(a) Rate of tax. (Administrative Code § 11-503(a)). The unincorporated business tax imposed by Chapter 5 of Title 11 of the Administrative Code for each taxable year is imposed at the rate of four percent on the unincorporated business taxable income. (See: 19 RCNY § 28-04).
(b) Credit against tax. (Administrative Code § 11-503(b)).
(1) A credit is allowed against the tax computed under 19 RCNY § 28-03(a) for taxable years beginning after 1986 but before 1996 determined in the following manner:
(i) If the tax computed under such section is $600 or less, the amount of the credit is the entire amount of such tax.
(ii) If the tax computed under such section exceeds $600 but is less than $800, the credit is an amount determined by multiplying the tax by a fraction the numerator of which is $800 less the amount of the tax and the denominator of which is $200.
(iii) If the tax computed under such section is $800 or more, no credit is allowed.
(2) A credit is allowed against the tax computed under 19 RCNY § 28-03(a) for taxable years beginning in 1996 determined in the following manner:
(i) If the tax computed under such section is $800 or less, the amount of the credit is the entire amount of the tax.
(ii) If the tax computed under such section exceeds $800 but is less than $1,000, the credit is an amount determined by multiplying the tax by a fraction the numerator of which is $1,000 less the amount of the tax and the denominator of which is $200.
(iii) If the tax computed under such section is $1,000 or more, no credit is allowed.
(3) A credit is allowed against the tax computed under 19 RCNY § 28-03(a) for taxable years beginning after 1996 determined in the following manner:
(i) If the tax computed under such section is $1,800 or less, the amount of the credit is the entire amount of the tax.
(ii) If the tax computed under such section exceeds $1,800 but is less than $3,200, the credit is an amount determined by multiplying the tax by a fraction the numerator of which is $3,200 less the amount of the tax and the denominator of which is $1,400.
(iii) If the tax computed under such section is $3,200 or more, no credit is allowed.
(c) Additional credits. (Administrative Code § 11-503(c), (d), (e) and (f)).
(1) General. In addition to the credit referred to in 19 RCNY § 28-03(b) above, credits relating to stock transfer taxes, certain sales and compensating use taxes, and certain expenses connected with the relocation of employment opportunities to New York City are also allowed.
(2) Credit relating to the stock transfer tax. The law allows a credit against the tax in an amount equal to 50% of the New York State stock transfer taxes paid by a taxpayer who incurred such taxes as a dealer, registered under Section 15(b) of the Securities Exchange Act of 1934, in "market making transactions" which took place on and after August 1, 1976 and before October 1, 1981. For definitions, limitations, modifications and procedures applicable to this credit, see §§ 11-503(c) and 11-506 of the Administrative Code.
(3) Credits relating to certain sales and compensating use taxes.
(i) Production machinery or equipment; telephone station apparatus. A taxpayer shall be allowed a credit for payment of certain sales and compensating use taxes in the manner hereinafter provided in this paragraph (3). The amount of such credit shall be
(A) the amount of sales and compensating use taxes paid which are imposed by Section 1107 of the State Tax Law during the taxpayer's taxable year with respect to the purchase or use by the taxpayer of machinery or equipment for use or consumption directly and predominantly in the production of tangible personal property, gas, electricity, refrigeration or steam for sale, by manufacturing, processing, generating, assembling, refining, mining or extracting, or telephone central office equipment or station apparatus or comparable telegraph equipment for use directly and predominantly in receiving at destination or initiating and switching telephone or telegraph communication, but not including parts with a useful life of one year or less or tools or supplies used in connection with such machinery, equipment or apparatus, less
(B) the amount of any credit for such sales and compensating use taxes allowed or allowable against the taxes imposed by Chapter 11 of Title 11 of the Administrative Code (Utility Tax), for any periods embraced within the taxable year of the taxpayer under this section. The machinery, equipment and apparatus referred to herein is that which is subject to the New York City sales and use tax but exempt from the New York State sales and use tax. The credit applies only to such sales and use taxes which become legally due on or after, and were paid on or after, July 1, 1977.
