New York Advisory Opinion TSB-H-81(56)I: Is a partnership that trades spot commodities and commodity futures solely for its own account subject to New York's unincorporated business tax, and is a nonresident member's distributive share subject to New York personal income tax?

Plain-English summary

Victor H. Braca, through his accountants Coopers & Lybrand, asked the Department about a partnership engaged in trading and investing in spot commodities and commodity futures contracts. The partnership wasn't a dealer holding property for sale to customers - it bought and sold purely for its own account. Braca asked two things: whether the partnership itself owed New York's unincorporated business tax (UBT), and whether a nonresident member's distributive share of the partnership's income was subject to New York personal income tax.

Tax Law section 701(a) taxes the unincorporated business income of any unincorporated business carried on in New York, and section 703(a) defines that broadly to include a partnership's trade or business. But section 703(d) excludes an individual or unincorporated entity from that definition solely because it buys and sells property (or stock options) for its own account - unless it's a dealer holding property primarily for sale to customers. Because the partnership here made all its investments solely for its own benefit and didn't buy or sell on behalf of customers, it had no UBT liability.

On the nonresident-partner question, section 632(a) taxes a nonresident only on income connected to New York sources, and section 632(b) limits "New York sources" to income tied to (1) New York real or tangible property, or (2) a business, trade, profession, or occupation carried on in New York; section 632(b)(2) further limits intangible-property income (like interest) to New York-source treatment only when it's tied to such a New York business. Since the partnership's distributive share to a nonresident member wasn't attributable to either category, that member wasn't subject to New York personal income tax on it.

What this means for you

Partnerships trading commodities or securities purely for their own account

If your partnership's only activity is buying and selling commodities, futures, or similar property for its own account - with no customers and no dealer role - it generally falls outside New York's unincorporated business tax, the same result reached for a differently-structured commodity fund in the Department's companion opinion, TSB-A-81(2)I.

Nonresident partners in an own-account trading partnership

Your distributive share of an own-account trading partnership's income generally isn't New York-source income and isn't subject to New York personal income tax, since it isn't tied to New York property or a New York business.

Anyone unsure whether "for its own account" trading crosses into dealer activity

The exclusion depends on the entity not acting as a dealer holding property primarily for sale to customers - if a partnership starts selling to customers in the ordinary course of business, this exclusion (and the parallel nonresident-partner exclusion) would no longer apply.

Common questions

Q: Does a partnership that only trades commodities for its own account owe New York's unincorporated business tax?
A: Not under this ruling's facts - own-account trading (as opposed to dealer activity involving sales to customers) is specifically excluded from the definition of an "unincorporated business."

Q: Is a nonresident partner taxed by New York on income from an own-account trading partnership?
A: Not under this ruling's facts - the distributive share isn't New York-source income unless it's tied to New York real or tangible property or a business carried on in New York, neither of which applied here.

Q: How does this ruling relate to New York's other commodity-fund opinions from the same year?
A: It reaches the same result as the Department's contemporaneous opinion on the Chancellor Financial Futures Fund Limited Partnership (TSB-A-81(2)I) - both turn on the same own-account trading exclusion under Tax Law sections 703(d) and 632(d).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/h81_56i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81-(56)-I
Income Tax
April 24, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I810203A

On February 3, 1981, a Petition for Advisory Opinion was received from
Victor H. Braca, c/o Coopers & Lybrand, 1251 Avenue of the Americas, New York,
New York 10020.
The issues raised are (1) whether a partnership purchasing and selling
commodities and commodity future contracts for the benefit of its own account
only and having no customers is subject to the Unincorporated Business Income Tax
imposed under Article 23 of the Tax Law and (2) where a member of such
partnership is a nonresident of New York State, whether his distributable share
of partnership income will be subject to the Personal Income Tax imposed under
Article 22 of the Tax Law.
Petitioner describes a partnership engaging in trading and investing in
spot commodities and commodity futures contracts. The partnership is not a dealer
holding property primarily for sale to customers but is purchasing and selling
such property for the benefit of its own account.
Section 701(a) of the Tax Law imposes a tax on "...the unincorporated
business taxable income of every unincorporated business wholly or partly carried
on within this state." Section 703(a) of the Tax Law defines the term
"unincorporated business" as "...any trade, business or occupation conducted,
engaged in or being liquidated by an individual or unincorporated entity,
including a partnership or fiduciary or a corporation in liquidation,..." with
certain exclusions not relevant here.
Section 703(d) of the Tax Law provides that any "...individual or other
unincorporated entity, except a dealer holding property primarily for sale to
customers in the ordinary course of his trade or business, shall not be deemed
engaged in an unincorporated business 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 632(a) of the New York Tax Law provides that the New York adjusted
gross income of a nonresident individual shall be the net amount of items of
income, gain, loss, and deduction entering into his federal adjusted gross income
derived from or connected with New York sources. Section 632(b) provides that
items of income, gain, loss and deduction derived from or connected with New York
sources shall be those items attributable to:

1. The ownership of any interest in real or tangible
   personal property or
2. A business, trade, profession or occupation carried
   on in this state.
   Section 632(b)(2) of the Tax Law states that income from intangible
   personal property, including interest, 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.

TP-8 (4/80)

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-81-(56)-I
Income Tax
April 24, 1981
Accordingly, since all investments are made solely for the benefit of the
partnership and the partnership does not engage in the purchase and sale of
investments on behalf of customers, the partnership described has no liability
for the Unincorporated Business Income Tax imposed under Article 23 of the Tax
Law. A member of such partnership who is a nonresident of New York is not subject
to the Personal Income Tax imposed under Article 22 of the Tax Law with respect
to such partnership income, because the distributable share of partnership income
is not related to:

1. The ownership of any interest in real or tangible
   personal property or
2. A business, trade, profession or occupation carried
   on in this state.

DATED: April 2, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau