Is an unincorporated, nonprofit residential condominium that earns income from common laundry and garage facilities subject to New York's Article 9-A franchise tax for years before 1989, when the definition of 'corporation' required actually conducting business?

Plain-English summary

Chesin and Company asked about an unincorporated, nonstock, nonprofit residential condominium organized under Article 9-B of the Real Property Law. The condominium is entirely residential (no commercial space), governed by unit homeowners, and derives revenue from common-charge assessments, interest on reserve funds, and common laundry and garage receipts used by unit owners. Income pays for maintenance, heating fuel, and insurance on common areas, with any excess held in reserve. The question: is it subject to Article 9-A franchise tax for taxable years beginning before January 1, 1989?

The answer: yes. Before the 1989 statutory amendment broadened the definition of "corporation," Tax Law section 208.1 and Regulations section 1-2.3 required an entity to "provide a medium for the conducting of business and the sharing of its gains" to count as a corporation. Two prior rulings established that a condo association earning income from facilities like laundry rooms or garages meets that test: Galen & Company, TSB-A-86(6)C (income from garage, parking, laundry, and commercial-space rentals) and Astor Terrace Condominium, TSB-A-90(7)C (income from a laundry-room concession and storage charges). Both were found to "present themselves as a corporation to conduct business." Because this condominium likewise earns common laundry and garage receipts -- not just common charges and passive reserve interest -- it falls into the same category, further supported by case law finding organizations taxable once they generate profits from business-like activities (People ex rel West Side Tennis Club v Browne; Rye Country Day School v Lynch). So the condominium meets the definition of a corporation and owes Article 9-A franchise tax for all years beginning before January 1, 1989.

What this means for you

Condominium associations with laundry, garage, or similar facility income

Even under the older, stricter pre-1989 "conducting business" test, earning income from shared facilities like laundry rooms or garages -- as opposed to purely passive common charges and reserve interest -- is enough to make your association a taxable Article 9-A corporation. Compare this with TSB-A-92(4)C (Larkfield), where an association with only common charges and reserve interest was not taxable for the same pre-1989 period -- the presence of facility-use income is the key distinguishing fact.

Boards evaluating historical franchise tax exposure

If your association has any history of laundry, garage, storage, or similar facility-use charges, don't assume you were exempt from Article 9-A tax in years before 1989 just because you weren't formally incorporated -- the "business activity" test looked past incorporation status to actual income sources.

Accountants and tax professionals

This ruling and its companion, Larkfield (TSB-A-92(4)C), together map the pre-1989 line precisely: pure common charges and passive interest = not a corporation; common charges plus facility-use receipts (laundry, garage, parking, storage) = a corporation conducting business, taxable even before the 1989 law swept in all IRC section 7701(a)(3) associations regardless of activity.

Common questions

Q: Does an unincorporated condo association owe franchise tax just from common charges?
A: Not under the pre-1989 test by itself -- but once the association also earns income from facilities like laundry rooms or garages, it crosses into "conducting business" and becomes taxable.

Q: Does the "unincorporated" status of the condo association matter?
A: No -- the Regulations definition of "corporation" reaches any entity that provides a medium for conducting business and sharing gains, regardless of formal incorporation.

Q: How does this compare to the Larkfield condo ruling (TSB-A-92(4)C)?
A: Larkfield had only common charges and reserve interest and was found NOT taxable for the same pre-1989 period; this condominium's additional laundry and garage receipts are what made the difference.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (franchise tax, as amended by Laws of 1987, ch. 817)
• Tax Law section 208.1 (pre-1989 definition of "corporation")
• 20 NYCRR section 1-2.3 (Business Corporation Franchise Tax Regulations)
• Real Property Law Article 9-B, sections 339-o, 339-e(5), 339-m, 339-e(6)

Cases and prior opinions cited in the ruling:

• Garen & Company [Galen & Company], TSB-A-86(6)C
• Astor Terrace Condominium, TSB-A-90(7)C
• People ex rel West Side Tennis Club v Browne, 270 App Div 1061
• Rye Country Day School v Lynch, 239 App Div 614

Related ruling:

• TSB-A-92(4)C (Larkfield Professional Center Condo Association) -- contrasting result for a condo with only common charges and reserve interest.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a91_23c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(23)C
Corporation Tax
November 8, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C910820A

