NYS Partnership Alocation Methods

There is some misunderstanding among tax professionals regarding the proper way to allocate income to New York State from partnerships and other unincorporated businesses. It is clear that

New York State residents must report 100% of their share of income from partnerships on their

New York Resident Income Tax Return. There is no allocation allowed for residents. The allocation

methods apply to nonresidents only.

To consider allocation, we have to determine if the business has nexus in New York. Business is

carried on in New York if activities are conducted with a fair measure of permanency and continuity.
Since there is no specific number of transactions that create nexus, tax professionals should be
conservative in their approach to this issue. For the purpose of comparison, New York State Sales Tax Bulletin ST-175 says that you have nexus for sales tax purposes if you make sales of taxable products to customers within New York State, and regularly (at least 12 times a year) deliver the products in your own vehicles.

Any amount of personal service income would create New York source income, and therefore nexus.

The website, Law.com defines personal services in part as:

 

In contract law, the talents of a person which are unusual, special or unique and cannot be performed

exactly the same by another. The value of personal services is greater than general labor, so woodcarving is personal service and carpentry is not.  Entertainers would fall into this category. General service income (i.e. carpentry) may not create nexus if it is an isolated transaction.

After one has determined that a business has nexus in New York, and business is carried on partly

within and partly without New York State, one must consider allocation methods.

The rules for partnership allocation are not the same as the rules for corporations.

Most general corporations are now required to use only the Gross Income (Receipts) Factor as