(ii) Electricity or electric service. In addition to the credit referred to in paragraph (3)(i) above, a taxpayer shall also be allowed a credit equal to the amount of sales and compensating use taxes imposed by Section 1107 of the State Tax Law during the taxpayer's taxable year which became legally due on or after, and were paid on or after, July 1, 1984, with respect to the purchase or use by the taxpayer of electricity or electric service of whatever nature for use or compensation directly and exclusively in the production of tangible personal property for sale by manufacturing, processing or assembling. The electricity and electric service referred to herein is that which is subject to the New York City sales and use tax but exempt from the New York State sales and use tax. When electricity is purchased for consumption for both purposes qualifying for the credit and not qualifying for the credit, and the use of the electricity is recorded on a single meter, the purchaser must allocate the use of the electricity according to its qualifying or non-qualifying consumption. At such time when variations occur affecting the use of electricity (e.g. the addition of new equipment) a new allocation must be computed. An electrical engineer's survey, showing computations, may be submitted in substantiation of the allocation made for use of electricity for both qualifying and non-qualifying purposes. In lieu of an electrical engineer's survey, computations using guidelines prescribed by the Commissioner of Finance may be submitted.
(iii) The credits allowed under this subdivision for any taxable year shall be deemed to be an overpayment of tax by the taxpayer to be credited or refunded, without interest, in accordance with the provisions of § 11-526 of the Administrative Code.
(iv) (A) The amount of sales and use taxes paid during the tax period for which credit is claimed must be reduced by the amount of any credit or refund of such taxes received during the tax period from either a vendor or the New York State Department of Taxation and Finance.
(B) Where the taxpayer receives a refund or credit of any tax imposed under section 1107 of the State Tax Law for which the taxpayer had claimed a credit under the provisions of this paragraph (3) in a prior taxable year, the amount of such tax refund or credit shall be added to the tax under this section, and such amount shall be subtracted in computing unincorporated business taxable income for the taxable year.
(v) For modifications to unincorporated business gross income resulting from the taxpayer's use of these credits, see 19 RCNY § 28-05(b)(5).
(vi) A taxpayer who has paid, as a result of an audit and determination made by the New York State Department of Taxation and Finance, or the filing of an amended sales and use tax return, a sales and use tax which would give rise to a credit under subparagraphs (i) or (ii) above is entitled to claim the sales and use tax credit for that payment for the year to which the sales or use tax was originally due. No credit will be allowed for interest or penalties paid in connection with the state determination or amended return. (See: 19 RCNY § 28-20(b) relating to reports required when taxpayer's sales and use tax liability is changed or corrected.)
(4) Credits relating to the cost of relocating industrial and commercial employment opportunities.
(i) Credit relating to the annual increase in certain payments to a landlord by a taxpayer relocating industrial and commercial employment opportunities.
(A) Where a taxpayer shall have relocated to the city from a location outside the state, and by such relocation shall have created a minimum of one hundred industrial or commercial employment opportunities, and where such taxpayer shall have entered into a written lease for the relocation premises, the terms of which lease provide for increased additional payments to the landlord which are based solely and directly upon any increase or addition in real estate taxes imposed on the leased premises, the taxpayer, upon approval and certification by the Industrial and Commercial Incentive Board, as hereinafter provided, shall be entitled to a credit against the tax. The amount of such credit shall be an amount equal to the annual increased payments actually made by the taxpayer to the landlord which are solely and directly attributable to an increase or addition to the real estate tax imposed upon the leased premises. Such credit shall be allowed only to the extent that the taxpayer has not otherwise claimed said amount as a deduction against the tax. For modifications to unincorporated business gross income resulting from taxpayer's use of the credit, see: 19 RCNY § 28-05(b)(6). The Industrial and Commercial Incentive Board in approving and certifying to the qualifications of the taxpayer to receive the tax credit provided for herein shall first determine that the applicant has met the requirements under this subparagraph (i), and further, that the granting of the tax credit to the applicant is in the "public interest." In determining that the granting of the tax credit is in the public interest, the board shall make affirmative findings that: the granting of the tax credit to the applicant will not effect an undue hardship on similar taxpayers already located within the City; the existence on this tax incentive has been instrumental in bringing about the relocation of the applicant to the City; and the granting of the tax credit will foster the economic recovery and economic development of the City.
