The following excerpt is from Maria Koklanaris’ article, “State Eye Taxing Sales Of Pass-Through Stakes, Panel Says,” published by Law360 on March 13, 2023. Read the full article on Law360 here (subscription required).
State tax partnership law is currently seeing an increased focus on what happens when a nonresident owner of a partnership or LLC sells their ownership interest. These transactions are even leading to the usage of previously unheard terms said David A. Hughes and his co-panelist at the 2023 ABA-IPT Advanced Tax Seminars.
“It’s based on something that has now become known as investee apportionment,” said David, referring to the business entity in which an investment is made. “As long as the investee has operations in the taxing jurisdiction, then that jurisdiction has the authority to tax the seller upon gain,” according to this theory of taxation.
For instance, this past April, a New York state appeals court found that a capital gain realized by London-based Goldman Sachs Petershill Fund Offshore Holdings Corp. on the sale of its minority interest in New York City-based Claren Road Asset Management LLC is subject to the city’s general corporation tax.
David commented that even though the owner, also known as the investor, has no operations of their own in New York City, the city can still tax the investor because the business being sold operates in New York City.
“So they look more to the operations of the business that is being sold than to the company that’s actually doing the selling, “David said.
Read the full article by Law360 here (subscription required).