Does a New York LLC that is taxed as a partnership and formed only to trade securities for its own account have to pay the annual LLC filing fee under Tax Law § 658(c)(3)?

Plain-English summary

Spencer Barback and others were forming a limited liability company (LLC) in New York to invest in publicly traded securities. The LLC would be taxed as a partnership for federal income tax purposes, would trade only for its own account (not hold property for sale to customers), and its only income would be dividends, interest, and capital gains. Although the LLC's office would be located in New York City, Barback asked whether the LLC would owe New York's annual LLC filing fee.

That filing fee, imposed under Tax Law § 658(c)(3), applies to any LLC or LLP taxed as a partnership that "has any income derived from New York sources," with New York source income determined the same way it is determined for a nonresident individual under Tax Law § 631. The fee is calculated per member (fifty dollars per member), subject to a $325 floor and a $10,000 cap.

The Department worked through Tax Law § 631: New York source income generally includes income from a business, trade, profession, or occupation carried on in the state, or from intangible property employed in such a business. But § 631(d) carves out an exception - a person (other than a dealer who holds property for sale to customers) is not treated as carrying on a business in New York solely because they buy and sell property, or trade stock options, for their own account. The Department concluded that a partnership whose sole activity is trading for its own account falls within this carve-out, so its dividends, interest, and capital gains are not New York source income.

Because the LLC's only activities were purchasing and selling securities for its own account - not dealing in property for sale to customers - none of its income would be New York source income under § 631. Since § 658(c)(3)'s filing fee only reaches LLCs with New York source income, the Department ruled the LLC was not subject to the annual filing fee, notwithstanding that its office would be located in New York City.

What this means for you

Investment funds and trading LLCs

If your LLC (or LLP taxed as a partnership) exists solely to trade securities or other property for its own account - and does not hold property for sale to customers - its trading income is not New York source income under Tax Law § 631(d), even if the entity's office is physically located in New York. That means the entity should not owe the annual filing fee under Tax Law § 658(c)(3), which applies only when the entity has New York source income.

Accountants and tax professionals

When determining whether a client's investment vehicle owes the § 658(c)(3) filing fee, look past the location of the entity's office and focus on whether its activities amount to a "business, trade, profession or occupation carried on" in New York. An entity limited to purchasing, selling, or writing options on property for its own account - as opposed to holding inventory for sale to customers - falls outside that definition under § 631(d), regardless of where it is headquartered.

Common questions

Q: Does having an office in New York City automatically subject an investment LLC to the filing fee?
A: No. The Department looked past the office location and focused on whether the LLC's activities constituted a business carried on in New York. Because the LLC only traded for its own account, its income was not New York source income, and the office location did not change that result.

Q: What kind of income did the LLC in this ruling earn?
A: Dividends, interest, and capital gains from trading securities listed on a public stock exchange, for the LLC's own account.

Q: Would the answer differ if the LLC held property for sale to customers instead of trading for its own account?
A: Yes. Tax Law § 631(d)'s exception applies to a person other than "a dealer holding property primarily for sale to customers in the ordinary course of his trade or business." An LLC that deals in property for sale to customers would not fall within that exception and could have New York source income.

Q: How is the § 658(c)(3) filing fee calculated when it does apply?
A: The fee equals fifty dollars multiplied by the number of members (or partners) as of the last day of the taxable year, subject to a minimum of $325 and a maximum of $10,000.

Q: Does this ruling only bind the entity that requested it?
A: Yes. It is an Advisory Opinion limited to the facts presented by Spencer Barback and is binding only as to that petitioner, provided all relevant facts were fully and accurately described.

Citations and references

• Tax Law § 658(c)(3) - imposes the annual filing fee on subchapter K LLCs and LLPs taxed as partnerships that have New York source income, calculated at $50 per member/partner, subject to a $325 floor and $10,000 cap
• Tax Law § 631(a) - defines the New York source income of a nonresident individual, including a distributive share of partnership income
• Tax Law § 631(b)(1) - New York source income includes items attributable to a business, trade, profession, or occupation carried on in the state
• Tax Law § 631(b)(2) - income from intangible personal property (dividends, interest, capital gains) is New York source income only if from property employed in a New York business
• Tax Law § 631(d) - a person who only purchases and sells property (or writes stock option contracts) for their own account, and is not a dealer holding property for sale to customers, is not carrying on a business in New York solely for that reason