(B) The tax credit, if approved and certified by the Industrial and Commercial Incentive Board, must be utilized annually by the taxpayer for the length of the term of the lease, or, for a period not to exceed ten years from the date of relocation, whichever period is shorter.
(ii) Credit relating to certain expenses involved in the cost of relocating industrial and commercial employment opportunities.
(A) A taxpayer shall be allowed an employment opportunity relocation costs credit against the tax. The amount of such credit shall be a maximum of three hundred dollars for each commercial employment opportunity and a maximum of five hundred dollars for each industrial employment opportunity relocated to the City from an area outside the state. Such credit shall be allowed to a taxpayer who relocates a minimum of ten employment opportunities. The relocation costs for which the credit may be claimed are those incurred on or after September 26, 1977 in connection with employment opportunities relocated to the City on or after that date. Such credit shall be allowed only to the extent that the taxpayer has not claimed a deduction for allowable employment opportunity relocation costs. For modifications to unincorporated business gross income resulting from taxpayer's use of the credit, see: 19 RCNY § 28-05(b)(7).
(B) The credit allowed hereunder may be taken by the taxpayer in whole or in part in the year in which the employment opportunity is relocated by such taxpayer or in either of the two years succeeding such event.
(iii) The credits allowed under this paragraph for any taxable year shall be deemed to be an overpayment of tax by the taxpayer to be credited or refunded, without interest, in accordance with the provisions of § 11-526 of the Administrative Code.
(iv) Definitions: When used in this paragraph:
Commercial employee. "Commercial employee" means one engaged in the buying, selling or otherwise providing of goods or services other than on a retail basis.
Employment opportunity. "Employment opportunity" means the creation of a full time position of gainful employment for an industrial or commercial employee and the actual hiring of such employee for the said position.
Employment opportunity relocation costs. "Employment opportunity relocation costs" means the costs incurred by the taxpayer in moving furniture, files, papers and office equipment into the city from a location outside the state; the costs incurred by the taxpayer in the moving from a location outside the state; the costs of installation of telephones and other communications equipment required as a result of the relocation to the city from a location outside the state; the cost incurred in the purchase of office furniture and fixtures required as a result of the relocation to the city from a location outside the state; and the cost of renovation of the premises to be occupied as a result of the relocation, provided, however, that such renovation costs shall be allowable only to the extent that they do not exceed seventy-five cents per square foot of the total area utilized by the taxpayer in the occupied premises.
Full time position. "Full time position" means the hiring of an industrial or commercial employee in a position of gainful employment where the number of hours worked by such employee is not less than thirty hours during any given week.
Industrial and Commercial Incentive Board. "Industrial and Commercial Incentive Board" means the Board created pursuant to Part 3 of Subchapter 2 of Chapter 2 of the Administrative Code.
Industrial employee. "Industrial employee" means one engaged in the manufacture or assembling of tangible goods or the processing of raw materials.
Retail. "Retail" means the selling or otherwise disposing or furnishing of tangible goods or services directly to the ultimate user or consumer.
(d) Unincorporated business tax paid credit. Note: In this subdivision (d) for simplicity and clarity, the term "partner" is used to refer to any individual or entity owning an interest in an unincorporated business, and the term "partnership" is used to refer to any such unincorporated business.