On August 19, 1991, a Petition for Advisory Opinion was received from Chesin and
Company, 100 Merrick Road, Suite 404E, Rockville Center, New York 11570.
The issue raised by Petitioner, Chesin and Company, is whether an unincorporated residential
condominium is subject to tax under Article 9-A of the Tax Law for taxable years beginning before
January 1, 1989.
An unincorporated nonstock condominium organized under Article 9-B of the New York
State Real Property Law is operated exclusively for nonprofit purposes and derives no revenue from
third party payors. The condominium's sources of revenues are from assessments for common
charges, interest income on reserve funds, common laundry and garage receipts as specifically used
by unit homeowners. The condominium development is completely residential and there is no space
available for commercial purposes. The condominium is headed by unit homeowners. Income is
used to pay for the maintenance of common areas, fuel used to heat individual units of homeowners
and insurance on common areas. Any excess income is held in reserve for future improvements.
Section 209.1 of the Tax Law, as amended by Chapter 817 of the Laws of 1987, imposes a
franchise tax on business corporations, as follows:
For the privilege of exercising its corporate franchise, or of doing business, or of
employing capital, or of owning or leasing property in this state in a corporate or
organized capacity, or of maintaining an office in this state, for all or any part of each
of its fiscal or calendar years, every domestic or foreign corporation, except
corporations specified in subdivision four of this section, shall annually pay a
franchise tax, upon the basis of its entire net income base, or upon such other basis
as may be applicable as hereinafter provided ....
Prior to the amendment contained in Chapter 61 of the Laws of 1989, the meaning of the
term "corporation" as set forth in section 208.1 of the Tax Law, provided that, "[t]he term
'corporation' includes a joint-stock company or association and any business conducted by a trustee
or trustees wherein interest or ownership is evidenced by certificate or other written instrument..."
The term "corporation" is elucidated in section 1-2.3 of the Business Corporation Franchise
Tax Regulations, which provides, in part, that:
(a) The term 'corporation' means an entity created as such under the laws of the
United States, any state, territory or possession thereof, the District of Columbia, or
any foreign country, or any political subdivision of any of the foregoing,
TP-9 (9/88)

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TSB-A-91(23)C
Corporation Tax
November 8, 1991
which provides a medium for the conducting of business and the sharing of its gains.
. . .
(b) The term 'corporation' includes a joint stock company or association and any
business conducted by trustee or trustees wherein interest or ownership is evidenced
by certificate or other written instrument. An entity conducted as a corporation is
deemed to be a corporation.. 20 NYCRR § 1-2.3
Section 339-o of Article 9-B of the Real Property Law states that the deeds and leases of units
must include "[tithe common interest appertaining to the unit..." 49 NYCRR § 339-o. Section 339­
e(5) of such law defines "common interest" as "the (i) proportionate, undivided interest in fee simple
absolute, or (ii) proportionate undivided leasehold interest in the common elements appertaining to
each unit, as expressed in the declaration" 49 NYCRR § 339-e(5). Thus, each homeowners's interest
is evidenced by a written instrument.
Section 339-m of such law states, in part, that "[t]he common profits of the property shall be
distributed among, and the common expenses shall be charged to, the unit owners according to their
respective common interests. . . Notwithstanding any provision of this article, profits and expenses
may be specially allocated and apportioned by the board of managers in a manner different from
common profits and expenses. . ." 49 NYCRR § 339-m. Section 339-e(6) of such law defines
"common profits" as "the excess of all receipts of the rents, profits and revenues from the common
elements remaining after the deduction of the common expenses." 49 NYCRR § 339-e(6).
In Garen & Company, Adv Op St Tax Comm, March 12, 1986, TSB-A-86(6)C, it was held
that where a condominium association, organized under Article 9-B of the Real Property Law,
generated income from rentals of a garage, parking spaces, laundry areas and commercial space
owned by the condominium association, such association had demonstrated that it provided a
medium for the conducting of business and the sharing of its gains. Therefore, such condominium
association presented itself as a corporation to conduct business and was subject to tax under Article
9-A of the Tax Law.
In Astor Terrace Condominium, Adv Op Comm T & F, March 1, 1990, TSB-A-90(7)C, it
was held that where a condominium association organized pursuant to Article 9-B of the Real
Property Law, may lease portions of the common elements and does receive income from a laundry
room concession and storage charges. Thus, Petitioner has demonstrated that it provides a medium
for the conducting of business and the sharing of its gains. Therefore, such condominium association
presented itself as a corporation to conduct business and was subject to tax under Article 9-A of the
Tax Law.
Herein, the unincorporated condominium organized pursuant to Article 9-B of the Real
Property Law receives income from common laundry charges and garage receipts. As in Garen &
Company, supra, and Astor Terrace Condominium, supra, such unincorporated condominium
provides a medium for the conducting of business and the sharing of its gains. Therefore, such
unincorporated condominium presents itself as a corporation to conduct business.

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TSB-A-91(23)C
Corporation Tax
November 8, 1991
This conclusion is supported by People ex rel West Side Tennis Club v Browne, 270 App
Div 1061, wherein the court found a tennis club taxable because "it embarked upon business
activities for profit and also. . . was engaged in carrying on a business during the tax years."
Similarly, in Rye Country Day School v Lynch, 239 App Div 614, it was determined that since the
corporation was financially successful and had accumulated profits it was subject to the franchise
tax.
Accordingly, the unincorporated condominium meets the definition of a corporation for
purposes of Article 9-A of the Tax Law. Therefore, for all taxable years beginning before January
1, 1989, the unincorporated condominium is subject to the franchise tax on business corporations
imposed under Article 9-A of the Tax Law, and is required to pay an annual franchise tax upon the
basis of its entire net income base or upon such other basis as may be applicable.

DATED: November 8, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.