Is an unincorporated residential condominium association that rents out parking spaces and may lease units subject to Article 9-A franchise tax for every year since it was organized, including years before the 1989 law change?

Plain-English summary

Bayside Mews Condominium, an unincorporated 142-residential-unit association in Queens organized in 1982 under Real Property Law Article 9-B, asked whether it is subject to Article 9-A franchise tax. Its core revenue is common-charge assessments, interest income, and late-charge income from unit owners -- but it also owns the superintendent's unit, may rent 20 parking spaces, and may lease other units. The association provides services only to unit owners and otherwise doesn't engage in a trade or business with outsiders.

The answer: taxable for every year since organized. Even under the older, stricter test requiring an entity to "provide a medium for the conducting of business and the sharing of its gains" to count as a corporation, prior rulings squarely cover facts like these: Astor Terrace Condominium, TSB-A-90(7)C (income from a laundry-room concession and storage charges) and Galen & Company, TSB-A-86(6)C (income from garage, parking, laundry, and commercial-space rentals) both held that a condo association earning rental/concession-type income from common elements has demonstrated it conducts business and shares gains -- making it a taxable Article 9-A corporation. Bayside Mews' parking-space rentals and unit leasing are exactly that kind of income, further supported by case law taxing organizations engaged in profit-generating activity even if organized for other purposes (People ex rel West Side Tennis Club v Browne; Rye Country Day School v Lynch). On top of that, for taxable years beginning on or after January 1, 1989, Bayside Mews independently qualifies as a taxable "association" under the broadened post-1989 definition of "corporation" (any IRC section 7701(a)(3) association), regardless of its business activity. So Bayside Mews owes Article 9-A franchise tax for every taxable year since it was organized in 1982.

What this means for you

Condominium associations that rent parking spaces, storage, or units

Even modest rental income from common-element facilities like parking spaces -- on top of ordinary common charges -- is enough to make an unincorporated condo association a taxable Article 9-A "corporation," even for years before the 1989 law broadened the definition. Compare with Larkfield (TSB-A-92(4)C), where an association with only common charges and reserve interest was NOT taxable for the same pre-1989 period.

Boards deciding whether to lease out common-element space

Renting parking spaces, storage areas, laundry rooms, or condo-owned units for income crosses the pre-1989 "conducting business" line established in Astor Terrace and Galen -- and does so regardless of whether the association is incorporated, since the test looks at actual activity, not corporate form.

Accountants and tax professionals

Bayside Mews and its companion case Chesin (TSB-A-91(23)C, also decided this year) confirm the same pattern: laundry, garage, parking, or unit-rental income tips a condo association into taxable "business activity" status even pre-1989, while pure common-charges-and-interest income (Larkfield) does not.

Common questions

Q: Does renting parking spaces make a condo association taxable?
A: Yes, based on this ruling and its precedents (Astor Terrace, Galen & Company) -- rental income from common-element facilities like parking demonstrates the association conducts business and shares gains.

Q: Does incorporation status matter for this test?
A: No -- Bayside Mews was unincorporated, yet the Regulations' definition of "corporation" reaches any entity that provides a medium for conducting business and sharing gains, regardless of formal incorporation.

Q: How does this compare to condo associations with only common charges?
A: Contrast with Larkfield (TSB-A-92(4)C), which had only common charges and reserve interest and was NOT taxable for the same pre-1989 years -- the presence of rental/concession income is the key distinguishing fact.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax)
• Tax Law section 208.1 (definition of "corporation," pre- and post-1989)
• Business Corporation Franchise Tax Regulations section 1-2.3 (definition of corporation)
• Real Property Law Article 9-B, sections 339-o, 339-e(5), 339-m, 339-e(6)

Cases and prior opinions cited in the ruling:

• Astor Terrace Condominium, TSB-A-90(7)C
• Garen & Company [Galen & Company], TSB-A-86(6)C
• People ex rel West Side Tennis Club v Browne, 270 App Div 1061
• Rye Country Day School v Lynch, 239 App Div 614

Related ruling:

• TSB-A-92(4)C (Larkfield Professional Center Condo Association) -- contrasting result for a condo with only common charges and reserve interest.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a91_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(13)C
Corporation Tax
May 10, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C910307A

On March 7, 1991, a Petition for Advisory Opinion was received from Bayside Mews
Condominium, c/o Concerned Management Company, 33-01, Francis Lewis Blvd., Flushing, New
York 11358.
The issue raised by Petitioner, Bayside Mews Condominium, an unincorporated
condominium association, is whether it is subject to the franchise tax imposed under Article 9-A of
the Tax Law.
Petitioner, an unincorporated condominium association was organized in 1982 under Article
9-B of the New York Real Property Law. The condominium comprises the land and buildings
located at 209-21, 209-33, 209-45 and 210-19 26th Avenue in Bayside, Queens, New York 11360.
It is comprised of 142 residential units. Petitioner does not issue certificates or other written
instruments evidencing ownership, nor does it issue stock. Petitioner owns the residential unit used
by the superintendent. The revenues of Petitioner consist of assessments for common charges to unit
owners, interest income and miscellaneous income from late charges. In addition, Petitioner may
receive revenue from the rental of 20 parking spaces and the lease of units. The condominium
provides services to unit owners only, and it does not engage in a trade or business.
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 units themselves,
the common elements.
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 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 ...
TP-9(9/88)

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TSB-A-91(13)C
Corporation Tax
May 10, 1991
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 defined 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 §l-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
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 "[tithe 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

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TSB-A-91(13)C
Corporation Tax
May 10, 1991
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 Astor Terrace Condominium, Adv Op Comm T & F, March 1, 1990, TSB-A-90(7)C, it
was held that where a condominium association, organized under 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 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. See also, Garen& Company, Adv Op St Tax Comm, March 12, 1986, TSB-A-86(6)C.
Herein, Petitioner, a condominium association organized pursuant to Article 9-B of the Real
Property Law, rents parking spaces and may purchase and lease residential units. 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 purposes of section 208.1 of the Tax Law 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 under Article 9-A of the Tax Law. Accordingly, Petitioner 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: May 10, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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