(1) General. The additional exemption available to an unincorporated business pursuant to Administrative Code § 11-510(2) is repealed for taxable years of the unincorporated business beginning after June 30, 1994. For taxable years beginning on or after July 1, 1994, if an individual or unincorporated entity 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 the partner's own unincorporated business gross income, or receives a guaranteed payment from the partnership includible in the partner's own unincorporated business gross income, the partner is allowed a credit against the partner's own unincorporated business tax liability for the partner's 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 partner owning an interest in a partnership for any unincorporated business tax paid by the partnership with respect to any taxable year of the partnership beginning before July 1, 1994. For taxable years of a partner beginning after 1995, the UBT Paid Credit allowed to a partner may exceed the amount of UBT Paid Credit that the partner may take in that year. In that event, the excess may be carried forward for up to seven years subject to certain limitations. However, for taxable years of a partner beginning on or after July 1, 1994 but before 1996, the amount of UBT Paid Credit allowed to the partner for a taxable year is the same as the amount of UBT Paid Credit that the partner may take against the partner's unincorporated business tax liability that year and no carryover is available. A corporation subject to the general corporation tax or the banking corporation tax that is a partner in a partnership carrying on an unincorporated business in the City is allowed a comparable credit against those taxes. See Administrative Code §§ 11-604(18) and 11-643.8 and 19 RCNY § 11-50.
(2) Calculation of the UBT Paid Credit.
(i) General. The partner's UBT Paid Credit allowed with respect to a specific partnership is the lesser of the amounts calculated in subparagraphs (ii)(A) ("Measure 1") and (ii)(B) ("Measure 2") of this paragraph (2), subject to the limitation in subparagraph (ii)(C) of this paragraph (2). Measure 1 is based on the partner's share of the unincorporated business tax liability of the partnership for its taxable year ending within or with the partner's taxable year. Measure 2 is based on the incremental effect on the unincorporated business tax liability of the partner attributable to partnership items entering into the calculation of the partner's unincorporated business tax liability. If a taxpayer is a partner in more than one partnership, Measures 1 and 2 must be determined and compared separately with respect to each partnership. Subparagraph (ii)(C) limits the total amount of the UBT Paid Credit that a partner may take in a taxable year to the partner's unincorporated business tax liability for that year. Unlike Measures 1 and 2, in the case of a partner that is a partner in more than one partnership, this measure is not applied separately to each partnership but rather to the sum of all of the UBT Paid Credits calculated with respect to all partnerships in which the partner is a partner.
(ii) Measures of the UBT Paid Credit and limitations.
(A) Measure 1. Partner's share of the partnership's unincorporated business tax liability plus certain credits. Measure 1 is the product of the amount determined in subparagraph (ii)(A)(a) and the partner's distributive share percentage determined in subparagraph (ii)(A)(b) below:
(a) Partnership's unincorporated business tax liability plus certain credits. The amount determined in this subparagraph (ii)(A)(a) is the sum of:
(1) the unincorporated business tax imposed on, and paid by, the partnership for its taxable year ending within or with the taxable year of the partner, and
(2) (i) for taxable years of the 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 partner, or
(ii) for taxable years of the 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 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 (ii)(A)(a)(2)(ii) does not include the amount of any credit refundable to the partnership.
(b) Partner's distributive share percentage.
(i) The partner's distributive share percentage is the sum of the partner's distributive shares of income, gain, loss and deductions of the partnership and any guaranteed payment received from the partnership (the 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 partner's net distributive share is less than zero, it is deemed to be zero and the partner is not allowed a UBT Paid Credit for the taxable year with respect to that partnership. See example 1 of paragraph (8) of this subdivision.
(ii) 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.
(iii) For purposes of this calculation, the net distributive share of each corporate partner is determined 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. See example 2 of paragraph (8) of this subdivision.
(iv) If a 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.
(B) Measure 2. Incremental tax effect of distributive share and guaranteed payments. Measure 2 is the excess of the amount determined in subparagraph (ii)(B)(a) over the amount determined in subparagraph (ii)(B)(b) below, modified as provided in subparagraph (ii)(B)(c) below.
