New York Advisory Opinion TSB-A-88 (6)I: Issue raised is whether, for taxable year 1987, the gain realized on the sale of stock in a cooperative housing corporation is subject to New York personal income tax under Article 22 of the Tax Law when the owner was a non-resident of New York State at the time of the sale and the cooperative apartment was partially used for business purposes.

Plain-English summary

Licia Albanese Gimma owned shares of stock in a New York City cooperative housing corporation, which she shared with her husband as their apartment. She used 12.5% of the apartment for business purposes and claimed 12.5% of the maintenance charges as a business deduction. In November 1986 she bought a house in Connecticut and established Connecticut residency; her husband remained a New York resident and bought his own separate NYC co-op apartment in January 1987. In March 1987, Petitioner sold her shares in the original NYC co-op for a substantial gain, and New York's (former) real property transfer gains tax was paid on the 12.5% business-use portion.

Petitioner asked whether, assuming she was a nonresident of New York for 1987, the gain on that stock sale was subject to New York personal income tax under Article 22, and if so, to what extent.

The Department held that only the 12.5% business-use portion of the gain is taxable to New York. Cooperative housing shares are, legally, intangible personal property - stock - even though they function as a housing unit. For 1987, Tax Law § 632(b)(2) sourced gains from the disposition of intangible personal property to New York only "to the extent that such income is from property employed in a business, trade, profession, or occupation carried on in this state." A prior 1981 Technical Services Bureau letter had already established that gain from selling co-op housing stock is taxed the same way as gain from selling any other stock, meaning nonresidents generally are not taxed on such gain unless the apartment was devoted to business purposes.

Because Petitioner's apartment was partly used for business - the same 12.5% she had been deducting as a business expense - § 632(b)(2) made that proportional share of the gain New York-source income. The Department concluded that, assuming Petitioner was a nonresident for 1987, she had to include 12.5% of the gain from the co-op stock sale in her New York adjusted gross income, while the remaining 87.5% (attributable to personal residential use) was not taxable to her as a nonresident.

What this means for you

Nonresidents selling a NYC co-op apartment that was partly used for business or as a home office

If you moved out of New York, became a nonresident, and later sold stock in a New York City cooperative housing corporation, the general rule is that a nonresident's gain on selling co-op stock is not taxed by New York - co-op shares are treated like any other stock sale. But if any part of the apartment was used for business purposes (and especially if you took a business deduction for a percentage of the maintenance charges), that same percentage of your gain becomes New York-source income and is taxable, even though you were a nonresident when you sold.

Accountants apportioning gain on mixed-use residential property

When a client sold co-op stock in a unit that had a business-use percentage (a home office, a rented-out room used for the client's trade, etc.), apply that same percentage to the total gain on sale to determine the New York-taxable share for a nonresident seller. The apportionment should track whatever percentage was used to claim the business deduction for maintenance or other carrying costs during the years of ownership, since that percentage is what "employed in a business ... carried on in this state" turns on under § 632(b)(2).

People who moved out of New York but kept a business deduction on a co-op they later sold

Establishing residency in another state does not, by itself, shield gain on a later co-op sale from New York tax if part of the unit had a business use. Keep records of exactly what percentage of the apartment was used for business and for how long, since that percentage - not the full gain - is what New York will tax on the eventual sale.

Common questions

Q: If I moved out of New York and sell my old co-op, is the gain taxed by New York?
A: Generally no, if you are a nonresident at the time of sale - New York treats co-op housing stock the same as any other stock for a nonresident seller. The exception is if part of the apartment was used for business purposes; in that case, only the percentage of the gain attributable to the business use is taxed by New York, not the whole gain.

Q: Why does it matter that co-op shares are "intangible personal property"?
A: Because Tax Law § 632(b)(2) (as in effect for 1987) sourced gains on intangible personal property to New York only to the extent the property was employed in a business carried on in the state. Since co-op shares are legally stock rather than real property, a nonresident's gain on selling them falls under this intangible-property sourcing rule rather than New York's real property rules, which is what makes the personal-use portion of the gain escape New York tax for a nonresident.

