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For adjustments of subsidiary capital in order to correct distortions, see 19 RCNY § 11-25, supra.
Note: For simplicity, in this section the term "partnership" is used to refer to any unincorporated business in which a corporation owns an interest and the term "partner" or "corporate partner" is used to refer to the owner of an interest in an unincorporated business.
(a) (1) For taxable years beginning on or after July 1, 1994, if a corporation is a partner in a partnership carrying on an unincorporated business in the City of New York and is required to include all or a portion of the income of the partnership in its entire net income or receives a guaranteed payment from the partnership includible in its entire net income, the corporate partner is allowed a credit against its general corporation tax liability, if determined on the entire net income basis ("ENI Basis") or alternative income-plus-compensation basis ("Alternative Basis"), for its share of the unincorporated business tax paid by the partnership, subject to certain limitations (the "UBT Paid Credit"). The UBT Paid Credit is not allowed to a corporate partner in a partnership for any unincorporated business tax paid by the partnership with respect to any taxable year of the unincorporated business beginning before July 1, 1994.
(2) For taxable years of a corporate partner beginning after 1995, the UBT Paid Credit allowed to the corporate partner may exceed the amount of UBT Paid Credit that the corporate partner may take in that year. In that event, the excess may be carried forward for up to seven years subject to certain limitations. See subdivision (c), infra, for a discussion of the carryover. However, for taxable years of a corporate partner beginning on or after July 1, 1994 but before 1996, the amount of UBT Paid Credit allowed to the corporate partner is the same as the amount of UBT Paid Credit that the partner may take against its general corporation tax liability that year and no carryover is available.
(3) Application of credit to tax bases.
(i) For taxable years of a corporate partner beginning before January 1, 1996, the corporate partner is allowed the UBT Paid Credit only in a year in which it would be liable, in the absence of any credits allowed by § 11-604 of the Administrative Code, for the tax on the ENI Basis or the Alternative Basis. For those taxable years, a partner liable for the tax on capital or for the minimum tax is not allowed a UBT Paid Credit.
(ii) For taxable years of a corporate partner beginning after 1995, the corporate partner is allowed the UBT Paid Credit regardless of the tax base on which it is taxed. However, it may take the credit only in a year in which it pays tax on the ENI Basis or the Alternative Basis. For taxable years beginning after 1995, if a corporate partner is allowed the UBT Paid Credit in a year when it is liable for tax on capital or for the minimum tax, it may carry the UBT Paid Credit forward to the next seven succeeding taxable years. The corporation may take the credit in any of such seven years in which it is liable for tax on the ENI Basis or the Alternative Basis.
(iii) The UBT Paid Credit does not alter the basis upon which a taxpayer must pay tax (e.g., on the basis of entire net income, alternative income-plus-compensation, capital, or minimum tax) even if the credit reduces the tax liability below the liability calculated on another basis.
(b) Calculation of the UBT Paid Credit.
(1) (i) General. A corporate partner's UBT Paid Credit allowed with respect to a specific partnership is the lesser of the amounts calculated in subparagraphs (i) ("Measure 1") and (ii) ("Measure 2") of paragraph (2) of this subdivision (b), subject to the limitation in subparagraph (iii) of paragraph (2) of this subdivision (b). Measure 1 is based on the corporate partner's share of the unincorporated business tax liability of the partnership for the partnership's taxable year ending within or with the corporate partner's taxable year. Measure 2 is based on the incremental effect on the general corporation tax liability of the corporate partner attributable to partnership items entering into the calculation of the corporate partner's general corporation tax liability. The incremental effect is modified to account for the rate differential between the unincorporated business tax and the general corporation tax. If a corporate partner is a partner in more than one partnership, Measures 1 and 2 must be determined and compared separately with respect to each partnership.
(ii) Subparagraph (iii) of paragraph (2) of this subdivision limits the total amount of the UBT Paid Credit that a corporate partner may take in a taxable year to the corporate partner's general corporation tax liability for that year modified, when appropriate, to account for the rate differential between the unincorporated business tax and general corporation tax. In the case of a corporate partner that is a partner in more than one partnership, this limitation is not applied separately with respect to each partnership, but rather it is applied to the sum of the UBT Paid Credits from all partnerships.
(2) Measures of the credit and limitations.
(i) Measure 1. Partner's share of the partnership's unincorporated business tax liability plus certain credits. Except as provided in subparagraph (i)(C) (applicable to corporations paying tax on the Alternative Basis for tax years beginning before 1996), Measure 1 is the product of the amount determined in subparagraph (i)(A) and the corporate partner's distributive share percentage determined in subparagraph (i)(B):
(A) Partnership's tax liability plus certain credits. The amount determined in this subparagraph (i)(A) is the sum of:
(a) the unincorporated business tax imposed on, and paid by, the partnership for its taxable year ending within or with the taxable year of the corporate partner, and
(b) (1) for taxable years of the corporate partner beginning on or after July 1, 1994, and before 1996, the amount of any UBT Paid Credit taken by the partnership for its taxable year ending within or with the taxable year of the corporate partner, or
(2) for taxable years of the corporate partner beginning after 1995, the sum of all credits taken by the partnership under § 11-503 of the Administrative Code other than subdivision (b) of that section, for its taxable year ending within or with the taxable year of the corporate partner, but only to the extent that those credits do not reduce the partnership's unincorporated business tax below zero. The amount determined under this subparagraph (i)(A)(b)(2) does not include the amount of any credit refundable to the partnership.
(B) Partner's distributive share percentage.
(a) The corporate partner's distributive share percentage is the sum of the corporate partner's distributive shares of income, gain, loss, and deductions of the partnership and any guaranteed payment received from the partnership (the corporate partner's "net distributive share") divided by the sum of the net distributive shares of all partners of the partnership for whom such amounts are greater than zero. If the corporate partner's net distributive share is less than zero, the net distributive share is deemed to be zero and the corporate partner is not allowed a UBT Paid Credit for the taxable year with respect to that partnership.
(b) For purposes of this calculation, the net distributive shares should be based upon items of income, gain, loss and deductions and guaranteed payments as calculated by the partnership for purposes of computing its unincorporated business taxable income.
(c) In addition, for purposes of this calculation, the net distributive share of each corporate partner is considered separately regardless of whether that partner files its general corporation tax return as a member of a combined group with one or more other corporations.
(d) If a corporate partner owns more than one type of interest in a partnership, e.g., a general and a limited partnership interest, the partner's distributive shares and guaranteed payments with respect to all such interests are combined in determining the partner's net distributive share.
(C) Modification. For corporations paying tax on the Alternative Basis for tax years beginning before 1996, Measure 1 is the product of the amount determined in subparagraph (i)(A) and the corporate partner's distributive share percentage determined in subparagraph (i)(B) above multiplied by a fraction, the numerator of which is 2.655 and the denominator of which is 4. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the approximate effective general corporation tax rate on the Alternative Basis.
(ii) Measure 2. Incremental tax effect of distributive share and guaranteed payments.
(A) Tax Years beginning on or after July 1, 1994 and before 1996. For tax years of a corporate partner beginning on or after July 1, 1994 and before 1996, Measure 2 is the excess of the amount determined in subparagraph (ii)(A)(a) below over the amount determined in subparagraph (ii)(A)(b) below, modified as provided in subparagraph (ii)(A)(c) below. For taxpayers liable for tax on the ENI Basis, the amounts in subparagraph (ii)(A)(a) and (ii)(A)(b) below are computed on the ENI Basis. For taxpayers liable for tax on the Alternative Basis, the amounts in subparagraph (ii)(A)(a) and (ii)(A)(b) below are computed on the Alternative Basis. See subparagraph (ii)(B) for the calculation of Measure 2 for years after 1995.
(a) Partner's general corporation tax liability. The amount determined in this subparagraph (ii)(A)(a) is the general corporation tax liability of the corporate partner determined on the ENI Basis or the Alternative Basis, whichever is applicable, without allowance of any of the credits allowed under § 11-604 of the Administrative Code.
(b) Partner's general corporation tax liability without distributive share. The amount determined in this subparagraph (ii)(A)(b) is the general corporation tax liability of the corporate partner determined on the ENI Basis or Alternative Basis, whichever is applicable, (1) excluding any partnership items entering into the calculation of the corporate partner's entire net income and any partnership allocation factors, if taken into account in calculating the corporate partner's allocation to the City, and (2) determined without allowance of any of the credits allowed under § 11-604 of the Administrative Code.
(c) Modification for taxpayers taxed on ENI Basis. For taxpayers liable for tax on the ENI Basis, the excess of the amount determined in subparagraph (ii)(A)(a) above over the amount determined in paragraph (ii)(A)(b) above must be multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the general corporation tax rate.
(B) Tax years beginning after 1995. For tax years of a corporate partner beginning after 1995, Measure 2 is the excess of the amount determined in subparagraph (ii)(B)(a) below over the amount determined in subparagraph (ii)(B)(b) below, such excess modified as provided in subparagraph (ii)(B)(c) below and multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the general corporation tax rate. For taxable years beginning after 1995, all taxpayers must compute Measure 2 as if they were liable for tax on the ENI Basis.
(a) Partner's general corporation tax liability. The amount determined in this subparagraph (ii)(B)(a) is the general corporation tax liability of the partner determined on the ENI Basis without allowance of any credits under § 11-604 of the Administrative Code.
(b) Partner's general corporation tax liability without distributive share or guaranteed payments. The amount determined in this subparagraph (ii)(B)(b) is the general corporation tax liability of the corporate partner determined on the ENI Basis excluding any partnership items entering into the calculation of the corporate partner's entire net income, excluding partnership allocation factors, if taken into account in calculating the corporate partner's allocation to the City, and determined without allowance of any credits under § 11-604 of the Administrative Code.
(c) Partner's modified general corporation tax liability. For taxable years of the corporate partner beginning after 1995, the amounts in subparagraphs (ii)(B)(a) and (ii)(B)(b) above are computed with the following modifications:
(1) The amounts are computed without taking into account any deduction for a net operating loss carried to the taxable year of the partner.
(2) If, prior to taking into account any distributive share or guaranteed payments from the partnership or any net operating loss deduction, the entire net income of the partner is less than zero, the partner's entire net income is deemed to be zero.
(3) If the partner's net total distributive share of income, gain, loss and deductions of, and guaranteed payments from, any unincorporated business other than the partnership with respect to which the amount of credit is being calculated is less than zero, such net total distributive share is deemed to be zero.
(iii) Credit limited to partner's general corporation tax.
(A) For taxable years of a corporate partner subject to tax on the ENI Basis beginning on or after July 1, 1994 and before 1996, the sum of the UBT Paid Credits that the partner is allowed and may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the ENI Basis without the allowance of any credits under § 11-604 of the Administrative Code, multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. This multiplication limits the credit that is allowed and may be taken to the corporate partner's general corporation tax calculated as if the general corporation tax rate were the same as the unincorporated business tax rate.
(B) For taxable years of a corporate partner subject to tax on the Alternative Basis beginning on or after July 1, 1994 and before 1996, the sum of the UBT Paid Credits that the partner is allowed and may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the Alternative Basis without the allowance of any credits under § 11-604 of the Administrative Code.
(C) For taxable years of a corporate partner subject to tax on the ENI Basis beginning after 1995, the sum of the UBT Paid Credits that the corporate partner may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the ENI Basis without the allowance of any other credits under § 11-604 of the Administrative Code, multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. This multiplication limits the UBT Paid Credit that may be taken to the corporate partner's tax calculated as if the general corporation tax rate were the same as the unincorporated business tax rate.
(D) For taxable years of a corporate partner subject to tax on the Alternative Basis beginning after 1995, the sum of the UBT Paid Credits that the partner may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the amount of credit that will reduce the tax computed on the Alternative Basis to zero and each dollar of credit shall be applied so as to reduce the tax by sixty-six and thirty-eight one hundredths cents ($.6638). The purpose of applying the credit in this manner is to reflect the differential between the unincorporated business tax rate and the approximate effective general corporation tax rate under the Alternative Basis.
(c) Carryover of UBT Paid Credit after 1995. For taxable years beginning after 1995, if the amount of the UBT Paid Credit allowed to a corporate partner for a taxable year exceeds the amount of UBT Paid Credit that may be taken in that year, the corporate partner may carry the excess forward to each of its seven immediately succeeding taxable years. In applying the provisions of the preceding sentence, for each taxable year of a corporate partner, the UBT Paid Credit determined under this section for the current taxable year shall be taken before taking any credit carryforward pursuant to this subdivision (c), and the amount of any credit carryforward available under this subdivision (c) attributable to the earliest taxable year shall be taken before a credit carryforward attributable to a subsequent taxable year.
(d) Multiple tiers of partnerships. A corporate partner may only take a UBT Paid Credit with respect to distributive shares from partnerships in which it is a direct partner, i.e., the corporation is identified as a partner in the partnership agreement and on Schedule K-1 of IRS Form 1065 filed by the partnership.
Example: Corporation C is a partner in partnership B, which, in turn, is a partner in partnership A. Corporation C calculates its UBT Paid Credit only with respect to partnership B and is not entitled to a UBT Paid Credit with respect to partnership A. NOTE: Because the calculation of the UBT Paid Credit allowed for corporation C with respect to partnership B reflects credits claimed by partnership B, including its UBT Paid Credit with respect to partnership A, corporation C will get the benefit of partnership B's UBT Paid Credit with respect to partnership A, subject to the limitations applicable in determining C's UBT Paid Credit allowed.
(e) Combined Reports.
(1) For corporations that file a report on a combined basis pursuant to 19 RCNY § 11-91, the UBT Paid Credit shall be computed as if the combined group were the partner in each partnership from which any of the members of such group receives a distributive share or guaranteed payments, provided, however, if more than one member of the combined group is a partner in the same partnership, for purposes of the calculation of the distributive share percentage of the combined group, the net distributive share of the combined group shall be the sum of the net distributive shares of all of the partners in the partnership who are members of the combined group for which such net distributive share (as separately determined for each partner) is greater than zero. The combined group's distributive share percentage is the combined group's net distributive share divided by the sum of the net distributive shares of all partners in the partnership (including the separate members of the combined group that are partners in the partnership) for whom or which such net total (as separately determined for each partner) is greater than zero. The combined group's distributive share percentage should be the same as the sum of the distributive share percentages calculated by the partnership on its unincorporated business tax return for each member of the partnership that is a member of the combined group. See Example 2, infra.
(2) Carryovers on combined reports.
(i) For corporations that file a report on a combined basis pursuant to 19 RCNY § 11-91, if the amount of UBT Paid Credit allowed to the combined group, as determined under this subdivision exceeds the amount of UBT Paid Credit taken in a taxable year, as determined under such subdivision, each corporate partner receiving a distributive share or guaranteed payment to which the credit was originally attributable may carry such excess forward to each of its seven immediately succeeding taxable years, as provided in subdivision (c) of this section, regardless of whether such corporate partner or partners files a report on a separate or combined basis. A combined group allowed a UBT Paid Credit may take a UBT Paid Credit carried over from a prior year only if the member of the combined group that received the distributive share or guaranteed payment to which the credit was originally attributable is a member of the combined group in the year to which the credit is to be carried.
(ii) If more than one member of a combined group received a distributive share or guaranteed payment from a partnership to which a credit carryover is attributable, for purposes of subparagraph (i), the amount of the carryover available to each such member shall be a portion of the carryover that bears the same ratio to the full amount of the carryover as the distributive share percentage of that member of the combined group with respect to that partnership bears to the sum of the distributive share percentages of all such members with respect to that partnership.
(iii) If the UBT Paid Credit carryover of a combined group for a taxable year is attributable to more than one partnership, for purposes of subparagraph (i), the amount of such credit carryover attributable to each partnership shall be a portion of such carryover which bears the same ratio to the full amount of such carryover as the amount of the UBT Paid Credit allowed for the taxable year attributable to that partnership bears to the total amount of UBT Paid Credit allowed to the combined group for that taxable year.
(f) Order of credits. The UBT Paid Credit shall be taken before any other credit allowed by § 11-604 of the Administrative Code.
(g) The provisions of subdivisions (a) through (f) of this section are illustrated by the following examples. The facts in the following examples have been simplified and do not reflect the deduction allowed by § 11-509(a) of the Administrative Code or the exemption allowed by § 11-510(a)(1) of the Administrative Code. See 19 RCNY § 28-03(d) for additional examples illustrating the calculation of the UBT Paid Credit. The examples that follow illustrate only those aspects of the UBT Paid Credit that relate specifically to the general corporation tax.
Example 1: Credit calculation. ABC is a calendar year partnership doing business in New York City. ABC has a business allocation percentage of 100 percent. ABC has three partners, Corporation A, Corporation B and Corporation C, all of which are calendar year taxpayers and have a 100 percent business allocation percentage.
ABC's unincorporated business taxable income ("UBTI") for each of the taxable years 1995 and 1996 is $3,000,000. ABC pays unincorporated business tax of $120,000 each year. For both 1995 and 1996, ABC's Form NYC-204 indicates that A, B and C each has a distributive share from ABC of $1,000,000 and a distributive share percentage of 33.33 percent.
A is subject to the general corporation tax on the ENI Basis for each of its taxable years 1995 and 1996. In each of 1995 and 1996, A has entire net income of $400,000 without regard to its distributive share of income, gain, loss or deduction from ABC ("Separate ENI").
B is subject to general corporation tax on the Alternative Basis for 1995 and 1996. In each of 1995 and 1996, B's Separate ENI is a net loss of ($985,000) after a $1,000,000 deduction for the salary paid to its sole shareholder.
C is a capital base taxpayer for 1995 and 1996. In each of 1995 and 1996 C's Separate ENI is a loss of ($1,000,000).
Determination of the Credit for A (ENI Basis taxpayer):
A's UBT Paid Credit for 1995 is determined as follows:
Measure 1: A's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by A's distributive share percentage (33.33%).
Measure 2: A's entire net income is $1,400,000, on which the general corporation tax would be $123,900 before any UBT Paid Credit. The general corporation tax on A's separate ENI of $400,000 would be $35,400. Thus the incremental tax effect on A's total taxable income of A's distributive share from ABC is $88,500 ($123,900 - $35,400 = $88,500.) This amount is multiplied by the fraction 4/8.85, equaling $40,000. See subdivision (b)(2)(ii)(A)(c), supra.
Therefore, A's UBT Paid Credit for 1995 is $40,000.
A's UBT Paid Credit for 1996 is the same as for 1995.
Determination of the Credit for B (Alternative Basis taxpayer):
B's UBT Paid Credit for 1995 is determined as follows:
Measure 1: B's distributive share percentage is 33.33 percent. Measure 1 is $26,550, equal to ABC's unincorporated business tax of $120,000 multiplied by B's distributive share percentage (33.33%) and by the fraction 2.655/4. See subdivision (b)(2)(i)(C), supra.
Measure 2: B's alternative tax base is $300,000 calculated as follows: B's ENI is $15,000 (Separate loss of ($985,000) + distributive share of $1,000,000). To this is added the shareholder's salary of $1,000,000 less $15,000 equaling $1,000,000, which is multiplied by 30 percent to arrive at the tax base of $300,000. (Administrative Code § 11-604(1)(E)(3). See also Administrative Code § 11-604(1)(H) for modifications of the alternative tax calculation for years beginning on or after July 1, 1996.) The tax on the Alternative Basis is $26,550. Excluding B's distributive share from ABC, B's alternative tax liability would be $0. (Separate loss of ($985,000) + shareholder's salary of $1,000,000 less $15,000 multiplied by 30% = $0. $0 multiplied by 8.85% = $0.) The incremental tax effect of the distributive share from ABC is $26,550 ($26,550 - $0 = $26,550).
Therefore, B's UBT Paid Credit for 1995 is $26,550.
B's UBT Paid Credit allowed for 1996 is determined as follows:
Measure 1: B's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by B's distributive share percentage (33.33%).
Measure 2: For tax years beginning after 1995, Measure 2 is calculated as if the taxpayer were on the ENI Basis. ENI, however is modified in making the calculation. B's separate ENI is a loss of ($985,000). This is treated as zero. As a result, B's modified ENI is $1,000,000 (separate modified ENI of $0 plus distributive share of $1,000,000) on which the general corporation tax would be $88,500. Excluding B's distributive share from ABC, B's modified ENI would be zero on which there would be no tax. Thus, the incremental tax effect on B of B's distributive share from ABC is $88,500 ($88,500 - 0 = $88,500). This is multiplied by the fraction 4/8.85. See subdivision (b)(2)(ii)(B) supra. Thus, Measure 2 is $40,000.
Therefore, B's UBT Paid Credit allowed for 1996 is $40,000.
Calculation of the amount of UBT Paid Credit that B may take in 1996. B's general corporation tax liability on the Alternative Basis is $26,550, the same as in 1995. B's allowed UBT Paid Credit of $40,000 is available to offset B's general corporation tax liability at a rate of $1 of credit for every $.6638 of tax. See subdivision (b)(2)(iii)(D), supra. B may use $39,997 of its allowed credit to reduce its tax liability to zero ($26,550/.6638 = $39,997). The remaining credit allowed of $3 is eligible to be carried over by B to the next seven taxable years.
Computation of the credit for C (a capital base taxpayer):
Because C is subject to the tax on capital, C is not allowed a UBT Paid Credit in 1995. There is no carryover of a UBT Paid Credit for 1995 to any other year.
C's UBT Paid Credit that is allowed for 1996 is determined as follows:
Measure 1: C's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by C's distributive share percentage (33.33%).
Measure 2: Measure 2 is calculated as if C were on the ENI Basis. ENI, however, is modified in making the calculation. C's separate ENI is a loss of ($1,000,000). This is treated as $0. As a result, C's modified ENI is $1,000,000 (separate modified ENI of $0 plus distributive share of $1,000,000), on which there would be general corporation tax of $88,500 on the ENI Basis. Excluding C's distributive share from ABC, C's modified ENI would be zero on which there would be no tax. Thus, the incremental tax effect of C's distributive share from ABC is $88,500 ($88,500 - 0 = $88,500). This is multiplied by the fraction 4/8.85. Thus, Measure 2 is $40,000.
Therefore, C's UBT Paid Credit allowed for 1996 is $40,000. Because C is on the capital base C can not take a UBT Paid Credit in 1996. The entire credit allowed of $40,000 is eligible to be carried over by C to the next seven taxable years but may only be used in a year in which C is taxed on the ENI Basis or the Alternative Basis.
Example 2: Calculation of the credit for a combined group. ABCD is a partnership doing business in New York City. ABCD allocates 100 percent of its unincorporated business income to the City. ABCD has no investment income. ABCD has four partners, A, B, C and D. Partner A is an individual who does not independently do business in New York City. Partners B, C and D are all corporations that are members of a combined group (CG) that files a combined general corporation tax return. CG has a 100 percent business allocation percentage. Partners B, C, and D do not have any separate income.
ABCD's UBTI for calendar year 1996 is $500,000. ABCD pays unincorporated business tax of $20,000. ABCD's four partners share equally in income of $800,000 from ABCD. In addition, Partner D has a special allocation of a loss of ($300,000) from ABCD. Therefore, D's net total distributive share is a net loss of ($100,000).
Calculation of Distributive Share Percentage ("DSP"). The distributive share percentages of the partners are indicated in the following table:
Distributive Share (DS) | DS – Modified for Calculation of DSP | DSP | |
A | $200,000 | $200,000 | 33.33% |
B | $200,000 | $200,000 | 33.33% |
C | $200,000 | $200,000 | 33.33% |
D | ($100,000) | $0 | 0% |
Total | $500,000 | $600,000 | 100% |
CG's distributive share percentage, 66.66 percent may be determined by adding the distributive share percentages of its members, B and C, that have net distributive shares greater than zero.
Calculation of CG's UBT Paid Credit.
Measure 1: ABCD's unincorporated business tax of $20,000 is multiplied by CG's distributive share percentage (66.66%). Thus, Measure 1 is $13,332.
Measure 2: CG's separate ENI is 0. The distributive shares of its members total $300,000 ($200,000 + $200,000 - $100,000). The general corporation tax on that amount would be $26,550. Thus, the incremental tax effect of CG's distributive share from ABCD is $26,550 ($26,550 - 0 = $26,550). This is multiplied by the fraction 4/8.85. Thus, Measure 2 is $12,000. Note: While D's net loss is not taken into account in calculating CG's distributive share percentage or in determining Measure 1, it is taken into account in determining Measure 2. Therefore, CG's UBT Paid Credit is equal to $12,000.
Subchapter D: Allocation
(a) Title 11, Chapter 6, Subchapter 2 of the Administrative Code provides for separate allocations of business income and capital, investment income and capital, and subsidiary capital. Business income and capital generally are allocated by a business allocation percentage determined by three factors: tangible property, business receipts and payrolls (19 RCNY §§ 11-63 through 11-67, infra). Investment income and capital are allocated by an investment allocation percentage determined pursuant to 19 RCNY §§ 11-68 through 11-71 of these regulations. Subsidiary capital is allocated by a subsidiary allocation percentage determined by the amount of capital employed in New York City by the taxpayer's subsidiaries (19 RCNY § 11-71, infra).
(b) Every corporation is entitled to an allocation, within and without New York City, of its subsidiary capital and its investment capital and income, even if it transacts all of its business and maintains its only office in New York City. A corporation is entitled to allocate part of its business income and capital outside New York City only if it has a regular place of business outside the City; otherwise 100 percent of its business income and capital must be allocated to New York City.
In the case of combined reports, allocation is made on the basis of combined accounts from which intercompany items (including intercorporate receipts) are eliminated. The elections provided for in § 11-604(6) of the Administrative Code (19 RCNY §§ 11-63(a), 11-68(a) and 11-70(a), infra) are not available to corporations taxed on a combined basis.
(§ 11-604(3)(a), Administrative Code.)
(a) Use of business allocation percentage. (§ 11-604(3)(a).)
(1) There are many taxpayers which need to determine only a business allocation percentage, and need not be concerned with a subsidiary allocation percentage or an investment allocation percentage. Thus, a taxpayer which has only business income and capital allocates its entire net income and capital by the business allocation percentage.
(2) If the business income (before allowance of any net operating loss deduction) of a taxpayer, not reporting on a combined basis, is more than 75 percent of its entire net income (before allowance of any net operating loss deduction) and its business capital is more than 75 per cent of its total business and investment capital, it may elect to allocate its entire net income and total business and investment capital by the business allocation percentage.
(3) In other cases, a taxpayer which has both business and investment capital, but has only business income or has business income and an investment loss, allocates its entire net income and its business capital by the business allocation percentage. Its investment capital is allocated by the investment allocation percentage (19 RCNY § 11-68(a) and (b), infra).
(b) Regular place of business.
(1) If the taxpayer did not have a regular place of business outside New York City during the period covered by the report, its business allocation percentage is 100 percent; in other words, the taxpayer may not allocate any of its business income or capital outside New York City.
(2) A regular place of business is any bona fide office (other than a statutory office), factory, warehouse, or other space which is regularly used by the taxpayer in carrying on its business. Where as a regular course of business, property of the taxpayer is stored by it in a public warehouse until it is shipped to customers, such warehouse is considered a regular place of business of the taxpayer and, where as a regular course of business, raw material or partially finished goods of a taxpayer are delivered to an independent contractor to be converted, processed, finished or improved, and the finished goods remain in the possession of the independent contractor until shipped to customers, the plant of such independent contractor is considered a regular place of business of the taxpayer. Where as a regular course of business a taxpayer, engaged in trucking operations, uses a terminal, garage, repair shop or any similar space under an agreement whereby it contributes to the cost of maintaining such facilities or furnishes similar facilities of its own in exchange therefor, such space is considered a regular place of business of the taxpayer.
(3) A taxpayer does not have regular place of business outside the City solely by consigning goods to an independent factor outside the City for sale at the consignee's discretion.
(c) Completion of business allocation percentage.
(1) If the taxpayer had a regular place of business outside New York City during the period covered by the report, its business allocation percentage is generally computed on the basis of its
(i) real and tangible personal property (including real property rented to it) within and without New York City (19 RCNY § 11-64, infra).
(ii) business receipts within and without New York City (19 RCNY § 11-65(a), infra), and
(iii) payrolls within and without New York City (19 RCNY § 11-66(a), infra).
(2) (i) The business allocation percentage is computed by adding together the percentages of the taxpayer's real and tangible personal property, business receipts and payrolls within New York City during the period covered by the report, and dividing the total of such percentages by three. However, if one of the factors (property, receipts or payrolls) is missing, the other two percentages are added and the sum is divided by two, and if two of the factors are missing, the remaining percentage is the business allocation percentage. (A factor is not missing merely because its numerator is zero, but it is missing if both its numerator and its denominator are zero.)
Example: A taxpayer owns no real or tangible personal property and rents no real property either within or without the City. The property factor being missing, the business allocation percentage may be computed by adding the percentages derived from the allocation of its receipts and payrolls, and dividing the total by two.
(ii) In the event that any of the percentages to be determined under subparagraphs (i), (iii) or (iii) of paragraph (1) of this subdivision cannot be determined because the taxpayer has either no property, no payroll or no business receipts within or without the City, then the computation to be made under subparagraph 10 of paragraph (a) of subdivision (3) of § 11-604 of the Administrative Code (applicable to taxable years beginning in 2009 and thereafter but before 2018) shall be made by taking the sum of the products that are determined under such subparagraph (10) for the factors that are present, and dividing that sum by the sum of the weight factors that apply to each of the present factors in the calculation made under such subparagraph (10). This amount is then rounded to four decimal places. (An allocation factor is not missing merely because its numerator is zero, but it is missing if both its numerator and its denominator are zero.)
(iii) Weight factor defined. For purposes of subparagraph (ii) of this paragraph, "weight factor" is the percentage used in the allocation computation in subparagraph 10 of paragraph (a) of subdivision (3) of § 11-604 of the Administrative Code, by which the percentage derived from paragraph (1) of this subdivision is multiplied in such allocation computation. For example, in subclause (i) of clause (A) of subparagraph (10) of paragraph (a) of subdivision (3) of § 11-604 of the Administrative Code, the weight factor is 30%; in subclause (i) of clause (I) of subparagraph (10) of paragraph (a) of subdivision (3) of § 11-604 of the Administrative Code, the weight factor is 3 1/2%.
(iv) Example: For the tax year 2009, a taxpayer has no employees either within or without the City. The property factor percentage determined under (c)(1)(i) of this section is 10%, and the business receipts factor percentage determined under (c)(1)(ii) of this section is 25%. As the payroll factor is missing, the allocation percentage may be computed by taking the sum of
(A) the product of 30% and 10%, and
(B) the product of 40% and 25%,
which is .03 + .1 = .13,
then dividing that sum by the sum of the weight factors for property and business receipts, which are .30 and .40, respectively:
which is .03 + .1 = .13,
then dividing that sum by the sum of the weight factors for property and business receipts, which are .30 and .40, respectively:
.13 .30 +.40 | = | .13 .70 | = .18571, rounded to four decimal places = .1857 |
(3) If it appears that the business allocation percentage computed on the basis of all or any of the property-receipts-payroll factors does not properly reflect the activity, business, capital or income of the taxpayer in New York City, the Commissioner of Finance may adjust the business allocation percentage, as set forth in 19 RCNY § 11-67, infra.
(4) Double-weighted receipts factor for manufacturing businesses.
(i) For taxable years beginning on or after July 1, 1996, a corporation that is a manufacturing corporation as defined in subparagraph (ii) may elect to determine its business allocation percentage by adding together the percentages determined under 19 RCNY §§ 11-64 and 11-66 and adding to that sum two times the percentage determined in 19 RCNY § 11-65 and dividing the total by the number of percentages. See paragraph (2) of this subdivision (c) for the determination of the business allocation percentage where one or more factors is missing.
(ii) Manufacturing corporation. For purposes of this paragraph, a manufacturing corporation is defined as a corporation engaged primarily in the manufacturing and sale of tangible personal property.
(A) (1) Manufacturing. Manufacturing means the process, including assembly, of working raw materials into wares suitable for use or that, by the use of machinery, tools, appliances and other similar equipment, gives new shapes, qualities or new combinations to matter that already has gone through some artificial process.
(2) To qualify as manufacturing, a process, including assembly, must result in a significant change in the raw materials or component parts such that the end product of the process is substantially different in nature or form from the raw materials or component parts.
(3) Manufacturing includes finishing partially finished goods only if the partially finished goods are not usable for their intended purpose in their unfinished state and does not include the mere packaging or labeling of goods.
(4) Manufacturing includes printing in circumstances under which the taxpayer receives any combination of graphic or textual content from a customer, the taxpayer produces a tangible representation of that content, whether in print or other tangible form, through a series of processes using raw materials owned by the taxpayer and the taxpayer delivers that tangible product to the customer or one or more designees of the customer. Manufacturing also includes printing in circumstances under which the taxpayer uses any combination of graphic or textual content prepared by its own employees to produce a tangible representation of the content in print or other tangible form using raw materials owned by the taxpayer and the taxpayer delivers that tangible product to its customers or subscribers.
(5) Manufacturing does not include furnishing information services subject to the tax imposed by § 1105(c)(1) of the tax law regardless of whether the information is provided in tangible form.
(6) Manufacturing includes the design and development of pre-written computer software as defined in § 1101(b)(14) of the tax law to the extent that such pre-written computer software constitutes tangible personal property under § 1101(b)(6) of the tax law.
(7) A corporation that performs services for a customer, including manufacturing services, on property or raw materials belonging to the customer will not be considered a manufacturing corporation.
(8) A business that engages in pre-production activities, but not in the creation of the final product, will be considered to be engaged in manufacturing only if the pre-production activities are extensive and constitute an integral part of the manufacturing process.
(B) To qualify as a manufacturing corporation, a corporation must be engaged in both the manufacture of tangible personal property and the sale of such property that it manufactures. Therefore, a corporation that manufactures tangible personal property but does not engage in the sale of such tangible personal property will not be considered a manufacturing corporation. Similarly, a corporation that sells tangible personal property but does not engage in the manufacture of tangible personal property will not be considered a manufacturing corporation. For purposes of this paragraph, the lease of tangible personal property will be considered a sale of tangible personal property.
(C) For purposes of this paragraph, a corporation engaged in the manufacture and sale of tangible personal property will be considered to be primarily engaged in that activity if more than 50 percent of its gross receipts for the taxable year are derived from the sale of tangible personal property manufactured by the taxpayer.
(1) For purposes of this subparagraph (ii)(C), gross receipts include only amounts treated as business receipts for purposes of 19 RCNY § 11-65 earned in the ordinary course of the taxpayer's trade or business.
(2) For purposes of this subparagraph (ii)(C), gross receipts derived from the sale of tangible personal property shall mean the sale price of such tangible personal property valued in money, whether received in money or otherwise, without any deduction for expenses or early payment discounts, and including;
(i) any amount for which credit is allowed to the purchaser,
(ii) any charges to the purchaser for shipping or delivery regardless of whether such charges are separately stated in the written contract, if any, or on the bill rendered to such purchaser and regardless of whether such shipping or delivery is provided by the taxpayer or a third party, and
(iii) any charges for services provided by the taxpayer relating to the sale of the tangible personal property provided that such services are subordinate to the sale of the tangible property and provided that such charges are not separately stated in a written contract or bill.
(iii) If a group of corporations is permitted or required to file a combined report and the group, including all corporations in the group whether or not taxpayers, would qualify as a manufacturing corporation if it were a single corporation, excluding all intercompany transactions, the combined group may make an election under this paragraph. If a combined group would not qualify as a manufacturing corporation if it were a single corporation, neither the group nor any of its members may make the election under this paragraph even if one or more member corporations would qualify as manufacturing corporations if they were not included in the combined group. In order for the combined group to qualify as a manufacturing corporation it is not necessary that there be any individual member of the group that would qualify if it were not included in the combined group. See examples 7 and 8.
(iv) An election to use the double-weighted receipts factor must be made on a timely filed original return (including extensions) for the taxable year. A separate election must be made for each taxable year. The election is irrevocable and cannot be made or revoked on an amended return except with the permission of the Commissioner upon such terms and as the Commissioner may specify where the Commissioner concludes that such permission should be granted in the interests of fairness due to changes in circumstances resulting from an audit adjustment. Except as otherwise provided in the preceding sentence, if a taxpayer fails to make an election to use the double-weighted receipts factor, its business allocation percentage must be determined under the provisions of paragraph (2) of this subdivision (c).
(v) The provisions of this paragraph are illustrated by the following examples:
Example 1: X Corporation is engaged in printing pamphlets, brochures, catalogues and business reports. Under an agreement with customer A, X Corporation receives graphic material and text from customer A that X uses to produce print plates, which are used to print multiple copies of a catalogue. X Corporation uses its own raw materials, including paper and ink, and its own equipment to produce the plates and the catalogue. X Corporation employees advise A with regard to the layout and typeface of the catalogue. In the course of performing the contract, X Corporation delivers a master print to A for its review and final approval. In addition, under the agreement with A, X Corporation prepares an electronic version of the catalogue for incorporation into a Web page maintained by A. X Corporation mails the print version of the catalogue to A's customers and delivers the electronic version of the catalogue to A on a disk. X Corporation receives $500x under the agreement with no breakdown of the price among the various services and products provided.
Under an agreement with customer B, X Corporation receives the text of an annual financial statement required to be filed electronically with the SEC by B. B also requires print copies of the statement. X prints the report in hard copy, using its own ink and equipment but using paper belonging to the customer, delivers the hard copies to B and transmits the statement electronically to the SEC. X Corporation receives $200x under the agreement with B with no breakdown of the price among the various services and products provided.
X Corporation's activities under the agreement with A are considered the manufacture and sale of tangible personal property. (Note: if X Corporation delivers the electronic version of the catalogue to A by means of the Internet the result would not change. The $500x received by X Corporation under the contract with A would be considered receipts from the manufacture and sale of tangible personal property provided that the provision of the electronic version is subordinate to the sale of the print version of the catalogue.) No part of X Corporation's activities under the agreement with B are considered the manufacture and sale of tangible personal property because under the agreement with B, X Corporation is merely performing services on property owned by B. (Note: if X Corporation used its own paper for the print copies, X Corporation's activities under the agreement with B would be considered the manufacture and sale of tangible personal property.) Of X Corporation's total business receipts of $700X, $500X are from the manufacture and sale of tangible personal property. Therefore, X Corporation is considered to be a manufacturing corporation.
Example 2: Corporation X is engaged in compiling, printing and distributing a daily newspaper using material received from news services, its own reporters and editorial staff, its own paper and ink and printing equipment and its own technicians. Corporation X is considered engaged in manufacturing. Corporation X receives $100X in receipts from the sale of newspapers and $400X in receipts from the sale of advertising. Because less than 50 percent of Corporation X's receipts are from the manufacture and sale of tangible personal property, X is not considered a manufacturing corporation.
Example 3: Corporation A is engaged in film processing whereby it receives undeveloped film from its customers and, using its own chemicals, paper and equipment, develops the film and makes print or slide copies for customers. Corporation A is engaged in manufacturing. If instead of using its own materials and equipment, Corporation A contracts with Corporation B to develop the film and make prints, Corporation A is not engaged in manufacturing.
Example 4: Y Corporation contracts with A Corporation, an unrelated entity, to produce a line of art supplies, crayons, paper, markers, glue, etc. from raw materials purchased by Y. The finished goods are delivered to Y. Y packages two or more of those products together with paper purchased from another unrelated supplier into kits that Y sells to toy and art supply retailers. A Corporation's receipts under the contract with Y are not receipts from the manufacture and sale of tangible personal property because Y provides and owns the raw materials. Y's receipts from the sale of the kits are not receipts from the manufacture and sale of tangible personal property because Y does not manufacture the component parts itself and the packaged kits do not differ substantially in nature or form from the various component parts.
Example 5: Corporation W washes, cuts, cooks, freezes and packages vegetables for wholesale and retail sale to customers. Corporation W is considered to be engaged in manufacturing.
Example 6: Corporation M collects, sorts, shreds and compresses scrap metal into blocks that are convenient for handling, storage and shipping and sells the scrap metal blocks to companies that manufacture finished goods from them. Corporation M is considered to be engaged in manufacturing because the scrap metal sold differs substantially in nature from the components collected by M, which were not suitable for convenient handling, storage, shipping and sale in their original form.
Example 7: Corporation C purchases fabric, cuts and sews clothing for sale to a wholesale distributor, Corporation E. Corporation C is engaged in the manufacture and sale of tangible personal property. Corporation E packages and labels the clothing for resale to its retail outlet customers. Corporation E is not considered to be engaged in manufacturing. If Corporation C cuts and sews fabric provided by Corporation D where Corporation D retains title to the fabric and D sells the finished clothing, neither Corporation C nor Corporation D would be considered to be engaged in the manufacture and sale of tangible personal property. Corporation C is providing manufacturing services and Corporation D is not conducting the manufacturing activities itself. Corporation C and Corporation D viewed as a single corporation would be considered to be engaged in manufacturing and sale of tangible personal property, and, if Corporation C and Corporation D are permitted or required to file a combined report and meet the other requirements of subparagraph (iii) of this paragraph, Corporation C and Corporation D may make the election under this paragraph.
Example 8: Corporation X operates a chain of supermarkets. Corporation X sets up a subsidiary, Corporation S to produce, package and sell food products through Corporation X's markets and markets operated by third parties. Corporation X and Corporation S are required to file a combined return. Corporation S has receipts of $100X entirely from the manufacture and sale of tangible personal property. Corporation X has receipts of $900X from the supermarket business. The combined group may not make the election under this paragraph, because less than 50 percent of its total receipts are from the manufacture and sale of tangible personal property.
Example 9: Corporation T purchases finished articles of clothing and using its own equipment and raw materials, imprints or embroiders its logo on each article. Corporation T sells the clothing under its own label. Corporation T is not considered engaged in manufacturing. While the presence of the logo on the clothing may increase its marketability, it does not substantially alter the nature or form of the clothing itself and the clothing is useable as such without the logo.
Example 10: Corporation P purchases fabric from a mill and, using its own equipment, dyes, and other materials, puts a pattern on the fabric through a variety of processes and sells the fabric to clothing manufacturers. Corporation P is considered to be engaged in the manufacture and sale of tangible personal property because it substantially alters the nature of the material.
Example 11: CS Corporation is exclusively engaged in the bottling and sale of soft drinks. CS maintains a factory where it mixes syrup then combines the syrup with carbonated water, places the mixture in bottles, labels the bottles and places them in cartons, then sells the cartons to retailers and wholesalers. CS is a manufacturing corporation.
Example 12: X Corporation is engaged in the design, development and sale of computer software. X Corporation's employees use computers, programming languages and a library of "pre-written" functions and routines to develop software for use by financial institutions to manage accounts. X Corporation sells the same software to several customers although the software is enhanced or modified to meet the specific needs of each customer. Some customers receive the software on a disk, others receive it electronically over the Internet. More than 50% of X Corporation's gross receipts derive from both types of sales. The software is taxable as "pre-written computer software" under § 1101(b)(14) of the tax law. Sales of the software are treated as sales of tangible personal property for purposes of § 1101 of the tax law and, therefore, for purposes of subparagraph (ii)(C) of this paragraph. X Corporation is a manufacturing corporation.
Example 13: X Corporation publishes and sells a magazine. X maintains a large staff of reporters, writers, editors, photographers, photo-editors, and graphic artists. This staff produces and assembles stories and photographs for the magazine using a variety of equipment including computers, photographic equipment, printers, scanners and file servers. Each week the staff culls through and edits a large number of stories and photographs and selects a number for inclusion in the magazine. The staff explores various layouts for the components of the magazine. As part of the process the layouts are examined in print form. The staff then finally produces a completed prototype of the magazine in electronic form. The prototype is delivered electronically to an unrelated printer who prints the magazine following X Corporation's detailed specifications, using raw materials including paper and ink supplied by X Corporation. The printer receives a fee for printing the magazine. The magazine is distributed by the printer to X's customers.
X Corporation's extensive preprinting activities leading to the production of the final product are considered an integral part of the manufacturing process. As a result X is considered to be engaged in the manufacture and sale of tangible personal property. If more than 50% of X Corporation's receipts are from the subscription and newsstand sales of the magazine, X will be considered a manufacturing corporation.