(b) Partner's tax liability without distributive share. The amount determined in this subparagraph (ii)(B)(b) is the tax liability of the partner determined under this 19 RCNY § 28-03, excluding any partnership items entering into the calculation of the partner's unincorporated business taxable income such as the partner's distributive share of the partnership's income, gain, loss and deductions, any guarantee payments from the partnership, and excluding partnership allocation factors, if taken into account in calculating the partner's allocation to the City (See 19 RCNY § 28-07(j)(2)(i)(C)(a)) and determined without allowance of any of the credits allowed under § 11-503 of the Administrative Code.
(c) Partner's modified tax liability. For taxable years of the partner beginning after 1995, the amounts computed 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 unincorporated business taxable income of the partner is less than zero, the partner's unincorporated business taxable 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.
(C) Credit limited to partner's unincorporated business tax. For taxable years of the partner beginning before 1996, the sum of the UBT Paid Credits that a partner is allowed and may take against its tax liability in any given taxable year under this subdivision (d) with respect to all unincorporated businesses in which the partner is a partner shall not exceed the tax on the partner's unincorporated business taxable income determined under this 19 RCNY § 28-03 without allowance of any of the credits allowed under § 11-503 of the Administrative Code. For taxable years of the partner beginning after 1995, the sum of the UBT Paid Credits that a partner may take for the taxable year under this subdivision (d) with respect to all unincorporated businesses in which the partner is a partner shall not exceed the tax on the partner's unincorporated business taxable income determined under this 19 RCNY § 28-03, reduced by the credit allowed under subdivision (b) of § 11-503 of the Administrative Code, but without the allowance of any of the other credits allowed under such § 11-503.
(3) Carryover of UBT Paid Credit after 1995.
(i) For taxable years beginning after 1995, if the amount of UBT Paid Credit or Credits allowed to a partner with respect to one or more partnerships as determined under paragraph (2) of this subdivision (d) exceeds the amount of credit or credits that may be taken as determined under subparagraph (ii)(C) of paragraph (2) of this subdivision (d), the partner may carry the excess forward to each of the seven immediately succeeding taxable years of the partner subject to certain limitations as provided in subparagraph (3)(ii) infra. In applying the provisions of the preceding sentence, for each taxable year of a partner, the UBT Paid Credit or Credits determined under paragraph (2) of this subdivision (d) for the current taxable year shall be taken before taking any credit carryforward pursuant to this paragraph (3), and the amount of any credit carryforward available under this paragraph (3) attributable to the earliest taxable year shall be taken before a credit carry forward attributable to a subsequent taxable year.
(ii) Notwithstanding anything to the contrary in subparagraph (i) of this paragraph, supra, in the case of a partner that is a partnership, no credit carryforward shall be allowed to any taxable year pursuant to this paragraph (3) unless one or more of the partners therein during the taxable year to which the credit would be carried also owned at least an 80 percent interest in the unincorporated business gross income and unincorporated business deductions of the partnership during the taxable year of the partnership in which the credit was originally allowed. The carryforward allowable pursuant to this subparagraph (ii) shall not exceed the portion of the amount of the credit carryforward determined under subparagraph (i) of this paragraph determined by multiplying such credit carryforward by the sum of the proportionate interests in the unincorporated business gross income and unincorporated business deductions of the partnership for the year to which the credit is to be carried belonging to such partners. The amount by which the credit carryforward determined under subparagraph (i) of this paragraph exceeds the amount determined pursuant to the preceding sentence cannot be carried forward to any other taxable year.
(iii) Credits from multiple partnerships. If, in a taxable year, a partner is allowed a UBT Paid Credit with respect to more than one partnership and the total amount of UBT Paid Credits allowed exceeds the amount that may be taken under subparagraph (ii)(C) of paragraph (2) of this subdivision (d), the amount of the UBT Paid Credit with respect to each partnership that may be taken is an amount that bears the same ratio to the total UBT Paid Credit allowed for the current year with respect to that partnership as the total amount of UBT Paid Credits that may be taken in the current year under subparagraph (ii)(C) of paragraph (2) of this subdivision bears to the total UBT Paid Credit allowed for the current year with respect to all partnerships. The remainder of the UBT Paid Credit allowed with respect to that partnership is available as a carryover.
