New York Advisory Opinion TSB-H-80(521)I: Does a sole proprietor's real estate management business qualify as the practice of a profession, exempting its income from New York's unincorporated business tax?

Plain-English summary

Aaron Spiegel ran Cinshar Management Associates, a sole proprietorship whose entire income came from real estate management fees. Spiegel was also an officer in two corporations and a partner in two partnerships, and his firm managed real property owned by those entities - collecting rents, arranging building maintenance, handling landlord-tenant court matters, drawing up and signing service contracts, negotiating leases, and keeping income and expense records. He asked whether this activity qualified as the "practice of a profession," which would exempt its income from New York's unincorporated business tax (UBT).

Tax Law section 703(c) excludes from the UBT the practice of law, medicine, dentistry, architecture, or "any other profession" where capital isn't a material income-producing factor and more than 80% of gross income comes from personal services. The regulations and case law flesh out "other profession" with factors like long-term specialized education tied to an advanced degree, licensing requirements, ethical/malpractice standards, and a bar on incorporating the occupation - plus a requirement that the activity be devoted to public service in a traditionally professional sense, going beyond ordinary trade or business services. The Department found Spiegel's activities satisfied none of these factors, and noted that New York courts had repeatedly and specifically held real estate management to be an ordinary unincorporated business, not a profession.

Spiegel separately argued that because he managed the properties of corporations where he was an officer and partnerships where he was a partner, his activities shouldn't count as an unincorporated business at all - pointing (the Department inferred) to sections 703(b) (excluding a corporate officer's own services from UBT, unless those services are part of a business the officer regularly carries on) and 703(e) (excluding a property owner or lessee from UBT liability solely for managing their own property). Both exclusions failed on the facts: Spiegel managed the properties through his separate sole proprietorship, not in his capacity as an officer or partner, so neither narrow carve-out applied. His management income remained fully subject to the unincorporated business tax.

What this means for you

Property managers structured as sole proprietors

Real estate management - rent collection, maintenance arrangements, lease negotiation, tenant relations - has been consistently treated by New York courts as an ordinary business, not a "profession," so it doesn't qualify for the professional exemption from the unincorporated business tax, regardless of how skilled or specialized the work is.

Officers or partners who also personally manage entity-owned property

Managing your own corporation's or partnership's real estate through a separate business you operate (rather than in your capacity as an officer or partner) doesn't get the benefit of the narrow officer-services or property-owner exclusions - those exclusions are tied to acting in the officer/partner/owner capacity itself, not to a related but separate management business.

Accountants advising real estate management clients

Don't assume a management business escapes the UBT just because the manager has an ownership or officer stake in the properties managed - review the actual capacity in which the management services are rendered.

Common questions

Q: Is property management ever treated as a "profession" exempt from New York's unincorporated business tax?
A: Not under this ruling and the cases it cites - New York courts have consistently held real estate management to be an ordinary business activity, lacking the specialized education, licensing, and public-service character that define a "profession" under the statute.

Q: If I manage my own company's real estate as its officer, is that subject to the unincorporated business tax?
A: Generally no, under section 703(b) - but that exclusion only applies to services performed in your capacity as an officer, not to a separate management business you operate that happens to serve entities you're involved with.

Q: Does owning an interest in the properties change the analysis?
A: Only if you're managing property you personally own or lease under section 703(e); managing property owned by a separate corporation or partnership through your own management business doesn't qualify for that carve-out even if you also hold an interest in that corporation or partnership.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/h80_521i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80-(521)-I
Income Tax
March 2, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I800811A