Example (14): X Corporation produces and sells apparel. X maintains a large staff including designers, graphic artists, pattern makers, computer operators, cutters, sewers and drapers. X's staff develops original ideas for garments, produces illustrations with the aid of computer systems, and selects certain of these ideas to be converted into finished samples. The creation of the samples involves selection of fabrics, cutting, sewing, testing of fabric quality and color and fitting the prototype garments. X then uses the computer systems to make style patterns, which it transfers electronically along with detailed instructions to third-party contractors to whom it also specifies or furnishes the fabrics and other raw materials used to produce the garments. The contractors, whose operations are overseen by X's employees, assemble the garments using the patterns and materials supplied by X. X then sells the garments to its wholesale customers.
X's extensive pre-production activities are considered an integral part of the manufacturing process. As a result X is considered to be engaged in the manufacture and sale of tangible personal property. If more than 50% of X Corporation's receipts are from the sale of garments produced as described above, X will be considered a manufacturing corporation.
(a) Computation of property factor.
(1) The percentage of the taxpayer's real and tangible personal property within New York City is determined by dividing the average fair market value of such property within New York City (without deduction of any encumbrances) by the average fair market value of all such property within and without New York City. Such property should be included only for the period covered by the report. In determining such percentage real property rented to the taxpayer as well as real and tangible property owned by it must be considered.
(2) The average fair market value of real and tangible personal property owned by the taxpayer, both within and without New York City, is determined by the same method used to determine the amount of taxpayer's capital, in accordance with the provisions of 19 RCNY §§ 11-39 and 11-40, supra. The fair market value of real property rented to the taxpayer must be determined in accordance with the provisions of 19 RCNY § 11-64(b), infra. The same method of valuation must be used consistently with respect to property within and without the City. Any method of valuation adopted by the taxpayer on any report and accepted by the Commissioner of Finance my not be changed on any subsequent report except with the consent of the Commissioner.
(3) Tangible personal property is within New York City if and so long as it is physically situated or located here, even though it may be stored in a bonded warehouse. Property of the taxpayer held in New York City by an agent, consignee or factor is (and property held outside New York City by an agent, consignee or factor is not) situated or located within New York City. Property, while in transit from a point outside New York City to a point in New York City or vice versa, does not have a fixed situs either within or without the City and, therefore, will not be deemed to be "situated" or "located" within or without New York City. Accordingly, such property while so in transit should be omitted from both the numerator and the denominator of the property factor. Property in transit from a point outside New York City to another point outside New York City is situated or located without New York City. Property in transit from a point in New York City to another point in New York City is situated or located in New York City.
(4) Trucks and other rolling equipment used both within and without New York City may be allocated to New York City on the percentage that the mileage within New York City bears to the total mileage within and without New York City, or on the percentage that the time spent in New York City bears to the total time spent within and without New York City, or by any other method approved by the Commissioner of Finance.
(5) The term tangible personal property means corporeal personal property, such as machinery, tools, implements, goods, wares and merchandise, and does not mean money, deposits in banks, shares of stock, bonds, notes, credits or evidences of an interest in property and evidences of debt (§ 11-602(10), Administrative Code).
(b) Rented real property.
(1) As heretofore noted, in determining the property factor, real property rented to the taxpayer, as well as real property and tangible personal property owned by it, must be considered. In order to avoid unnecessary hardship on taxpayers and for ease of administration, the fair market value of real property, both within and without New York City, which is rented to the taxpayer is determined by multiplying the gross rents payable during the period covered by the report by eight.
(2) Gross rents as used in this subdivision, is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use or possession of the property and includes:
(i) Any amount payable for the use or possession of real property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise.
Example 1: A taxpayer, pursuant to the terms of a lease, pays the lessor $1,000 per month and at the end of the year pays the lessor one percent of its gross sales of $400,000. Its gross rent is $16,000.
(ii) Any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs or any other amount required to be paid by the terms of a lease or other arrangement.
Example 2: A taxpayer, pursuant to the terms of a lease, pays the lessor $24,000 per annum and also pays real estate taxes in the amount of $4,000 and interest on a mortgage in the amount of $2,000. Its gross rent is $30,000.
(iii) A proportionate part of the cost of any improvement to real property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination of a lease or other arrangement, based on the unexpired term of the lease commencing with the date the improvement is completed (or the life of the improvement if its life expectancy is less than the unexpired term of the lease), provided, however, that where a building is erected on leased land by or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. (See 19 RCNY § 11-39, supra.) The proportionate part of the cost of an improvement (other than a building on leased land) is generally equal to the amount of the amortization allowed in computing entire net income, whether the lease does or does not contain an option of renewal.
Example 3: A taxpayer enters into a 21-year lease of certain premises at a rental of $20,000 per annum and after the expiration of one year installs a new store front at a cost of $10,000 which reverts to the owner upon the expiration of the lease. Its gross rent for the first year is $20,000. However, for subsequent years its gross rent is $20,500 ($20,000 annual rent plus 1/20th of $10,000, the cost of the improvement apportioned on the basis of the unexpired term of the lease).
Example 4: A taxpayer leases a parcel of vacant land for 40 years at an annual rental of $5,000 and erects thereon a building which costs $600,000. The value of the land is determined by multiplying the annual rent of $5,000 by eight, and the value of the building is determined in the same manner as if owned by the taxpayer.
(3) Gross rents do not include:
(i) Intercompany rents if both the lessor and lessee are taxed on a combined basis under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code.
(ii) Amounts payable as separate charges for water and electric service furnished by the lessor.
(iii) Amounts payable for storage provided no designated space under the control of the taxpayer as a tenant is rented for storage purposes.
(iv) That portion of any rental payment, which, in the discretion of the Commissioner of Finance is applicable to property subleased by the taxpayer and not used by it.
Example 5: A taxpayer leases certain premises, all of which are of equal value, at a rental of $20,000 per annum and subleases 50 percent of such premises to one or more subtenants receiving a total of $10,000 per annum as rent from such subtenants. Since 50 percent of the rent paid by the taxpayer is applicable to the portion of the premises subleased, 50 percent thereof or $10,000 is excluded in computing the taxpayer's gross rent for such premises.
(4) In exceptional cases use of the general method above outlined may result in inaccurate valuations. Accordingly, in such cases any other method which will properly reflect the value may be adopted by the Commissioner of Finance either on his own motion or on request of a taxpayer. Such other method of valuation may not be used by a taxpayer until approved by the Commissioner. Any such request shall set forth full information with respect to the property, together with the basis for the valuation proposed by the taxpayer. Such other method once approved by the Commissioner may be used by the taxpayer in its reports for subsequent years until the facts upon which such other method is based are materially changed.
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