Constitution: Commerce Clause

The New York City Tax Tribunal held that an out-of-state corporate taxpayer, with an indirect interest in a limited liability company investment fund engaged in business in New York City, had nexus with the City and was subject to tax on capital gain from its sale of the fund. The taxpayer had no property, employees, or otherwise conducted business in the City and the parties stipulated that the fund was not unitary with the taxpayer. The taxpayer sold its interest in the fund through an intermediate partnership and realized capital gain. The taxpayer claimed that its capital gain was not subject to the City General Corporation Tax because it had no nexus with the City and its passive investment in the nonunitary fund did not create nexus for the taxpayer. The Tax Appeals Tribunal disagreed and reasoned that the ownership of a flow-through interest in an entity conducting business in the City, created nexus for the corporate owner and the gain was mainly attributable to the protection, opportunities and other benefits upon the fund by the City. The Tribunal apportioned the gain to the City based on the City’s business allocation percentage of the investment fund. The Tribunal held that the assessment satisfied the four-prong test in Complete Auto and was supported by the ruling in Wayfair and that physical presence is not required to subject an out-of-state corporation to tax in certain circumstances. The Tribunal further found that the imposition of tax did not violate the Due Process Clause or Commerce Clause. (Petition of Goldman Sachs Petershill Fund Offshore Holdings, TAT (H)16-9(GC), (N.Y.C. Tax Trib. Dec 6, 2018))