On August 8, 1980 a Petition for Advisory Opinion was received from Aaron
Spiegel, 41 West 83rd Street, New York, N.Y. 10024.
The issue raised is whether Petitioner's activities, consisting of the
management of real property owned by others, constitutes the practice of a
profession so as to exempt the income derived therefrom from the New York State
Unincorporated Business Income Tax imposed under Article 23 of the Tax Law.
Petitioner's firm is Cinshar Management Associates, a sole proprietorship
all of whose income is derived from real estate management fees. Petitioner is
an officer in two corporations and a partner in two partnerships for which
corporations and partnerships Petitioner's firm manages certain real property.
Petitioner's duties in this regard consist of the collection of rents, arranging
for the maintenance of the buildings, handling landlord-tenant court matters,
drawing up and signing service contracts, negotiating and drawing up leases, and
handling records pertaining to income and expenses.
Section 703(c) of the Tax Law provides that the practice of law, medicine,
dentistry, or architecture, and the practice of any other profession in which
capital is not a material income producing factor and in which more than eighty
percent of the unincorporated business gross income for the taxable year is
derived from personal services rendered by the individual engaged in the practice
of the profession involved, shall not be deemed an unincorporated business.
The Unincorporated Business Income Tax Regulations defines the term "other
profession" to include "...any occupation or vocation in which a professed
knowledge of some department of science or learning, gained by a prolonged course
of specialized instruction and study, is used by its practical application to the
affairs of others, either advising, guiding or teaching them, and in serving
their interests or welfare in the practice of an art or science founded on it.
The word profession implies attainments in professional knowledge as
distinguished from mere skill and the application of knowledge to uses for others
as a vocation. The performing of services dealing with the conduct of business
itself, including the promotion of sales or services of such business and
consulting services, does not constitute the practice of a profession even though
the services involve the application of a specialized knowledge."
The meaning of the term "other profession" has been the subject of much
litigation in the course of which the courts have enunciated a set of factors to
be considered in determining whether an activity constitutes the practice of a
profession within the meaning of section 703 of the Tax Law. These include ". ..
long-term educational background generally associated with a degree in an
advanced field of science or learning; the requirement of a license; control of
the occupation by standards of conduct, ethics and malpractice liability; and the
existence of a barrier to carrying on the occupation as a corporation". Matter
of Rosenbloom v. State Tax Commission, 44 AD 2d 69, mot Iv app den 34 NY2d 518.
It has also been held that in addition to the foregoing factors the activity in
question should constitute one "devoted to public service in the traditionally
professional sense...," involving "..something more than the type of services
generally performed by those in the broader category of trade, business or
occupation." Matter of Koner v. Procaccino, 45 AD2d 551, affd 39 NY2d 258; Matter
of Joseph Costa v. State Tax Commission, 67 AD2d 1074.

TP-8 (4/80)

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80-(521)-I
Income Tax
March 2, 1981

It is clear in the present instance that Petitioner's activities do not
constitute the practice of a profession within the meaning of the applicable
statute. Petitioner has failed to demonstrate compliance with any of the factors
set forth in the quoted judicial opinions and regulations. Indeed, the management
of the real property of others has consistently been held to constitute the
operation of a business subject to tax under the Unincorporated Business Income
Tax. Matter of Elkind v. State Tax Commission, 63 AD2d 789; Matter of
Swid-Pearlman Management v. Tully, 67 AD2d 1022; Matter of Arbesfeld v. State Tax
Commission, 62 AD2d 627; Matter of Schirrmeister v. Bragalini, 8 AD2d 180.
Petitioner suggests that inasmuch as he manages properties of two
corporations of which he is an officer and of two partnerships of which he is a
partner his activities do not constitute engaging in an unincorporated business.
Petition is presumably referring to sections 703(b) and 703(e) of the Tax Law.
Section 703(b) provides that the performance of services performed by an
individual as an officer of a corporation is not deemed to constitute the
carrying on of an unincorporated business, "...unless such services constitute
part of a business regularly carried on by such individual." Section 703(e)
provides that an owner or lessee of real property is not deemed to be engaged in
an unincorporated business solely by reason of managing such real property. While
Petitioner does manage properties of corporations of which he is an officer, and
of partnerships of which he is a partner, he does not do so in his capacity as
an officer or partner but rather through his sole proprietership, Cinshar
Management Associates. Hence, sections 703(b) and (e) of the Tax Law are not
applicable to Petitioner's activities. Matter of Swid-Pearlman Management v.
Tully, supra; Matter of Elkind v. State Tax Commission, supra; Matter of
Schirrmeister v. Bragalini, supra.
Accordingly, Petitioner's activities as described herein do not constitute
the practice of a profession, but rather the carrying on of an unincorporated
business the income of which is subject to tax under Article 23 of the Tax Law.

DATED: November 10,1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau