A New York condominium association (organized under Real Property Law Article 9-B) doesn't issue stock certificates to unit owners, but earns income from garage/parking/laundry rentals, commercial space leases, and interest -- is it a 'corporation' required to file a New York Article 9-A franchise tax return, regardless of how it elects to file its federal return?

Plain-English summary

A condominium association organized under Article 9-B of the Real Property Law manages a 1,118-unit development, headed by unit homeowners. It has written articles of association but issues no stock certificates or similar instruments evidencing membership interest. Its income comes from five sources: unit-owner assessments, rentals of a garage, parking spaces, and laundry areas, interest income, sponsor expense reimbursements (first two years only), and monthly rentals from tenants of commercial space the association owns. Income funds property operations, with any excess reserved for future capital improvements. The association's representative asked whether it must file a New York Article 9-A corporate franchise tax return, given that it elects to file a REGULAR corporate federal income tax return (rather than the special homeowners-association election under IRC section 528).

Article 9-A applies to any "corporation," a term the Tax Law and its regulations define broadly to include any entity providing "a medium for the conducting of business and the sharing of its gains," including any business conducted by trustees where interest/ownership is evidenced by a certificate or written instrument. The Department found this definition satisfied even without formal stock certificates: under Real Property Law Article 9-B, each unit deed must include the unit's "common interest" -- a proportionate undivided ownership interest in the property's common elements, expressed in the declaration -- which IS a written instrument evidencing each owner's proportionate interest. Combined with the association's active generation of income from garage, parking, laundry, and commercial-space rentals (beyond mere unit-owner assessments), the Department concluded the association "provides a medium for the conducting of business and the sharing of its gains" and thus presents itself as a corporation conducting business, consistent with older case law taxing a tennis club (West Side Tennis Club v. Browne) and a private school (Rye Country Day School v. Lynch) that similarly engaged in profit-generating activity beyond pure membership dues.

Critically, the Department held that the association's FEDERAL filing election is irrelevant to this New York determination: whether it elects the special homeowners-association treatment under IRC section 528 or files a regular corporate federal return "has no impact" on whether it's subject to Article 9-A. The association is therefore required to pay annual franchise tax on its entire net income (or an alternative base), starting from federal taxable income and adjusted per section 208.9, filing Form CT-3 (long form) or CT-4 (short form) as appropriate.

What this means for you

Condominium and homeowners associations with rental or commercial income

Generating income beyond pure unit-owner assessments -- garage/parking rentals, laundry facility income, leasing commercial space you own -- can make your association a taxable "corporation" under New York's Article 9-A, even without issuing formal stock. Your federal tax election (IRC section 528 vs. regular corporate filing) does NOT determine your New York filing obligation; the two are analyzed independently.

Distinguishing a passive homeowners association from an "active business" association

Associations that merely collect and spend member assessments on maintenance look very different, under this doctrine, from ones that also generate rental/business income from garage, laundry, or commercial space -- the latter crosses into "conducting business and sharing gains," which is what triggers Article 9-A taxable-corporation status here.

Common questions

Q: Does a condominium association need to issue stock certificates to be treated as a taxable "corporation" in New York?
A: No -- the Department found that each unit owner's deeded proportionate "common interest" under Real Property Law Article 9-B itself functions as a written instrument evidencing ownership, satisfying that element of the corporation definition.

Q: Does electing the special IRC section 528 homeowners-association treatment on the federal return avoid New York corporate tax?
A: No -- the Department expressly held the federal filing election has no impact on whether the association is subject to New York's Article 9-A franchise tax.

Q: What income sources triggered the "conducting business" finding here?
A: Garage, parking, and laundry-area rentals plus commercial-space leasing -- income beyond simple unit-owner assessments for shared upkeep.

Q: Can another condominium association rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other associations, even those with similar rental income streams.