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a07_7i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(7)I
Income Tax
November 15, 2007

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I070815B

On August 15, 2007, a Petition for Advisory Opinion was received from Spencer
Barback, 1025 Westchester Avenue, White Plains, New York 10604.
The issue raised by Petitioner, Spencer Barback, is whether a limited liability company
(LLC) that is treated as a partnership for federal income tax purposes and formed for investment
purposes is subject to a filing fee pursuant to section 658(c)(3) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner and others are forming an LLC in New York to invest in securities listed on a
public stock exchange. The LLC will be treated as a partnership for federal income tax purposes.
The LLC is being formed for purposes of trading for its own account and will not hold property
for sale to customers. Its only income will be dividends, interest, and capital gains. The office of
the LLC will be located in the city of New York.
Applicable law
Section 631 of the Tax Law provides, in part:
(a) General. The New York source income of a nonresident individual shall be the
sum of the following: (1) The net amount of items of income, gain, loss and deduction
entering into his federal adjusted gross income, as defined in the laws of the United States
for the taxable year, derived from or connected with New York sources, including: (A)
his distributive share of partnership income, gain, loss and deduction, determined under
section six hundred thirty-two, and
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(2) The portion of the modifications described in subsections (b) and (c) of
section six hundred twelve which relate to income derived from New York sources
(including any modifications attributable to him as a partner. . .)
(b) Income and deductions from New York sources.
(1) Items of income, gain, loss and deduction derived from or connected with
New York sources shall be those items attributable to:
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TSB-A-07(7)I
Income Tax
November 15, 2007

(B) a business, trade, profession or occupation carried on in this state; or
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(2) Income from intangible personal property, including annuities, dividends,
interest, and gains from the disposition of intangible personal property, shall constitute
income derived from New York sources only to the extent that such income is
from property employed in a business, trade, profession, or occupation carried on in this
state. . . .
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(d) Purchase and sale for own account. A nonresident, other than a dealer
holding property primarily for sale to customers in the ordinary course of his trade or
business, shall not be deemed to carry on a business, trade, profession or occupation in
this state solely by reason of the purchase and sale of property or the purchase, sale or
writing of stock option contracts, or both, for his own account.
Section 658(c)(3) of the Tax Law imposes a filing fee on limited liability companies and
limited liability partnerships that are treated as partnerships for federal income purposes. Such
section 658(c)(3), effective January 1, 2007, provides, in part:
Filing fees. Every subchapter K limited liability company, and every limited
liability partnership under article eight-B of the partnership law and every foreign limited
liability partnership, which has any income derived from New York sources, determined
in accordance with the applicable rules of section six hundred thirty-one as in the case of
a nonresident individual, shall, within thirty days after the last day of the taxable year,
make a payment of a filing fee. The amount of the filing fee shall be the product of (a)
fifty dollars and (b) the number of members of such company or number of partners of
such partnership, as the case may be, as of the last day of the taxable year, but in no event
shall such fee be less than three hundred twenty-five dollars nor more than ten thousand
dollars. . . .
Opinion
Section 658(c)(3) of the Tax Law provides for an annual filing fee to be imposed on an
LLC that is treated as a partnership for federal income tax purposes and has any income derived
from New York sources pursuant to section 631 of the Tax Law as in the case of a nonresident
individual.
Section 631 of the Tax Law provides, in general, that items of income, gain, loss, or
deduction from New York sources include those items attributable to the ownership of any

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TSB-A-07(7)I
Income Tax
November 15, 2007

interest in real or tangible personal property located in New York State or a business, trade,
profession, or occupation carried on in the State.
Section 631(d) of the Tax Law provides that a nonresident is not engaged in a business,
trade, profession, or occupation in this State solely by reason of the purchase and sale of property
or the purchase, sale, or writing of stock option contracts, or both, for his or her own account.
A partnership whose sole activity is trading on its own account will not be deemed to
carry on a business, trade, profession, or occupation in the State within the meaning of section
631(d) of the Tax Law. Therefore, any dividends, interest, and capital gains received by the
partnership will not be New York source income.
Accordingly, since the LLC in the present case will not have any income derived from
New York sources, the LLC is not subject to an annual filing fee imposed pursuant to section
658(c)(3) of the Tax Law.

DATED: November 15, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.