Does an unincorporated condominium association organized under New York's condominium law owe Article 9-A corporation franchise tax if it earns income beyond just common charges, like a laundry room concession?

Subject

Whether an unincorporated condominium association, organized under Article 9-B of the Real Property Law, is subject to the Article 9-A franchise tax on business corporations.

Plain-English summary

Astor Terrace Condominium is a 290-residential-unit, four-commercial-unit building organized as an unincorporated condominium association under New York's condominium law. It doesn't issue stock or ownership certificates — each unit owner directly owns title to their own unit. But the association itself gets revenue beyond just collecting common charges from owners: it also earns income from a laundry room concession in the basement, plus storage charges, late fees, and interest income.

The Department ruled the association is subject to Article 9-A franchise tax for every year since it was organized. The key legal move: New York taxes not just corporations but also "associations" as defined by federal tax law (IRC § 7701(a)(3)) — organizations whose characteristics (associates, a profit-sharing objective, continuity, centralized management, limited liability, free transferability) make them look more like a corporation than a partnership or trust. Because Astor Terrace generates outside income (the laundry concession and storage fees) rather than merely passing common charges through to cover shared expenses, the Department found it "provides a medium for the conducting of business and the sharing of its gains" — the regulatory definition of a corporation. That conclusion tracked an earlier ruling, Garen & Company, TSB-A-86(6)C, involving a similar condo association with garage/parking/laundry income, and court decisions taxing a tennis club and a private school once they ran profit-generating activities.

What this means for you

Condo boards and property managers

If your condominium association's revenue is limited strictly to common-charge assessments used to cover shared expenses, you may be outside this rule. But once the association starts running a concession (laundry, parking, storage, garage rentals) that generates income beyond simple cost-sharing, this ruling treats that as "conducting business," triggering Article 9-A corporate franchise tax — even though the association issues no stock and isn't formally incorporated.

Accountants and tax professionals

The test comes from IRC § 7701(a)(3) and 20 NYCRR § 1-2.3: does the entity provide "a medium for the conducting of business and the sharing of its gains"? A pure common-charge assessment structure looks more like cost-sharing among individual homeowners; add outside revenue streams like concessions, and the entity starts to resemble a for-profit corporation. This is a companion ruling to the pattern later seen in TSB-A-91(13)C (Bayside Mews) and TSB-A-92(4)C (Larkfield) — read together, they distinguish condos with only common-charge income from those layering on rental/concession revenue.

Real estate attorneys structuring condo documents

If a condo association's governing documents authorize revenue-generating concessions or leases of common elements, budget for potential Article 9-A exposure from day one — the ruling found Astor Terrace taxable "for all taxable years since it was organized," not just going forward.

Common questions

Q: Does every condo association owe New York corporate franchise tax?
A: Not automatically. This ruling turned on the association earning revenue beyond common charges — specifically a laundry concession and storage fees. A condo association funded purely by common-charge assessments for shared expenses presents a different case (see the later Larkfield ruling, TSB-A-92(4)C).

Q: Does not issuing stock or being "unincorporated" avoid the tax?
A: No. New York's definition of "corporation" for franchise tax purposes reaches associations under IRC § 7701(a)(3) regardless of formal incorporation or stock issuance.

Q: Can another condo association rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax on business corporations)
• Tax Law § 208.1 (definition of "corporation," including an IRC § 7701(a)(3) association)
• 20 NYCRR § 1-2.3 (a corporation is a medium for conducting business and sharing gains)
• 26 U.S.C. § 7701(a)(3); 26 CFR § 301.7701-2(a) (federal association/corporate-characteristics test)
• Real Property Law Article 9-B, §§ 339-o, 339-e(5), 339-m, 339-e(6) (condominium common interest and common profits)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a90_7c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(7)C
Corporation Tax
March 1, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890908A

On September 8, 1989, a Petition for Advisory Opinion was received from Astor Terrace
Condominium, 245 East 93rd Street, New York, New York 10128.
The issue raised by Petitioner, Astor Terrace Condominium, is whether an unincorporated
association, organized pursuant to Article 9-B of the Real Property Law, is subject to the franchise
tax on business corporations imposed under Article 9-A of the Tax Law.
Petitioner comprises the land and building located at 245 East 93rd Street, New York, New
York. It includes 290 residential units and four commercial units. The condominium association
was organized in accordance with Article 9-B of the New York State Real Property Law. The
association is not incorporated and it does not issue certificates or other written instruments
evidencing ownership, nor does it issue stock.
The ownership of a residential condominium unit is similar in many respects to ownership
of a private home. The owner of a residential unit owns title to his or her unit and is entitled to
exclusive possession of it. Any one unit is not subject to mortgages on any other units and a unit
owner will incur no liability if his or her neighbors fail to make payments on any mortgage affecting
their units. Each unit owner has the right to vote in the election of a Board of Managers which will
supervise the property and manage the affairs of the condominium. A unit owner may sell or lease
his unit to anyone without restriction or limitation, subject to a right of first refusal by the Board of
Managers. Each unit is assessed as a separate tax lot for real estate tax purposes.
In addition to ownership of title to his or her unit, a unit owner owns in common with all
other unit owners, an undivided interest in all parts of the property other than the residential or
commercial units themselves, the common elements. Petitioner, itself, owns no interest in real
estate.
The revenues of Petitioner consist of assessments for common charges to unit owners,
income from a laundry room concession (used by residents) located in the building basement, interest
income and miscellaneous income from storage charges, late charges, etc. The association owns no
property and provides maintenance services only to unit owners. The association does not render
services to non-unitholders, nor does it otherwise engage in a trade or business.
Section 209.1 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
TP-9 (9/88)

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Corporation Tax
March 1, 1990
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 ...
The meaning of the term "corporation", as amended by the Laws of 1989 (ch 61), is set forth
in section 208.1 of the Tax Law, as follows:
The term "corporation" includes an association, within the meaning of paragraph
three of subsection (a) of section seventy-seven hundred one of the internal revenue
code, a joint-stock company or association, a publicly traded partnership treated as
a corporation for purposes of the internal revenue code pursuant to seventy-seven
hundred four thereof 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, 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
For purposes of section 7701(a)(3) of the Internal Revenue Code, an association is an
organization whose characteristics require it to be classified for purposes of taxation as a corporation
rather than another type of organization such as a partnership or a trust. Section 301.7701-2(a) of
the Treasury Regulations provides that the major characteristics ordinarily found in a pure
corporation which, taken together, distinguish it from other organizations are (1) associates, (2) an
objective to carry on business and divide the gains therefrom, (3) continuity of life, (4) centralization
of management, (5) liability for corporate debts limited to corporate property, and (6) free
transferability of interests. An organization will be treated as an association if the corporate
characteristics are such that the organization more nearly resembles a corporation than a partnership
or a trust.
Section 339-o of Article 9-B of the Real Property Law states that the deeds and leases of units
must include "[t]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

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Corporation Tax
March 1, 1990
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 "[t]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).
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.
Herein, Petitioner, 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, Petitioner presents itself as
a corporation to conduct business.
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, Petitioner meets the definition of a corporation for purposes of Article 9-A of
the Tax Law. In addition, for taxable years beginning on or after January 1, 1989, Petitioner is an
association within the meaning of section 7701(a)(3) of the Internal Revenue Code. Therefore, for
all taxable years since it was organized, Petitioner is subject to the franchise tax on business

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Corporation Tax
March 1, 1990
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 base or upon such other basis as may be
applicable.

DATED: March 1, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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