Citations and references

Statutes and regulations:

• Tax Law § 209.1, § 208.1, § 208.9
• 20 NYCRR 1-2.3
• Real Property Law § 339-o, § 339-e(5), § 339-m, § 339-e(6)
• Internal Revenue Code § 528
• People ex rel. West Side Tennis Club v. Browne, 270 A.D. 1061
• Rye Country Day School v. Lynch, 239 A.D. 614

Related rulings:

• TSB-A-86(4)C -- a homeowners association also found taxable under Article 9-A, on inurement-from-maintenance-services grounds
• TSB-A-86(7)C -- a contrasting title-holding corporation found EXEMPT, having no active service/rental activity

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_6c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (6) C
Corporation Tax
March 12, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C840917A

On September 17, 1984, a Petition for Advisory Opinion was received from Garen &
Company, Suite 408, 420 Lexington Avenue, New York, New York 10170.
The issue raised is whether a condominium association organized in New York State under
Article 9-B of the Real Property Law, which elects to file a regular corporate Federal income tax
return, is required to file a New York State corporate tax return pursuant to Article 9-A of the Tax
Law.
Petitioner represents a condominium association organized under Article 9-B of the Real
Property Law. The condominium association has written articles of association but does not issue
to its members certificates or other written instruments which evidence an interest in or ownership
of the association. The association manages a 1118 unit development and is headed by unit
homeowners. The income of the association is derived from: 1) assessments received from unit
homeowners; 2) rentals of a garage, parking spaces and laundry areas; 3) interest income; 4)
reimbursement of expenses from the development sponsor in excess of budgeted amounts (first two
years only); and 5) monthly rentals received from tenants of commercial space owned by the
condominium association. The income is used to operate the property. The excess of income over
operating expenses is reserved for future capital improvements.
Subdivision one of section 209 of the Tax Law 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 corpo­
rations specified in subdivision four of this section, shall annually pay a franchise tax,
upon the basis of its entire net income, or upon such other basis as may be applicable
as hereinafter provided, . . ."
The meaning of the term "corporation" is set forth in subdivision one of section 208
of the Tax Law, as follows:
"The 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;..."

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (6) C
Corporation Tax
March 12, 1986

Further elucidation is provided by 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, 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 a 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 "... The 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 homeowner's interest
is evidenced by a written instrument.
Section 339-m of such law states, in part, that "The 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).
Accordingly, the generation of income from rentals of a garage, parking spaces, laundry areas
and commercial space owned by a homeowners association demonstrates that the association
provides a medium for the conducting of business and the sharing of its gains. Thus, such
condominium association presents itself as a corporation to conduct business. It is apparent from
Petitioner's description of its operations that the condominium association represented by Petitioner
meets the definition of a corporation for purposes of Article 9-A of the Tax Law.
This conclusion is supported by People ex rel. West Side Tennis Club v. Browne, 270 A.D.
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 A.D. 614, it was determined that since the corporation was
financially successful and had accumulated profits it was subject to the franchise tax.

-3­
TSB-A-86 (6) C
Corporation Tax
March 12, 1986

Whether a condominium association elects to file its Federal income tax return pursuant to
section 528 of the Internal Revenue Code or files a regular corporate Federal income tax return has
no impact on determining if such association is subject to tax under Article 9-A of the Tax Law.
Accordingly, the condominium association represented by Petitioner will be subject to the
Franchise Tax on Business Corporations imposed under Article 9-A of the Tax Law, and will be
required to pay an annual franchise tax upon the basis of its entire net income or upon such other
basis as may be applicable. It is to be noted that, pursuant to the provisions of subdivision nine of
section 208 of the Tax Law, the starting point for computing entire net income is the taxable income
that is reported for Federal income tax purposes. After determining Federal taxable income, it must
be adjusted as required by such subdivision nine of section 208 of the Tax Law. The condominium
association represented by Petitioner will be required to file an annual corporation franchise tax
return on Form CT-3 (long form) or CT-4 (short form), whichever is appropriate.

DATED: March 12, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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