A New York settlor who creates an incomplete non-grantor trust in another state (such as Nevada or Delaware) cannot avoid New York's income tax because New York treats the ING trust as a grantor trust. NY Tax Law § 612(b)(41).
TL § 612(a) establishes that New York's personal income tax generally follows federal law:
§ 612. New York adjusted income of a resident individual
(a) General. The New York adjusted gross income of a resident individual means his federal adjusted gross income as defined in the laws of the United States for the taxable year, with the modifications specified in this section.
But TL § 612(b) has a long list of New York "modifications" that decouple New York's income tax from federal law.
In 2014, New York adopted TL 612(b)(41), which attributes the income of an ING trust to its New York resident settlor, not the trust.
(b) Modifications increasing federal adjusted gross income. There shall be added to federal adjusted gross income:
. . .
(41) In the case of a taxpayer who transferred property to an incomplete gift non-grantor trust, the income of the trust, less any deductions of the trust, to the extent such income and deductions of such trust would be taken into account in computing the taxpayer's federal taxable income if such trust in its entirety were treated as a grantor trust for federal tax purposes. For purposes of this paragraph, an "incomplete gift non-grantor trust" means a resident trust that meets the following conditions: (i) the trust does not qualify as a grantor trust under section six hundred seventy-one through six hundred seventy-nine of the internal revenue code, and (2) the grantor's transfer of assets to the trust is treated as an incomplete gift under section twenty-five hundred eleven of the internal revenue code, and the regulations thereunder.
So, New York law adds the net income of an ING trust to the adjusted gross income of the New York resident settlor, as if the trust were a grantor trust.