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(a) Use of investment allocation percentage.
(1) A taxpayer, irrespective of whether it has a regular place of business outside New York City, may allocate its investment income and capital within and without New York City by the investment allocation percentage.
(2) There are taxpayers which need to determine only an investment allocation percentage, and need not be concerned with a business allocation percentage. Thus, a taxpayer which has only investment income and investment capital allocates its entire net income and capital by the investment allocation percentage.
(3) (i) For tax years beginning before January 1, 1989, if the investment income (before allowance of any net operating loss deduction) of a taxpayer not reporting on a combined basis is more than 85 percent of its entire net income (before allowance of any net operating loss deduction) and its investment capital is more than 85 percent of its total business and investment capital, it may elect to allocate its entire net income and total business and investment capital by the investment allocation percentage.
(ii) Except as provided in subparagraph (i) of this subdivision, if a taxpayer has both business and investment capital, but has only investment income or has investment income and a business loss, the taxpayer must allocate its entire net income and its investment capital by the investment allocation percentage. Its business capital is allocated by the business allocation percentage.
(b) Computation of investment allocation percentage. (§ 11-604(3)(b), Administrative Code.)
(1) The investment allocation percentage is computed as follows:
(i) Ascertain the average net value of each stock, bond or other security, other than governmental securities, included in the taxpayer's investment capital, pursuant to subdivision (b) of 19 RCNY § 11-38. The phrase "stock, bond or other security" as used in this paragraph does not include cash, even if treated as investment capital pursuant to 19 RCNY § 11-37(a)(2) of these regulations.
(ii) Multiply the net value of each such stock, bond or other security by its issuer's allocation percentage.
(iii) Add all the products determined in paragraph (ii) of this subdivision.
(iv) Divide the sum obtained in paragraph (iii) of this subdivision by the net value of the taxpayer's total investment capital, exclusive of cash even if such cash is treated as investment capital pursuant to 19 RCNY § 11-37(a)(2).
(2) (i) The issuer's allocation percentage of an issuer of or obligor (other than an issuer or obligor subject to tax under Title 11, Chapter 6, Subchapter 3, Part 4 of the Administrative Code and other than in the case of an option on a stock or bond index or an option on a futures contract on such an index) on a stock, bond or other security constituting investment capital is computed as follows:
Tax Applicable to Issuer or Obligor: | Issuer's Allocation Percentage: |
Administrative Code Title 11, Chapter 6, Subchapter 4 (Transportation Corporation Tax) | percentage of issued capital stock required to be allocated within New York City on its report for the preceding year |
Administrative Code Title 11, Chapter 11 (Utility Tax) | percentage equal to a fraction, the numerator of which is the gross income of a utility corporation included on its New York City Utility Tax reports for periods during the preceding year, and the denominator of which is the gross income of the corporation as defined in Title 11, Chapter 11 of the Code for such periods, except that it shall include income from sources within and without the City. |
Administrative Code Title 11, Chapter 6, Subchapter 2 (General Corporation Tax) | percentage of entire capital required to be allocated within New York City on its report for the preceding year (equal to the sum of allocated business capital, allocated investment capital and allocated subsidiary capital divided by the sum of business capital, investment capital and subsidiary capital). |
(ii) In the case of an issuer or obligor subject to tax under Title 11, Chapter 6, Subchapter 3, Part 4 of the Administrative Code, the issuer's allocation percentage shall be determined as follows:
(A) In the case of a banking corporation described in § 11-640(a)(1) - (8) of the Administrative Code that is organized under the laws of the United States, this state or any other state of the United States, the issuer's allocation percentage shall be its alternative entire net income allocation percentage, as defined in § 11-642(c) of the Administrative Code, for the preceding year. In the case of such a banking corporation whose alternative entire net income for the preceding year is derived exclusively from business carried on within the city, its issuer's allocation percentage shall be 100 percent.
(B) In the case of a banking corporation described in § 11-640(a)(2) of the Administrative Code that is organized under the laws of a country other than the United States, the issuer's allocation percentage shall be determined by dividing (i) the amount described in § 11-642(a)(2)(A)(i) of the Administrative Code with respect to such issuer or obligor for the preceding year, by (ii) the gross income of such issuer or obligor from all sources within and without the United States, for such preceding year whether or not included in alternative entire net income for such year.