Q: How was the 12.5% figure determined in this case?
A: Petitioner had already been claiming 12.5% of the apartment's maintenance charges as a business deduction, reflecting the portion of the apartment used for business purposes. The Department applied that same 12.5% figure to apportion the gain on sale, taxing only the business-use share and leaving the 87.5% personal-use share untaxed to the nonresident.

Q: Does it matter that the real property transfer gains tax was paid on the business-use portion?
A: The petition notes that the (now-repealed) New York real property transfer gains tax was paid on the 12.5% business-use portion of the sale, but the ruling itself addresses only the separate question of personal income tax liability under Article 22. The two taxes are analyzed independently; paying the transfer gains tax on the business-use share does not by itself determine income-tax treatment, though here both taxes reach the same 12.5% portion.

Q: What if the co-op apartment had no business use at all?
A: Then none of the gain would be New York-source income to a nonresident seller, consistent with the 1981 Technical Services Bureau letter cited in this opinion, which held that nonresidents are not taxable on gain from selling co-op housing stock unless the apartment was devoted to business purposes.

Citations and references

• Tax Law § 632(b)(2) (as in effect for taxable year 1987) - sources gain from the disposition of intangible personal property (including cooperative housing stock) to New York only to the extent the property was employed in a business, trade, profession, or occupation carried on in the state
• Letter of Director of Technical Services Bureau, Department of Taxation and Finance, April 28, 1981 - establishes that gain from the sale of cooperative housing stock is taxed in the same manner as gain from the sale of any other stock, so nonresidents are not taxable on such gain unless the apartment was devoted to business purposes

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a88_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (6) I
Income Tax
May 25, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I880128A

On January 28, 1988, a Petition for Advisory Opinion was received from Licia Albanese
Gimma, Nathan Hale Drive, Norwalk, Connecticut.
The issue raised is whether, for taxable year 1987, the gain realized on the sale of stock in
a cooperative housing corporation is subject to New York personal income tax under Article 22 of
the Tax Law when the owner was a non-resident of New York State at the time of the sale and the
cooperative apartment was partially used for business purposes. Additionally, if the gain is subject
to tax, to what extent is it taxable?
Petitioner was the sole owner of shares of stock in a cooperative housing corporation in New
York City. She shared her cooperative apartment with her husband. Petitioner used twelve and one­
half percent of the apartment for business purposes and claimed 12½% of the maintenance of such
apartment as a business deduction.
Petitioner states that in November of 1986, she bought a house in Connecticut and moved
there, establishing Connecticut residency. Petitioner's husband continues to be a New York resident
and purchased his own cooperative apartment in New York City on January 12, 1987.
In March of 1987, Petitioner sold her shares in the New York City cooperative housing
corporation for a substantial gain. The New York State real property transfer gains tax was paid on
the 12½% portion used for business.
For taxable year 1987, section 632(b)(2) of the Tax Law provided that "[i]ncome 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."
It has been determined that gain from the sale of stock in a cooperative housing corporation
is taxable in the same manner as gain from the sale of any other stock and, therefore, nonresidents
are not taxable with respect to gain from the sale of stock in a cooperative housing corporation unless
the apartment was devoted to business purposes. Letter of Director of Technical Services Bureau,
Department of Taxation and Finance, April 28, 1981.
Herein, Petitioner has sold a cooperative apartment that was partly used for business
purposes. Section 632(b)(2), in effect for taxable year 1987, provided that income from intangible
property constitutes New York income to the extent such income is from property employed in a
business carried on in New York State.

-2­
TSB-A-88 (6) I
Income Tax
May 25, 1988
Accordingly, assuming Petitioner was a nonresident for taxable year 1987, Petitioner must
include in New York adjusted gross income, the portion of the gain on the sale of the cooperative
apartment that is attributable to the use of such apartment for business purposes; that is, 12½% of
the gain.

DATED: May 25, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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