Intangibles - Income from intangible personal property is not considered to be from New York sources unless the income is derived from property employed in a business, trade, profession or occupation carried on in New York. N.Y. Tax Law § 631(b)(2).
LLC/Partnership Interests – The 2009-10 New York State budget amended the Tax Law so that when a nonresident sells an interest in a partnership, LLC, S-corporation, or closely held C-corporation (100 or fewer shareholders) that owns real property in New York State, the gain from the sale is taxable as New York source income if the value of the real property in New York is greater than 50% of the entity’s total assets. The new provision allocates the income based on a fraction determined by the value of the New York real property to the total assets held by the entity. It also includes a two-year look back provision.
Deemed Asset Sale– In Matter of Baum (TAT, Feb. 12, 2009), nonresident taxpayers sold all of their shares of a New York S-Corporation and with the purchaser made the election to treat the transaction for federal income tax purposes as a deemed asset sale under IRC §338(h)(10). The Tribunal held that the federal election had no effect on the treatment of the stock sale as a nontaxable sale of an intangible asset for purposes of allocating a nonresident’s income to New York.
Installment Obligation– In Matter of Mintz (ALJ June 4, 2009), the ALJ determined that income received by nonresident shareholders of a New York S-Corporation pursuant to an installment obligation was a nontaxable intangible asset. The payments were distributed to the shareholders upon the corporation’s liquidation after the corporation had received the payment in exchange for its assets. The ALJ found that the income did not “make the cut” as New York source income.
Co-Op Shares - The Tax Law was amended to treat certain sales of shares in New York cooperative housing units as taxable sales of real property that are sourced to New York. Effective date is January 1, 2004. N.Y. Tax Law § 631(b)(1)(E); TSB-M-04(5)I. The nonresident must estimate the amount of income tax due on the gain and remit the tax to the Commissioner within 15 days of the delivery of the instrument effecting the disposition of the stock. See IT-2664.
Services Performed Wholly in New York - When a nonresident earns compensation for services performed wholly in New York State, the nonresident’s entire compensation is subject to New York’s personal income tax. 20 NYCRR § 132.4(b).
Services Performed Wholly Outside of New York - When a nonresident earns compensation for services rendered wholly outside of New York, none of the compensation is subject to New York State income tax. 20 NYCRR § 132.4(b). See also Matter of Kumar (ALJ May 6, 2010) (even though employer had NY sales office, taxpayer did not spend any days working from NY).
Services Performed Partly Within New York - When a nonresident earns compensation for services performed both within and without New York State, the nonresident must allocate his or her earnings based upon a ratio that the number of days worked in New York bears to the total number of days worked both within and without the State. 20 NYCRR § 132.4(b) & 132.18(a).
Directors’ Fees: Fees should be allocated separately from other income based on the number of board meetings attended in New York divided by the total number of board meetings everywhere. The 2009 Allocation Guidelines reiterate that the basis for allocated fees should be actual board meetings attended and not days spent in preparation of the meeting.
Partnership Income: Nonresident partners are taxed on their distributive shares of partnership income to the extent they are connected with New York sources based on the partnership’s NY business allocation percentage. In Matter of Tosti (ALJ July 1, 2010), the ALJ recently upheld the rule that a nonresident non-equity partner, even if he is a “glorified employee,” must allocate his guaranteed payments from a New York law firm using this rule, so long as he holds himself out as a partner.
Matter of Siegel (ALJ August 18, 2011): A resident taxpayer gifted shares of Blimpie stock to his nonresident wife in anticipation of the sale Blimpie. The issue was whether the taxpayer owed income tax on the gain from the sale of the stock. The ALJ determined that the transfers of stock from husband to wife lacked economic substance, because they were merely a conduit for shielding the gain from New York tax, and thus were invalid for tax purposes. The ALJ relied on correspondence between husband and wife to conclude that there was no separation of legal title from economic enjoyment of the benefits of the stock sale. The taxpayer’s briefs to the ALJ had also focused the issue of assignment of income. However, the ALJ ignored that issue and focused solely on the issue of the economic substance of the transactions.