How are a fund manager's management fees sourced for apportionment in New York, New York City, Florida and Massachusetts?

Each partner's tax sources the same fee by its own test

A fund manager organized as a limited liability company taxed as a partnership earns fees, often computed on committed capital. Each owner is taxed under its own regime, and each regime has its own test. New York uses three: Article 9-A of the Tax Law (the corporation franchise tax) for a corporate partner, Article 22 (the personal income tax) for a nonresident individual partner, and the New York City unincorporated business tax for the manager itself. Florida reaches the fee through a corporate partner's income tax, and Massachusetts through a nonresident partner's income tax and a corporate partner's tax under chapter 63 of the General Laws. California's sourcing of asset management fees by investor domicile is covered in a separate article in this library.

New York corporate partners: the fund's investors

For tax years beginning on or after January 1, 2015, New York's corporation franchise tax sources a corporation's receipts from services by the customer's location, not by where the work is done; cost of performance is not the rule. Services not addressed elsewhere go in the numerator of the apportionment fraction "if the location of the customer is within the state," tested by where the benefit is received, then the delivery destination, then the preceding and current years' fractions (Tax Law section 210-A(10)).

Section 210-A(5)(d), which covers management services to an investment company, reaches only a regulated investment company under section 851 of the Internal Revenue Code or a publicly traded partnership meeting section 851(b). A private fund is neither, so its manager's fees fall under subdivision 10 and the passive investment customer regulations (title 20 of the New York Codes, Rules and Regulations, "20 NYCRR," sections 4-4.1(b) and 4-4.4).

A "passive investment customer" pools capital from passive investors to invest in stocks, bonds, securities, commodities, loans or other financial assets and does not otherwise conduct a trade or business; a customer whose type cannot be determined is a business customer (20 NYCRR 4-4.1(b)). The test is one of fact, and the State Department of Taxation and Finance would likely deny the classification to a fund that controls portfolio companies, originates loans as a business or has one active investor (reasoning). For a business customer the benefit is presumed received in New York, regardless of billing address, if the customer receives it there, and receipts are apportioned by the value the customer derives in each location (section 4-4.4(b)).

For a passive investment customer the regulation looks through the fund. The benefit is "presumed to be received at the location of the investors," or of the beneficial owner where an investor holds for someone else; an individual's location is its billing address and an entity's its principal place of business. The fee is apportioned to New York "in proportion to the average value of the interests" held by New York investors, averaging the start-of-year and end-of-year percentages. Master and feeder funds are not beneficial owners, so the look-through continues past them, and if investor location cannot be determined the benefit is presumed received where the fund manages the services contract (section 4-4.4(c)). The words support a value measure such as capital accounts or net asset value (reasoning), and no published guidance read says how value is measured for a private fund with uncalled commitments. The fee stays in the denominator whatever the investors' locations, so other-state and foreign investors lower the New York percentage without creating a numerator elsewhere.

A corporation must use the aggregate method for its partnership interest if it has access to the information needed, and access is presumed when it is a general partner, a managing member of a limited liability company, or holds 5 percent or more, among other cases (20 NYCRR 9-2.2(a)). It combines its distributive share of the partnership's business receipts with its own, and the partnership's amounts enter any fraction a rule uses (section 9-2.3(f)(1)). A corporation that meets no presumption, lacks access and will lack it by the extended filing date, and certifies those facts to the Commissioner uses the entity method (section 9-2.2(b)(1)), which computes its fraction without its share of partnership items (section 9-2.4(e)); for that partner the fee is sourced to neither the investors nor any place. These regulations took effect December 27, 2023; no source read states the first taxable year to which they apply.

The Commissioner may adjust a fraction that does not fairly reflect business income (Tax Law section 210-A(11); 20 NYCRR 4-1.6). The party seeking the change must show by clear and convincing evidence that the fraction attributes income to New York "out of all proportion" to its New York business, and sourcing receipts in two states is not by itself a reason (section 4-1.6, Example 2). No regulation example addresses management fees.

New York nonresident individual partners: the manager's offices

Article 22 of the New York Tax Law, the personal income tax, never adopted the customer-location sourcing rules that apply to corporations. A nonresident partner's New York source income is the portion of the distributive share "derived from or connected with New York sources" (Tax Law section 632(a)(1)), found under the regulations where a business is carried on partly in and partly out of the state (section 631(c)). The partnership computes the percentages under 20 NYCRR 132.15, and the partner takes the New York portion of its distributive share. The books govern first, if they are "so kept as regularly to disclose, to the satisfaction of the Tax Commission," the New York proportion (132.15(b)); only if they do not does the regulation average property, payroll and gross income percentages (132.15(c)). The gross income percentage credits New York with charges for services performed by "an employee, agent, agency or independent contractor chiefly situated at," "connected by contract or otherwise with, or sent out from," offices in New York (132.15(f)).

