Tax Law §631(a)(1) provides that the New York adjusted gross income of a nonresident individual shall include, among other items, the sum of the net amount of items of income, gain, loss, and deduction entering into his or her federal adjusted gross income, as defined in the laws of the United States for the taxable year, derived from or connected with New York sources.

The New York adjusted gross income of a nonresident individual rendering personal services as an employee includes the compensation for personal services entering into his Federal adjusted gross income, but only if, and to the extent that, his services were rendered within New York State. 20 NYCRR 132.4(b). Not all payments made by an employer to an employee constitute remuneration for services performed by an employee. For example, royalties paid by a business for the license of a patent held by an employee do not constitute wages if the license contract is separate and distinct from the employment contract. Rev Ruling 68-499, 1968-2 C.B. 421. Further, not all scholarly research performed by an academician is required by or for the benefit of the academician’s employer. Since Mr. x research was not required by or for the benefit of University, as evidenced by the University’s lack of a legal claim to the intellectual property created by Petitioner’s research, the royalties Petitioner received from University did not arise from an employment relationship. Consequently, the payments did not constitute remuneration for services performed by an employee.

Items of income, gain, loss and deduction "derived from or connected with New York sources" include those that are attributable to a business, trade, profession or occupation carried on in New York or income from intangible personal property to the extent that such income is from property employed in a business, trade, profession, or occupation carried on in New York (see Tax Law §631[b][1][B] and [b][2]). A business, trade, profession, or occupation is carried on within New York State by a person who occupies, has, maintains or operates desk space, an office, a shop, a store, a warehouse, a factory, an agency or other place where such person’s affairs are systematically and regularly carried on. 20 NYCRR 132.4. A taxpayer may enter into transactions for profit within New York and yet not be engaged in a trade or business within New York State. Id. Mr. X performance of research science in the State did not constitute the conduct of a profession in the State; therefore, the assignment of the patent resulting from his research was not attributable to a profession carried in New York. Nor did Mr. X, after he became a nonresident, “[employ] in a business, trade, profession, or occupation carried on in” New York the intangible property that entitled him to royalty payments. Accordingly, the royalty payments that accrued to him after he became a nonresident were not New York source income.

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