Present New York Tax Issues For Asset Managers—Half 1, Sourcing Payment Earnings In A Distant Work Mannequin – Tax

Asset managers face a complicated tax environment in New York.

They must consider not just New York State (NYS) business taxes on

their management companies, their funds and themselves, but also

parallel New York City (NYC) business taxes. Sometimes these NYS

and NYC taxes are aligned, and sometimes they are not. In the case

of remote work, they are not. As we discuss below, remote work

presents an opportunity to reduce the New York tax burden on fee

income, but NYS and NYC each present their own considerations,

which must both be addressed to properly capitalize on it.

The pandemic forced many of us into a work-from-home experiment

that had no precedent or road map. Many companies then learned that

working from home is not only possible but, in some cases, quite

efficient. As a result, after leaving NYC in March of 2020, many

principals and investment professionals have decided they may stay

put and never truly return to their NYC offices. Some will work

from home and occasionally visit the NYC office, while others will

simply establish new offices closer to their primary residence.

This Legal Update reviews key NYC Unincorporated Business Tax

(UBT) and NYS Personal Income Tax (PIT) considerations-and

potential savings-that may arise from this shift. It focuses on

income sourcing concepts for partnerships under the UBT and PIT.

The sourcing regimes largely apply to management fee income, as the

UBT and PIT both have exemptions for self-trading income that

shelter carried interest income from tax, when structured properly.

Based on their current approaches to income sourcing, the UBT

automatically adjusts to remote work locations and the PIT does

not. NYS’s newly enacted “Pass-Through Entity Tax”

mirrors the PIT. We have discussed the Pass-Through Entity Tax in a

recent Legal Update. The PIT discussion in this Legal

Update applies primarily to nonresident partners because resident

partners are taxable on all of their income wherever earned.

Part 2 of this Legal Update will address the PIT considerations

that residents and nonresidents face at the individual level,

including some basics around residency changes, and the effects of

those changes on PIT liabilities. It will consider issues such as

sourcing carried interest income, bonuses and deferred payments in

years that involve residency changes, and establishing bona fide

home offices.

I. Some Basics


The UBT is a 4% tax on net income that is allocated and

apportioned to NYC. It applies to a base that is generally derived

from federal gross income and deductions, but has its own

definition of a taxable business-which notably excludes some

financial and real estate investment activities-and applies its own

modifications to income.1 The result is a tax that

conforms to many aspects of Subchapter K and the Internal Revenue

Code, but also has its very own concepts, construction and


One mostly thinks of partnerships and limited liability

companies in relation to the UBT, but the tax also applies to sole

proprietors, trusts, and any other form of unincorporated

business.2 Whatever the form of business, determining

how much income the business earned in NYC is often the most

crucial determination. Many UBT filers do business inside and

outside NYC and therefore must “allocate” that income to

NYC to calculate the tax (most other state and local income taxes

use the term “apportion” for income that is attributed by

formula and the term “allocate” for income that is

attributed by source).3 NYC allocates income by using a

formula that results in a “business allocation

percentage” that represents the percentage of income a

taxpayer must attribute to NYC in any particular year for tax


Until recently, the NYC allocation formula included three

factors-property, payroll, and gross income.4 Beginning

in 2018, however, the property and payroll factors no longer apply

and the NYC business allocation percentage is derived entirely from

the gross income factor.5 That means a business

determines its NYC income solely by reference to the percentage of

its gross receipts or sales that are attributable to NYC under the

UBT’s rules for sourcing gross income. For a services business,

such as asset management or law or accounting services, the place

of performance generally controls that determination because the

gross income factor sources fees for most services to NYC to the

extent the services were performed within NYC.6 Special

industry-specific rules provide a customer-based approach for

registered broker-dealers and mutual fund managers7 and

those exceptions are not addressed by this Legal Update. Further

flexibility may exist with respect to “other business

receipts” or “other reasonable method(s),” which we

have covered, in part, in this prior article.


The PIT is a graduated personal net income tax on residents and

nonresidents at the NYS level, and on residents at the NYC level.

Remote working has a greater potential impact on nonresidents than

residents (except to the extent a person changes their residency as

a result of remote work). This is because remote work may affect

the amount of both NYS sourced business income (i.e., Form K-1

income) and NYS sourced compensation (i.e., Form W2 income) that

nonresidents must report.

In contrast to the UBT, the PIT is more closely tied to federal

tax returns, at least for residents. It applies to federal adjusted

gross income with certain state-specific modifications.8

That means NYS and NYC tax all of a resident’s income wherever

earned on almost the same basis as the federal government, subject

to NYS credits for taxes paid to other state and local


The analysis is a little more complicated for nonresidents. NYC

does not tax nonresidents at all (which is a policy choice that

solidifies the UBT’s importance in NYC’s tax structure),

and NYS taxes nonresidents only on income earned within

NYS.9 Similar to the UBT, the PIT has complicated rules

that go into determining how much income is taxable in NYS.

To view the full article, please click here.


1. NYC Admin. Code § 11-501(k).

2. NYC Admin. Code § 11-501(m).

3. NYC Admin. Code § 11-508(a).

4. NYC Admin. Code § 11-508(c).

5. NYC Admin. Code § 11-508(i)(1).

6. NYC Admin. Code § 11-508(c).

7. NYC Admin. Code § 11-508(e-3).

8. NY Tax Law § 612(a); 20 NYCRR §


9. NY Tax Law § 601(e).

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