If a nonresident owns a seat (membership) on a New York stock or commodity exchange and leases it out for income after moving out of state, is that rental income - and any later gain on selling the seat - taxable as New York source income?

Plain-English summary

James Rhein, a New York State resident at the time of his petition, was considering buying one or more memberships (seats) on a New York stock or commodity exchange and leasing the seat(s) out to generate rental income. He anticipated that at some point after acquiring the seat(s) he would move out of New York while continuing to own and lease them. The seat(s) would not be connected to any other activity of his in New York. He asked the Department of Taxation and Finance two things: whether the rental income from leasing the seat(s) would be New York source income once he became a nonresident, and whether any gain on a later sale of the seat(s) would likewise be New York source income.

The Department explained that under Tax Law § 631(b)(1), income is New York source income if it is attributable to a business, trade, profession, or occupation carried on in New York, and under § 631(b)(2), income from intangible property (such as a membership seat) is New York source income only to the extent it comes from property employed in a business carried on in New York. Relying on the U.S. Supreme Court's decision in New York ex rel Whitney v Graves, 299 US 366 (1937), the Department noted that a New York Stock Exchange seat is intangible property with a "business situs" in New York - the seat's privilege can be exercised nowhere else, so it is localized at the Exchange regardless of where its owner lives.

Because Rhein's leasing activity would be conducted with a fair measure of permanency and continuity, and he would be relying on the profits of that activity, the Department concluded he would be carrying on a business or occupation in New York within the meaning of 20 NYCRR 132.4(a)(2) - even after he moved out of state. As a result, the rental income from leasing the seat(s) would be New York source income under § 631(b)(1), and any gain (or loss) on a subsequent sale of the seat(s) would be New York source income (or loss) under § 631(b)(2), since it would be gain from intangible property employed in that New York business.

What this means for you

Nonresidents who lease out New York exchange seats

If you own a membership on a New York stock or commodity exchange and lease it out for rental income, that income remains taxable New York source income even if you move out of state - the seat's business situs stays in New York regardless of where you live, because the privilege it represents can only be exercised at the Exchange.

Selling the seat later

Don't assume that becoming a nonresident insulates a later sale from New York tax either. Because the seat is intangible property employed in a New York business (the leasing activity), any gain or loss on its sale is also New York source income or loss, taxable to a nonresident under § 631(b)(2).

Common questions

Q: Does it matter that the seat isn't connected to any other business activity of the owner in New York?
A: No. The leasing activity itself - conducted with regularity and permanency and relied on for income - is enough to constitute carrying on a business in New York under 20 NYCRR 132.4(a)(2), independent of any other New York activity.

Q: Why does a New York exchange seat get treated differently from other intangible property a nonresident might own?
A: Under Whitney v Graves, the U.S. Supreme Court held that an exchange seat has a "business situs" in New York because the privilege it confers can be exercised nowhere else - it is inherently localized at the Exchange, unlike most other intangible assets.

Q: If Rhein sells the seat after moving away, could the sale escape New York tax?
A: No. The Department held that any gain (or loss) on the sale would be income (or loss) from intangible property employed in a New York business, so it would be New York source income under Tax Law § 631(b)(2) regardless of the owner's residence at the time of sale.

Q: What made the leasing activity a "business" rather than an incidental or casual activity?
A: The Department found the leasing activity would be conducted with a fair measure of permanency and continuity, and that Petitioner would be relying on the profits from it - the hallmarks of carrying on a business or occupation under 20 NYCRR 132.4(a)(2), as opposed to an occasional or isolated transaction.

Citations and references

• Tax Law § 601(e) - imposes personal income tax on a nonresident's New York source income, computed via the New York source fraction
• Tax Law § 631(a) - defines the New York source income of a nonresident individual
• Tax Law § 631(b)(1) - income from a business, trade, profession, or occupation carried on in New York
• Tax Law § 631(b)(2) - income from intangible property employed in a business, trade, profession, or occupation carried on in New York
• 20 NYCRR 132.4(a)(2) - a business is carried on in New York when conducted with a fair measure of permanency and continuity
• New York ex rel Whitney v Graves, 299 US 366 (1937) - a stock exchange seat is intangible property with a business situs in New York
• Bryan R. Sullivan, Adv Op Comm T & F, May 31, 1990, TSB-A-90(7)I - cited precedent on leasing activity as a New York business

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a05_5i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-05(5)I
Income Tax
September 27, 2005

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I050225B

On February 25, 2005, a Petition for Advisory Opinion was received from James Rhein,
52-07 Overbrook Street, Douglaston, New York 11362.
The issues raised by Petitioner, James Rhein, are:

1. Whether the receipt by a nonresident individual of rental income from leasing a
   membership or memberships in a New York stock or commodity exchange constitutes
   New York source income for New York state income tax purposes.
2. Whether any gain on a subsequent sale of such membership or memberships would
   constitute New York source income.
   Petitioner submits the following facts as the basis for this Advisory Opinion.
   Petitioner is currently a resident of New York State and considering purchasing one or
   more memberships (seats) in a New York stock or commodity exchange and leasing the seat or
   seats to produce a stream of income. It is anticipated that at some point in time after acquiring
   one or more seats, Petitioner will move out of New York State while retaining ownership of the
   seat or seats. The seat or seats will not be connected to any other activity of Petitioner in
   New York.
   Applicable law and regulations
   Section 601(e) of the Tax Law imposes a personal income tax on nonresidents of
   New York State who have New York source income and provides, in part:
   Nonresidents and part-year residents. (1) General. There is hereby imposed for
   each taxable year on the taxable income which is derived from sources in this state of
   every nonresident and part-year resident individual . . . a tax which shall be equal to the
   tax base multiplied by the New York source fraction.
   (2) Tax base. The tax base is the tax computed under subsections (a) through (d)
   of this section, as the case may be, reduced by the credits permitted under subsections (b),
   (c), (d) and (m) of section six hundred six, as if such nonresident or part-year resident
   individual . . . were a resident subject to the provisions of part II of this article.

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Income Tax
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(3) New York source fraction. The New York source fraction is a fraction the
numerator of which is such individual's . . . New York source income determined in
accordance with part III of this article and the denominator of which is such individual's
New York adjusted gross income determined in accordance with part II of this article. . . .
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, . . . and
(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. . . .
(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:
(A) the ownership of any interest in real or tangible personal property in this
state; or
(B) a business, trade, profession or occupation carried on in this state; . . .
(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. . . .
Section 132.4(a)(2) of the Personal Income Tax Regulations (Regulations) provides, in
part:
A business, trade, profession or occupation (as distinguished from personal
services as an employee) is carried on within New York by a nonresident when such
nonresident occupies, has, maintains or operates desk space, an office, a shop, a store, a
warehouse, a factory, an agency or other place where such nonresident=s affairs are
systematically and regularly carried on, notwithstanding the occasional consummation of
isolated transactions without New York State. The definition is not exclusive. Business
is carried on within New York State if activities within New York State in connection
with the business are conducted in New York State with a fair measure of permanency
and continuity. A taxpayer may enter into transactions for profit within New York State

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and yet not be engaged in a trade or business within New York State. If a taxpayer
pursues an undertaking continuously as one relying on the profit therefrom for such
taxpayer=s income or part thereof, such taxpayer is carrying on a business or occupation.
However, see section 132.10 of this Part with regard to the effect of the purchase and sale
of property by a nonresident for such nonresident=s own account.
Opinion
Section 601(e) of the Tax Law imposes a personal income tax on the taxable income
derived from New York sources of a nonresident individual. The tax is equal to the tax
computed as if the nonresident individual were a New York State resident for the entire year,
reduced by certain credits, and then multiplied by the income percentage (i.e., New York source
fraction). The numerator of the fraction used to compute the income percentage is the
nonresident individual=s New York source income; the denominator of the fraction is the
nonresident individual=s New York adjusted gross income from all sources for the entire year.
Section 631(a) of the Tax Law provides that the New York source income of a
nonresident individual is the sum of the items of income, gain, loss and deduction entering into
federal adjusted gross income derived from or connected with New York sources and any
New York addition and subtraction modifications under section 612(b) and (c) of the Tax Law
that relate to income derived from New York sources.
Section 631(b)(1) of the Tax Law provides that income, gain, loss and deduction derived
from or connected with New York sources include those items attributable to a business, trade,
profession or occupation carried on in New York State. Section 631(b)(2) of the Tax Law
provides that income from intangible 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.
Section 132.4(a)(2) of the Regulations provides that a business is carried on within
New York State if activities within New York State in connection with the business are
conducted in New York State with a fair measure of permanency and continuity. If a
nonresident individual pursues an undertaking continuously in New York and relies on the profit
from the undertaking for all or part of his or her income, the nonresident individual is carrying on
a business or occupation in New York.
New York Stock Exchange seats have been characterized by the United States Supreme
Court as intangible property with a business situs in New York State. See New York ex rel
Whitney v Graves, 299 US 366 (1937). The Court noted that:
[w]hen we speak of a "business situs" of intangible property in the taxing State we are
indulging in a metaphor. We express the idea of localization by virtue of the attributes of

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the intangible right in relation to the conduct of affairs at a particular place... [T]he right
may be identified with a particular place because the exercise of the right is fixed
exclusively or dominantly at that place... [T]he localization for the purpose of transacting
business may constitute a business situs quite as clearly as the conduct of the business
itself. Here, we are dealing with an intangible right of a peculiar nature. It embraces the
privilege of a member to transact business on the Exchange as well as a valuable right of
property which is the subject of transfer with the approval of the Exchange and may
survive resignation, expulsion or death... Its very nature localizes it at the Exchange. It is
a privilege which can be exercised nowhere else. The nature of that right is not altered by
the failure to exercise it. . . .
As determined by the United States Supreme Court in Whitney, supra, a New York Stock
Exchange seat has a business situs in New York and it is at such site that a nonresident individual
maintains a membership and from which his or her business affairs are systematically and
regularly carried on. Here, Petitioner is considering purchasing one or more seats on a
New York stock or commodity exchange and leasing the seat or seats to produce a stream of
income. It appears that Petitioner would be relying on the profits of the leasing activity.
Petitioner=s leasing activity would be conducted in New York State with a fair measure of
permanency and continuity. The leasing activity would not be a casual or incidental activity.
Therefore, Petitioner will be carrying on a business or occupation within New York State for
purposes of section 631(b) of the Tax Law. (See Bryan R. Sullivan, Adv Op Comm T & F, May
31, 1990, TSB-A90(7)I.)
Accordingly, the leasing of one or more New York stock or commodity exchange seats
would constitute a business, trade, profession or occupation in New York State pursuant to
section 132.4(a)(2) of the Regulations, and Petitioner=s income from such leasing activities
would be New York source income under section 631(b)(1)(B) of the Tax Law.
Any gain (or loss) on the sale of such seats would be income (or loss) from intangible
property employed in a business, trade, profession or occupation in New York State.
Accordingly, such gain (or loss) would be New York source income under section 631(b)(2) of
the Tax Law. (See Whitney, supra.)

DATED: September 27, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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