(C) In the case of an issuer or obligor described in § 11-640(a)(9) or 11-640(d)(2) of the Administrative Code, the issuer's allocation percentage shall be determined by dividing the portion of the entire capital of the issuer or obligor allocable to the city for the preceding year by the entire capital, wherever located, of the issuer or obligor for the preceding year.
(iii) For purposes of paragraphs (i) and (ii) of this subdivision, in determining an issuer's allocation percentage, the term "preceding year" means the taxable year of the issuer or obligor ending during the taxpayer's immediately prior taxable year. In general, if no taxable year of the issuer or obligor ends within the taxpayer's immediately prior taxable year, then the term "preceding year" means the latest taxable year of the issuer or obligor ending before the taxpayer's immediately prior taxable year. If an issuer or obligor was not required to file a report or return for the preceding year, as defined above, the issuer's allocation percentage is zero. The taxable year of an issuer or obligor that is a utility corporation subject to tax under Title 11, Chapter 11 of the Administrative Code is the utility's federal taxable year.
(iv) If a report or reports for the preceding year are required but not filed, or if filed do not contain information that would permit the determination of such issuer's allocation percentage, then, at the discretion of the Department of Finance, the issuer's allocation percentage to be used shall be either (A) the issuer's allocation percentage derived from the most recently filed report or return of the issuer or obligor, or (B) a percentage calculated by the Department of Finance to reasonably indicate the degree of economic presence in the City of the issuer or obligor during the preceding year.
(v) The issuer's allocation percentage of an option on a stock or bond index, or an option on a futures contract on such an index, will be calculated by the Department of Finance in such a manner as to reasonably indicate the economic presence in the City of the issuers of and obligors on the stocks, bonds or other securities included in the computation of the indexes.
(vi) Issuers or obligors.
(A) The issuer of stock is the corporation a portion of the equity of which is represented by such stock. Thus, the issuer of X Corporation stock is X Corporation; the issuer of Federal National Mortgage Association stock is the Federal National Mortgage Association.
(B) The issuer of, or obligor on, a bond or note is the maker of the instrument. A guarantor of a bond or note is not the issuer or obligor.
(C) The issuer of, or obligor on, a banker's acceptance is the accepting bank, irrespective of endorsements by other banks. Where banker's acceptances have been acquired in aggregate form, as in round lot trading, each banker's acceptance shall be treated separately for purposes of this paragraph.
(D) The issuer of, or obligor on, a trade acceptance is the party that has accepted the draft.
(E) The issuer of, or obligor on, an option is the entity which is the issuer of, or obligor on, the item that is the subject of the option unless the subject of the option is a stock or bond index or a futures contract on such an index. For the computation of the issuer's allocation percentage of an option on a stock or bond index or of an option on a stock or bond index or of an option on a futures contract on such an index, see § 11-68(2)(v) of these regulations.
(F) The issuer of, or obligor on, a stock which may be acquired when such right or warrant is exercised.
(G) The issuer of assets reflected in the taxpayer's books and records in connection with futures or forward contracts that constitute investment capital is the issuer of the asset, the taxpayer's position in which is hedged by the contract.
(3) The issuer's allocation percentage with respect to any stock, bond or other security may be obtained from the Department of Finance upon the written request of any corporation subject to tax under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code. The request must be in duplicate and specify the correct name of each entity for which an issuer's allocation percentage is needed.
(c) Discretionary adjustment of investment allocation percentage. (§ 11-604(8), Administrative Code.)
(1) Where it appears to the Commissioner of Finance that the investment allocation percentage, computed in the manner prescribed by paragraph (b) of subdivision 3 of § 11-604 of the Administrative Code does not properly reflect the investment activity, business, income or capital of the taxpayer within New York City, the Commissioner of Finance, in his discretion, may adjust such investment allocation percentage by excluding any asset therefrom, provided the income from such asset is also excluded in determining entire net income.
(2) Rulings of general public interest will be published by the Commissioner of Finance from time to time, indicating the circumstances under which, and the manner in which, such adjustments will be made.
(a) Allocation of entire net in-come.
(i) if it has only business income; or
(ii) if it has both business income and investment income, but has the right to and does elect to allocate its entire net income by its business allocation percentage (19 RCNY § 11-63(a), supra) or
(iii) if it has business income and an investment loss.
(2) A taxpayer allocates its entire net income by the investment allocation percentage (19 RCNY § 11-68, supra) in the following cases:
(i) if it has only investment income; or
(ii) if it has both business income and investment income, but has the right to and does elect to allocate its entire net income by its investment allocation percentage (19 RCNY § 11-68(a), supra); or
(iii) if it has investment income and a business loss.
(3) Any taxpayer which has both business income and investment in come, and which cannot or does not elect to allocate its entire net income by either its business allocation percentage or its investment allocation percentage, allocates its entire net income by using both the business allocation percentage and the investment allocation percentage, as follows:
(i) business income is multiplied by the business allocation percentage;
(ii) investment income is multiplied by the investment allocation percentage; (iii) The two products thus obtained are added together. The sum thus obtained is the portion of the taxpayer's entire net income allocable to New York City. This is so because the taxpayer's entire net income is, in every case, the sum of its business income plus its investment income. If a net operating loss deduction is allowable in computing entire net income (see 19 RCNY § 11-28 supra), such deduction should be apportioned between business income and investment income before multiplying by the allocation percentage (see 19 RCNY § 11-69(d), infra).
(4) If a taxpayer's investment allocation percentage is zero, interest received on bank accounts is allocated by the business allocation percentage. (See 19 RCNY § 11-69(d), infra, for application of allocation percentage where net operating loss deduction is involved.)
(b) Definitions.
Investment Income. (§ 11-602(5), Administrative Code.)
(i) (A) The term "investment income" means income from investment capital to the extent included in computing entire net income, less any deductions allowable in computing entire net income that are directly or indirectly attributable to investment capital or investment income and sell such portion of any net operating loss deduction allowable in computing entire net income as described in 19 RCNY § 11-69(d). Income from investment capital includes dividends from investment capital, interest from investment capital and capital gains in excess of capital losses from the sale or exchange of investment capital.
(B) Investment income also includes gain (or loss) from closing out a position in a futures or forward contract if such contract substantially diminishes the taxpayer's risk of loss from holding one or more positions in assets that constitute investment capital. If the taxpayer holds more positions in futures or forward contracts than are reasonably necessary to substantially diminish its risk of loss from holding such positions in assets constituting investment capital, the gain (or loss) attributable to any such excess positions in futures or forward contracts is not investment income.
(C) Investment income also includes gain (or loss) from short sales of assets that constitute investment capital.
(D) Investment income also includes gain (or loss) from closing out a position in a futures or forward contract if such contract substantially diminishes the taxpayer's risk of loss from making short sales of assets that constitute investment capital. If the taxpayer holds more positions in futures or forward contracts than are reasonably necessary to substantially diminish its risk of loss from such sales, the gain (or loss) attributable to any such excess positions in futures or forward contracts is not investment income.
(E) Investment income also includes premium income from unexercised covered call option if the item which covers the call is an asset constituting investment capital. However, premium income from unexercised naked call options and premium income from unexercised put options is not investment income.
(ii) In no case may investment income be greater than entire net income. If a taxpayer has no business income, its investment income shall be deemed to be equal to its entire net income. For the definition of investment capital, see 19 RCNY § 11-37.
(iii) In computing investment income, dividends and interest from investment capital are includible in the same manner and to the same extent as in computing entire net income. Thus, where only one half of dividends from nonsubsidiary corporations is included in computing entire net income under § 11-602.8(a)(2), only one half of such dividends is included in computing investment income. Capital gains and losses are included in computing entire net income in the same manner and to the same extent as for Federal income tax purposes, subject to the modification provided in § 11-602.8(h). Accordingly, in computing investment income, capital gains and losses from sales and exchanges of assets constituting investment capital are included in the same manner and to the same extent as for Federal income tax purposes, subject to the modification provided in § 11-602.8(h).
(c) Deduction of expenses. (§ 11-602(5), Administrative Code.)
(1) Investment income must be reduced by any deductions, allowable in computing entire net income, which are directly or indirectly attributable to investment capital or investment income. Deductions allowable in computing investment income are not to be taken into account in computing business income.
(2) Deductions allowable in computing entire net income which are directly attributable to investment capital or investment income include, among others: interest incurred to carry investment capital, safe deposit box rentals, financial news subscriptions, salaries of officers and employees engaged in the management and conservation of stocks, bonds and other securities included in investment capital, investment counsel fees, custodian fees, the cost of insurance and fidelity bonds covering investment capital, and legal expenses relating to investment capital.
(d) Net operating loss deduction.
(1) Investment income is reduced by such portion of any net operating loss deduction allowable in computing entire net income as the investment income before such deduction bears to entire net income before such deduction. (See: 19 RCNY § 11-28, supra, for allowable net operating loss deduction.)
(2) The effect of such reduction is to apportion the net operating loss deduction between business and investment income for the current year in the proportion that such income bears to entire net income for the current year, so that a portion of the net operating loss deduction will be allocated on the basis of the allocation percentage applicable to the current year's investment income and a portion on the basis of the allocation percentage applicable to the current year's business income.
Example 1: Taxpayer's entire net income for 1966 is $200,000, consisting of $50,000 of investment income and $150,000 of business income. Its investment allocation percentage is 15 percent. Its business allocation percentage is 100 percent. It has an allowable net operating loss deduction of $100,000 for a loss sustained in 1967. Its investment income is $25,000
([$50,000 - $50,000 × $100,000]),
$200,000
$200,000
which is allocable 15 percent to New York City. Its business income is $75,000
([$150,000 - $150,000 × $100,000]),
$200,000
$200,000
which is allocable 100 percent to New York City. Thus, 25 percent of the net operating loss deduction is allocated on the basis of the investment allocation percentage of the current year and 75 percent is allocated on the basis of the business allocation percentage of the current year.
(3) If the investment allocation percentage of a taxpayer is zero, interest on bank accounts and obligations of the United States and its instrumentalities and obligations of New York State, its political subdivisions and its instrumentalities should (except as otherwise provided in 19 RCNY § 11-69(a)(4), supra) be added to business income before the apportionment of any net operating loss deduction, since such interest is treated as business income for allocation purposes.
Example 2: If the investment allocation percentage of the taxpayer in Example 1 was zero and $30,000 of its investment income was from United States government bonds, its investment income after allowance of the net operating loss deduction is $10,000
([$20,000 - $20,000 × $100,000]),
$200,000
$200,000
none of which is allocable to New York City. Its business income after allowance of the net operating loss deduction is $90,000
([$180,000 - $180,000 × $100,000]),
$200,000
$200,000
100 percent of which is allocable to New York City.
(a) General.
(1) A taxpayer may not allocate any of its business capital without New York City unless it had a regular place of business outside New York City during some part of the year covered by the report. But a corporation may allocate its investment capital by its investment allocation percentage, even if all of its business and its only office were in New York City.
(2) Business capital allocable to New York City is computed by multiplying business capital by the business allocation percentage. Investment capital allocable to New York City is computed by multiplying investment capital by the investment allocation percentage. The sum of the products so obtained is the taxpayer's total business and investment capital allocable to New York City.
(3) Where the investment income (before allowance of any net operating loss deduction) of a taxpayer not reporting on a combined basis is more than 85 percent of its entire net income (before allowance of any net operating loss deduction) and its investment capital is more than 85 percent of its total business and investment capital, it may elect to allocate its total business and investment capital by the investment allocation percentage (see 19 RCNY § 11-68(a), supra). Also, where 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 percent of its total business and investment capital, it may elect to allocate its total business and investment capital by the business allocation percentage (see: 19 RCNY § 11-63(a), supra).