The rule keys to offices and looks to neither the fund nor its investors. Its unit is the person: each person is placed at one office, so a charge performed by people at two offices is split by the persons performing, and the regulation leaves the measure of the split to the books. The State Department of Taxation and Finance would likely test a documented measure such as time or compensation (reasoning; no published source read gives one).

New York City: where the services are performed

The New York City unincorporated business tax allocates the income of a business carried on both in and out of the city by formula. For taxable years beginning after 2017 the business allocation percentage is the gross income percentage alone (Administrative Code of the City of New York section 11-508(c)(3), (i)(10)). For a manager in the Code's catch-all group of "all other taxpayers," "charges for services performed shall be allocated to the city to the extent that the services are performed within the city" (section 11-508(c)(3)(C)).

The test is where the services are performed, not the office as such. The City Department of Finance's return instructions use "the place where the services were performed," and its rulings apply the same reading, including allocation by time spent for a client served partly in the city and partly elsewhere (see also 19 RCNY 28-07(e), in title 19 of the Rules of the City of New York). A letter ruling to a fund manager (FLR 13-4950, March 28, 2014), which carries a notice that its registration representations may not be relied on, stated the general rule: "the location of the customer or the place of payment for the services is not a factor." Nothing read says whether advice is "performed" where the analyst works, where the decision is made or where it is delivered; the Department of Finance would likely follow the people, taking team work done outside the city out of the numerator and counting the owners' own work where they do it (a letter ruling treated partners working from city homes as conducting the business in the city, FLR 22-5025, May 18, 2023). For a manager with no city office, rule 28-07(e)(3) offers a receipts fraction on client location where the formula does not fairly allocate.

Customer sourcing exists in the Code only for a registered securities or commodities broker or dealer, whose fees for management or advisory services go to the mailing address of the customer responsible for paying them (section 11-508(e-3)(1)(G)). The Code defines that registrant as "a broker or dealer registered as such by the securities and exchange commission or the commodities futures trading commission" (section 11-508(e-3)(2)), so an adviser registered only under the Investment Advisers Act is not within it. In 2016 the Department of Finance said it would not let a commodity pool operator characterize itself as registered or attribute a registered single-member limited liability company's status to its owner, and it withdrew two earlier fund-manager rulings that had allowed it. Section 11-508(e-2), which sources receipts from an investment company by its city-domiciled shareholders, likely does not reach a private fund (reasoning; its definition was read only in summary).

The Commissioner of Finance may vary the allocation (section 11-508(d), (h)); the 2025 return instructions require the written request separately from the return, while rule 28-07(e)(4) says to attach it as a rider, and the Code controls where they differ. The investor exemption of section 11-502(c) belongs to the fund, not the manager, and is covered in a separate article in this library on the City's unincorporated business tax and trading income.

Florida: a silent statute, a rule with two tests and a dispute over one phrase

For "a financial organization," a term that includes an "investment company," Florida Statutes section 220.15(5)(c) places sales in Florida if derived from "Fees, commissions, or other compensation for financial services rendered within this state." The statute has no sourcing paragraph for other services. The Florida Department of Revenue would likely read "rendered within this state" through rule paragraphs (3)(b) and (3)(c), which look to the account's or customer's Florida location, not to where the work is performed (reasoning).

Rule 12C-1.0155 of the Florida Administrative Code supplies two tests. Paragraph (2)(l), for "other sales," attributes receipts to Florida if the income producing activity is performed wholly in Florida or, when performed in and out of Florida, if "the greater proportion of the income producing activity is performed in Florida," "based on costs of performance." The rule defines income producing activity as "the transactions and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profits." Paragraph (2)(e), for personal services, applies a greater-portion test to a single item of income but also lets services performed in and out of Florida be separate income producing activities measured by time spent, "even though the client is billed a lump sum amount," so the rule is not purely all or nothing. No source read says whether a fund manager's fee is a personal service, an "other sale" or a financial organization's sale.

The dispute is over what the definition means. Technical assistance advisement 18C1-011 (September 27, 2018) of the Florida Department of Revenue applies paragraph (2)(l) and concludes that "the most important factor to determine is where the customer is located"; advisement 20C1-001 applies the rule the same way. Two 2025 complaints in the Leon County circuit court quote the Department as saying "the income producing activity is performed entirely in Florida since the taxpayer's customer is located in Florida" (Apple, Case No. 2025 CA 000407) and "the income producing activity is sourced to the plan members location because the services are consumed by the members" (OptumRx, Case No. 2025 CA 000188). The taxpayers plead that "directly engaged in by the taxpayer" points to the taxpayer's own activity and cite two earlier circuit court decisions, Target Enterprises and Billmatrix. Those decisions and any order in the 2025 cases were not read, the status of the 2025 cases is not known, and the complaints are pleadings, not authority.

Other advisements rest elsewhere. Advisements 21C1-005 and 23C1-012 rest on rule paragraphs (1)(h) and the opening of (2), which contain no customer-location rule. Advisement 21C1-010 (March 5, 2021) treated a global asset manager as a financial organization and sourced its asset management income to "the location of the customer to whom such services are provided," without saying whether the customer is the fund or its investors; its redacted facts describe customers as "pension funds, large institutions, and individuals." The contracting party is the fund, so placing the customer at the fund's location is at least as consistent with the advisements as the investor reading. An advisement binds the Department only on its facts, and the Department's own corporate tax instructions (R. 01/26) still say "Sales of service organizations are within Florida if the services are performed in Florida."

Whether Florida reaches the manager at all turns on whether it is a Florida partnership with a taxable partner. Section 220.22(2) requires an information return from "Every Florida partnership having any partner subject to tax under this code"; Form F-1065N describes a Florida partnership as one "doing business, earning income, or existing in Florida," and rule 12C-1.011(1)(v) treats a partnership as existing there when an active partner who participates in management decisions has permanent or extended temporary residency in Florida. A manager with no Florida office and no Florida-resident member is not shown to be a Florida partnership, and nothing read makes Florida investors Florida business of the manager. The Department's likely counter-reading (reasoning; no source read states it) is that services to Florida customers are income earned in the state under section 220.11(1), which was not read. Whether a corporation that holds its interest through disregarded entities is a partner subject to tax is not answered in terms by the Department's instructions or its tax information publication.

A corporate partner with its own Florida business files its own Florida return and takes its share of the manager's sales in the numerator and denominator to the same extent, because "Partnership sales should be allocated to each partner based on each partner's interest in the partnership, or as designated in the partnership agreement" (rule 12C-1.0155(4)). Where a fee's costs of performance lie mostly outside Florida, the rule text read alone leaves a fee that is not a financial organization's sale out of the numerator, and the Department's reading follows the customer into it.

Massachusetts: where the fund manages the contract

For taxable years beginning on or after January 1, 2014, Massachusetts assigns a sale of a service to the Commonwealth "if and to the extent the service is delivered to a location in the commonwealth" (G.L. c. 63, section 38(f)(3)). The regulation, promulgated January 2, 2015, treats a fund manager's advisory fee as a professional service, a group that includes "management services, bank and financial services, financial custodial services, investment and brokerage services" (830 CMR 63.38.1(9)(d)4.d.i, in the Code of Massachusetts Regulations).

The customer is "the person who contracts for such service, irrespective of whether another person pays for or also benefits from the taxpayer's services" (4.d.iii), so the fund is the customer and the investors are not. A business customer is "a business operating in any form"; trusts are expressly included, and a customer whose type cannot reasonably be determined is treated as a business customer. The sale goes first to the state where the customer principally manages the contract of sale; if that is not reasonably determinable, to its place of order; and if that is not, to its billing address (4.d.iii(A)2). The first is the primary location of the customer's employee or other representative who serves as "the primary contact person for the taxpayer with respect to the implementation and day-to-day execution of a contract." A taxpayer that derives more than 5 percent of its sales of services from one customer must identify that state, and the billing-address safe harbor needs more than 250 customers, so a manager with two funds cannot use it.

Example 14 assigns an adviser's fee from an investment partnership to Massachusetts where the adviser knows the partnership principally manages the agreement there, and adds that "it is not relevant for purposes of the analysis that the partners in Investment Fund LP are residents of numerous states." Sales to a regulated investment company go by shareholder domicile (4.d.iii(D)); a private fund is outside that rule. A sale assigned to a state where the taxpayer is not taxable is excluded from the numerator and denominator (830 CMR 63.38.1(9)(d)1.f.ii; G.L. c. 63, section 38(h)(2)), which raises the Massachusetts share of what remains.

For a private fund with no employees, the Massachusetts Department of Revenue would likely treat the fund's general partner, often the manager's affiliate in the manager's own office, as the primary contact person and place the whole fee at that office (reasoning). A manager that wants a different answer needs a fund-side representative elsewhere and records of the day-to-day contact; section 4.d has no related-party rule. Whether a fund that invests only for itself is "a business operating in any form" is arguable, and the Department would likely answer that a partnership or limited liability company is a business form (reasoning). No Department guidance on sourcing a private fund's fee was found. A method is changed prospectively, on an original return with disclosure, and cannot be modified "through the form of an audit adjustment, amended return, abatement application or otherwise" (830 CMR 63.38.1(9)(d)1.g).

A nonresident member of a pass-through entity "is therefore engaged in the conduct of the trade or business" of the entity (830 CMR 62.5A.1(3)(b)1). For taxable years beginning on or after January 1, 2025, the entity's apportionment percentage is the sales factor under section 38 and 830 CMR 63.38.1 (830 CMR 62.5A.1(6)(a)), so a nonresident member takes the entity's market-based sales factor, not an office-based percentage. A corporate partner in a related business adds its pro rata share of the partnership's sales to its own factor (830 CMR 63.38.1(12)(d)3, (12)(f)), but a corporate limited partner with less than 50 percent of the capital or profit interests is presumed unrelated and separately accounts for the partnership income, unless the presumption is rebutted or the two are unitary (830 CMR 63.38.1(4)(d)); whether that presumption reaches a corporate member of a limited liability company was not read.

Overlap, gaps and estimated payments

The New York, New York City, Florida and Massachusetts rules each tie the fee to a different place: the investors, the manager's offices, the place where services are performed, or the place where a fund manages its contract. One fee can therefore be claimed in full by two jurisdictions or reach none, as the worked example shows. The records each rule needs are listed in the practice notes.

Estimated payments are a City point in the sources read. The exceptions to the City's estimated tax addition are the prior year's tax, current rates on the prior year's facts and law, ninety percent of the year's tax computed on an annualized basis, a seasonal method and ninety percent on actual income to date; a taxpayer with unincorporated business taxable income of one million dollars or more in any of the three preceding years may not use the first two (Administrative Code section 11-525(d), (e)(1)). Section 11-525 as read provides no reasonable-cause relief from the addition. The estimated-payment rules of New York State, Florida and Massachusetts were not researched.

A worked example

Facts (tax year 2026). A manager organized as a limited liability company taxed as a partnership has its main office in Massachusetts and a second office in New York City. Three individuals (A, B and C) and one corporation (D) each hold 25 percent. A and B are Massachusetts residents working in the Massachusetts office. C is a Connecticut resident working in the New York office, and all New York team work, C's included, is performed in the city. D has its own Florida business and files returns in Florida, New York and Massachusetts (an assumption of the example); its own receipts are not stated. The manager has no Florida office and no Florida-resident member, is taxable in Massachusetts and New York, is not a registered broker or dealer, and has net business income of $2,400,000.

The manager advises two private funds, each with $200 million of commitments and a fee of 1.5 percent of commitments: $3,000,000 each and $6,000,000 in all. Fund I is advised by the New York team and Fund II by the Massachusetts team. Each fund's general partner is an affiliate of the manager whose staff sit in the advising team's office, and each fund's day-to-day contact person for the advisory contract sits at that general partner. Neither fund has a Florida location, and each is a passive investment customer, not a regulated investment company. The investors' average value of interests, assumed to track commitments, is:

• Fund I: 30 percent New York, 10 percent Massachusetts, 5 percent Florida, 35 percent other states, 20 percent foreign.
• Fund II: 10 percent New York, 25 percent Massachusetts, 10 percent Florida, 35 percent other states, 20 percent foreign.

Office rent is $400,000 a year in New York and $600,000 in Massachusetts, and payroll is $1,800,000 and $2,700,000.

Step 1: New York corporate partner D. D's 25 percent interest meets the presumption of access (20 NYCRR 9-2.2(a)), so D uses the aggregate method and combines its share of the manager's receipts with its own, which the example does not state. On the manager's receipts alone, D's share of each fee is $750,000, the New York numerator is $225,000 (Fund I at 30 percent) plus $75,000 (Fund II at 10 percent), or $300,000, and the denominator is $1,500,000: 20.0 percent. An entity-method partner would carry none of this fee.

Step 2: New York nonresident individual C. The books are assumed not to disclose the New York proportion, so the partnership averages three percentages (section 132.15(c)). Property, valuing rented offices at eight times annual rent: $3,200,000 of $8,000,000, or 40.0 percent. Payroll: $1,800,000 of $4,500,000, or 40.0 percent. Gross income: Fund I's fee is performed by the New York office, so $3,000,000 of $6,000,000, or 50.0 percent. The average is 43.3333 percent, so New York source income is $2,400,000 times 43.3333 percent, or $1,040,000, and C's 25 percent share is $260,000. The example assumes each team's work, the owners' included, is performed by persons chiefly situated at that team's office.

Step 3: New York City. For 2026 the allocation is the gross income percentage alone: $3,000,000 of services performed in the city over $6,000,000 performed everywhere, or 50.0 percent, so city-allocated business income before modifications and deductions is $1,200,000.

Step 4: Florida, corporate partner D. D takes its 25 percent share of the manager's sales under rule 12C-1.0155(4), a denominator share of $1,500,000. On these facts the manager is not shown to be a Florida partnership, so no Florida partnership return is shown to be due from it. Three readings give three results. On the Department's customer reading with the investors as the customers (an assumption the advisements do not make), Florida investors account for $150,000 (Fund I at 5 percent) plus $300,000 (Fund II at 10 percent), or $450,000 of fees; D's 25 percent share is $112,500, or 7.5 percent of $1,500,000. On the customer reading with each fund as the customer, neither fund has a Florida location, so the factor is 0 percent. On the rule text for a fee that is not a financial organization's sale, with the work done outside Florida, it is 0 percent. D's own Florida receipts would be added to each.

Step 5: Massachusetts, nonresident member C and corporate partner D. Each fund is a business customer, and the investors are not customers. Each fund supplies half the fees, so the 250-customer safe harbor is unavailable and the manager identifies where each fund's contract is principally managed: New York for Fund I and Massachusetts for Fund II. Because the manager is taxable in New York, Fund I's fee is assigned to New York and stays in the denominator. The sales factor is Fund II's $3,000,000 over $6,000,000, or 50.0 percent, so income apportioned to Massachusetts is $1,200,000 and C's 25 percent share is $300,000. D holds less than 50 percent, so its interest is presumed unrelated and separately accounted for unless the presumption is rebutted or the activities are unitary; the manager's 50.0 percent then applies to D's $600,000 distributive share, or $300,000, before D's other Massachusetts computations (the example treats D's interest as a limited partner interest, a point not read). If both contracts were managed in Massachusetts, the factor would be 100.0 percent and C's share $600,000. The same results follow if Fund I's contract were managed in a state where the manager is not taxable, because that fee would leave both numerator and denominator.

Overlap and gap. Fund I's $3,000,000 fee is a New York fee in full for C and the city, 30 percent New York for D, 0 percent Massachusetts, and 5 percent Florida on the investor reading and 0 percent otherwise. Fund II's $3,000,000 fee is a Massachusetts fee in full, 10 percent New York for D, 0 percent New York for C and the city, and 10 percent Florida on the investor reading and 0 percent otherwise. On the investor reading Fund II's fee is claimed 100 percent by Massachusetts, 10 percent by New York for D and 10 percent by Florida, or 120 percent in all. The gaps: 70 percent of Fund I's fee stays out of D's New York numerator, and the 55 percent of each fund's fee attributable to other-state and foreign investors (35 and 20 percent) reaches no investor-based numerator in New York or Florida.

What the example leaves out. D's own receipts, the tax computations, the other partners' separate factors, D's other Massachusetts computations, modifications, the City's investor exemption, tiered structures, withholding and composite filings, and any minimum tax or fee.

Practice notes

Before any return is filed, put in writing how each tax sources the manager's fee, once per tax and per partner type, since New York Article 9-A (aggregate or entity method), New York Article 22, the New York City unincorporated business tax, Florida and Massachusetts each answer it differently for the same fee. Build the investor file now, with domicile or principal place of business by investor and beneficial owner and the value of interests at the start and end of each year, and confirm whether each corporate partner has access to the information the aggregate method needs. Keep revenue, payroll and property by office and by fund team, and record which team performs the work for each fund.

Use the City's customer-sourcing rule for fees only if the manager is a broker or dealer registered as such with the Securities and Exchange Commission or the Commodity Futures Trading Commission, and confirm registration against the registration records. For each fund, document where the advisory contract is principally managed by the fund (the fund-side contact person and the records of the day-to-day contact), its place of order and its billing address, and identify the state for any fund that supplies more than 5 percent of the manager's sales of services. For Florida, state the position taken and the source relied on, keep the filing question separate, and review the file when the 2025 cases are decided. Before changing a sourcing method after estimates are paid, compute the City exceptions and document the basis; in Massachusetts, change the method on an original return with the required disclosure. Watch the Massachusetts rulemaking on 830 CMR 63.38.1 and 62.5A.1, which the Massachusetts Department of Revenue lists among its statements under development. G&G State Tax Group advises fund managers on sourcing management fees across New York, New York City, Florida and Massachusetts alongside its state and local tax practice.