s Estate Tax “Cliff”

Andrew M. Nerney —

In addition to the federal estate tax, which may be levied upon a decedent’s estate, New York imposes a separate state estate tax regime. Generally a decedent’s estate is subject to the New York State estate tax if such decedent dies a resident of New York, or if the decedent dies a non-resident but leaves behind real or tangible property physically present in the state.

Before legislation was passed in 2014, New York had a one-million-dollar exclusion amount (that is, estates would only be liable for State estate tax if the New York taxable estate was greater than one million dollars). If an estate was subject to the New York estate tax, the tax would only be charged against the portion of the estate exceeding the exclusion amount—meaning that before the new legislation went into effect, the first one million dollars was exempt of any State estate tax.

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Estate Planning Estate Tax Income Tax State Tax

Understanding Residency and Domicile in Determining State Income Taxation

James R. O’Neill —

State income taxes play a prominent role in overall tax planning for individuals. A change of residence/domicile from a higher-tax state to a lower- (or no-) tax state is often considered when contemplating retirement or the receipt of significant proceeds from a business or investment transaction, or when a taxpayer realizes the amount of state income tax paid upon filing his or her return. Nine states currently have no income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—and the rate of state income taxation varies considerably among the states.[*] A change of residence/domicile can be a practical way to decrease state personal income tax liability and preserve wealth.

Residency/domicile is a critical issue in determining state taxation. The general rule is that a state may tax the worldwide income of a person domiciled in that state. Nonresidents of a state generally only pay income tax with respect to income actually sourced from that particular state. In addition, an individual who meets the statutory test of residency in a state, typically based on presence in the state for a designated number of days, commonly 183 days, may be classified as a statutory resident and subject to tax on all of his or her income, regardless of its source. A “day” in this context typically means any part of a calendar day, except when presence in the state is solely to board a plane, ship, train, or bus for a destination outside of the state. States may provide for other exceptions to this “day” rule, including presence in the state for medical care, presence for purposes of military service, and the like.

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Capital Gains Tax Estate Planning Income Tax State Tax

NFTs: A Tale of Two Classifications

Sara K. Osinski —

On March 21, 2023, the Department of the Treasury and the Internal Revenue Service (“IRS)” released Notice 2023-27, announcing their intent to provide guidance on classifying certain non-fungible tokens (“NFTs”) as “collectibles,” which could subject owners of NFTs to higher long-term capital gains tax.

Digital assets, such as NFTs and cryptocurrencies, are currently generally classified as “property.” Therefore, under current law, gains from the sale or exchange of NFTs are taxed based on how long such NFT was held by the owner. For instance, if the owner sells an NFT he or she has held onto for one year or less, then the sale of such NFT would be subject to short-term capital gains tax. Short-term capital gains are taxed at the ordinary income rates, and the federal[1] ordinary income tax rates currently range from 10 percent to 37 percent depending on the taxpayer’s taxable income. On the other hand, if the owner sells an NFT he or she has held on to for more than one year, the sale of such NFT would be subject to federal long-term capital gains tax. Long-term capital gains are subject to federal tax at a rate of zero percent, 15 percent, or 20 percent depending on the taxpayer’s taxable income.

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