(b) Allocation of business capital. (§ 11-604(4), Administrative Code.) In computing the tax measured by business and investment capital, the business capital of the taxpayer allocable to New York City is determined by multiplying business capital, determined as provided in 19 RCNY §§ 11-36(a) through 11-43, supra, by the business allocation percentage, determined as provided in 19 RCNY §§ 11-63 through 11-66, supra, unless the taxpayer has the right to and does elect to allocate its total business and investment capital by the investment allocation percentage (see: 19 RCNY § 11-68(a), supra).
(c) Allocation of investment capital. (§ 11-604(5), Administrative Code.) In computing the tax measured by business and investment capital, the investment capital allocable to New York City is determined by multiplying investment capital, determined as provided in 19 RCNY § 11-36 "investment capital" and 19 RCNY §§ 11-37 through 11-43, supra, by the investment allocation percentage, determined as provided in 19 RCNY § 11-68, supra, unless the taxpayer has the right to and does elect to allocate its total business and investment capital by the business allocation percentage (see: 19 RCNY § 11-63(a), supra).
(§ 11-604(7), Administrative Code.) Every taxpayer irrespective of whether it has a regular place of business outside New York City is entitled to allocate its subsidiary capital within and without New York City. The subsidiary capital of the taxpayer allocable to New York City is computed as follows:
(a) multiply the average fair market value (determined as provided in 19 RCNY §§ 11-39 and 11-40, supra) of its subsidiary capital (determined as provided in 19 RCNY § 11-46 "Subsidiary Capital" and 19 RCNY § 11-47, supra) invested in each subsidiary during the period covered by the taxpayer's report by the percentage of the entire capital or issued capital stock, gross direct premiums (in the case of an insurance company) or net income (in the case of a bank or trust company) of such subsidiary required to be allocated within New York City on any report or reports required of it under Chapter 6 or Chapter 11 of Title 11 of the Administrative Code, for the preceding year;
(b) multiply the cash and obligations of the United States and its instrumentalities and obligations of New York State, its political subdivisions and its instrumentalities treated as subsidiary capital, if any, (see: 19 RCNY § 11-46 "Subsidiary Capital," supra) by the weighted average of the percentage used in (a), above;
(c) add the products so obtained.
Subchapter E: Reports
(§ 11-605(1), Administrative Code.)
(a) Reports are required to be filed annually by the following:
(1) every corporation subject to tax, irrespective of the amount of its entire net income or capital. As to what corporations are subject to tax, see 19 RCNY § 11-03, supra;
(2) every receiver, referee, trustee, assignee or other fiduciary, or other officer or agent appointed by any court, who conducts the business of any corporation subject to tax under Subchapter 2 of Chapter 6 of Title 11, of the Administrative Code (§ 11-603(3), Administrative Code); and
(3) every corporation which has an officer, agent or representative within New York City, irrespective of whether such corporation is subject to tax under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code), provided such corporation is not subject to a tax imposed by any other Chapter of Title 11 of the Administrative Code.
(b) One or more short period reports are required in the case of:
(1) a newly organized taxpayer whose first accounting period is less than 12 months;
(2) a foreign corporation that becomes subject to tax in New York City subsequent to the commencement of its Federal accounting period;
(3) a taxpayer that dissolves, merges, consolidates or ceases to be subject to tax in New York City prior to the close of its accounting period for Federal income tax purposes;
(4) a taxpayer that changes its accounting period for Federal income tax purposes;
(5) a taxpayer that becomes part of or ceases to be part of a Federal consolidated group, i.e., an affiliated group that files a Federal consolidated return, during the year;
(6) a taxpayer that changes from one Federal consolidated group to another Federal consolidated group during the year; and
(7) a taxpayer that is an old target (within the meaning of Treas. Reg. § 1.338-2(c)(17)) for which an election is made pursuant to section 338 of the Internal Revenue Code and not deemed invalid pursuant to 19 RCNY § 11-27(j), if the acquisition date, as defined in section 338(h)(2) of the Internal Revenue Code, is other than the last day of the taxpayer's taxable year determined without regard to such election. A short period report required by this subdivision shall cover the period provided in 19 RCNY §§ 11-13, 11-14 and 11-87 and shall be filed as provided in 19 RCNY §§ 11-87 and 11-88.
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