A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year and they have been hit with an additional tax bill of $1.06 million, according to an article today at wsj.com by Craig Karmin.

"This is going to open up a Pandora's box," says Eric Kramer, a tax attorney in Uniondale, N.Y., adding that "I don't think anyone previously thought vacation homes would count as a permanent residence."

Income that now could be taxed by New York includes capital gains, dividends and securities, attorneys said, according to the article, adding that "in the event of an audit, these homeowners would also be responsible for back taxes, plus interest and penalties, as a result of their New York property."

The article said that "tax experts and real estate brokers say this ruling could boost the tax bill for thousands of business executives who own New York City apartments they use only occasionally," adding that "it could also hurt sales in the Hamptons and New York's other vacation-home communities."

"People will think twice about spending any summer time in New York," says Robert Willens, a New York-based tax consultant, adding that "the amount of tax they could be subjected to is likely to outweigh the benefit," the article said.

Judge Joseph Pinto, a New York administrative law judge, made the novel ruling in a 2009 case that was affirmed last month on appeal by the New York state tax appeals tribunal, the article said. Mr. Pinto seized on what is meant by a permanent residence, which is the benchmark for whether all, or just the in-state portion, of an individual's income is subject to New York state tax, the article continued, adding that "Mr. Pinto ruled that the couple's Long Island vacation home qualifies under the law as a permanent abode because it was suitable for living year-round - whether or not the couple actually stayed in the home wasn't relevant. Under the ruling, if an owner doesn't spend a single a day in a home it could still count toward a permanent residence."

The Napeague, Long Island, house was purchased by John and Laura Barker for $260,000 in 1997, according to court documents. Mr. Barker works in New York City. From 2002 to 2004, the period that was assessed for back taxes, the Barkers said they spent only a few days a year at the Long Island home, usually during the summer.

The appeals court upheld the ruling that it's not the owners' intended use of the house that matters, but whether the home could be used all year long, the article said, adding that "the house is approximately 1,122 square feet with heat, electricity, and internet service 'making it very habitable and comfortable year round.'"

The court also said that Mrs. Barker's parents, who sometimes stayed at the home throughout the colder months, were evidence that it was a permanent residence even though the Barkers never used it that way.

The article noted that the "Barkers countered that they used the home only a few days a year, adding that the refrigerator was usually empty, court documents showed" and that "they cited clothing not being stored there as evidence that it was a part-time residence."

"We think the decision is wrong. We are evaluating our options including a continuation of appeals," Mr. Barker said. "We imagine this decision will have a chilling effect on New Your tourism and real estate values among other second and third order effects."