The New York City Tax Appeals Tribunal recently held that an out-of-state corporate investor in a master fund was subject to New York corporate tax on its share of capital gain from the master fund’s sale of an interest in a limited liability company that was engaged in business in New York.  Neither the investor nor the master fund had any employees or property in New York, and neither conducted business in New York other than as a result of the master fund’s investment in the limited liability company.  The investor argued that its capital gain was not subject to New York corporate tax because the investor had no nexus with New York.  The Tribunal disagreed, reasoning that the investor’s ownership of a flow-through interest in a New York business created nexus for the investor.  The Tribunal’s holding could have repercussions for any investors in flow-through entities that invest, either directly or through other flow-through entities, in a New York business.

The case is Petition of Goldman Sachs Petershill Fund Offshore Holdings, TAT (H)16-9(GC), (N.Y.C. Tax Trib. Dec 6, 2018).