(4) Multiple tiers of partnerships. A partner may only take a credit with respect to distributive shares from partnerships in which it is a direct owner, i.e., the partner is identified as a partner in the partnership agreement and on Schedule K-1 of IRS Form 1065 filed by the partnership.
Example: Partnership C is a partner in Partnership B, which, in turn, is a partner in Partnership A. Partnership 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 Partnership C with respect to Partnership B reflects credits claimed by Partnership B, including its UBT Paid Credit with respect to Partnership A (see subparagraph (d)(2)(ii)(a), supra), Partnership 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. (See example 7 infra.)
(5) The UBT Paid Credit allowed under this provision shall not be allowed to a partner in a partnership with respect to any unincorporated business tax paid by the partnership for any taxable year beginning before July 1, 1994.
(6) The UBT Paid Credit shall be taken after the credit allowed by subdivision (b) of § 11-503 of the Administrative Code is taken, but before any other credit allowed by such section is taken.
(7) Reporting requirements for partnerships. In order for a partner to calculate the UBT Paid Credit with respect to a distributive share or guaranteed payment from a specific partnership, certain information is necessary from the partnership. To facilitate this calculation, each partnership having partners that are subject to the taxes imposed under Chapter 5 or Subchapter 2 or Part 4 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code of the City of New York should complete a schedule on a form specified by the Commissioner of Finance in which the following information is provided:
(i) the names and taxpayer identification numbers of all partners in the partnership;
(ii) the net distributive share, as defined in subparagraph (2)(ii)(A)(b) of this subdivision (d), for each partner, provided, however, that if a partner's net distributive share is less than zero, it should be treated and reported as zero for purposes of this subparagraph (ii) and subparagraph (iii), infra;
(iii) the total of all net distributive shares of all partners; and
(iv) the distributive share percentage as defined in subparagraph (2)(ii)(A)(b) of this subdivision (d) calculated for each partner by dividing the amount in subparagraph (ii) above by the amount in subparagraph (iii) supra.
(8) The provisions of paragraphs (1) through (7) of this subdivision (d) are illustrated by the following examples. The facts of the examples have been simplified and do not reflect the deduction allowed by Administrative Code § 11-509(a) or the exemption allowed by Administrative Code § 11-510(a)(1). The effect of other credits allowed under § 11-503 of the Administrative Code is not reflected except as specifically noted. All of the examples below involve entities having business allocation percentages of 100 percent and no investment income. For examples of the calculation of the credit with respect to entities that allocate business or investment income outside the City, see subdivision (j) of 19 RCNY § 28-07.
Example 1: Calculation of distributive share percentage ("DSP"). Partnership ABCD has four partners. Partners A,B,C and D share equally in income of $800x from ABCD. Partner D also has a special allocation of a loss of ($300x) from ABCD.
I Distributive Share (DS) | II DS – Modified for Calculation of DSP | III Distributive Share Percentage (DSP) (col. II ÷ col. II total) | |
A | $200x | $200x | 33.33% |
B | $200x | $200x | 33.33% |
C | $200x | $200x | 33.33% |
D | ($100x) | $0 | 0% |
Total | $500x | $600x | 100% |
Example 2: DSP for members of a combined group. Assume the same facts as in example 1, above, except that B, C, and D are corporations that file a combined return for purposes of the general corporation tax as group CG. The membership of B, C, and D in the combined group does not affect the reporting by Partnership ABCD of the distributive share information required by these rules. CG's distributive share percentage is the sum of the distributive share percentages of B, C, and D or 66.67% (33.33% + 33.33% + 0%).
Example 3: Basic credit calculation. AB is a partnership doing business in New York City. AB has two partners, A and B. Partner A is a partnership doing business in New York City with a 100% business allocation percentage. Partner B is an individual who does not independently do business in New York City. AB's unincorporated business taxable income ("UBTI") for calendar year 1995 is $400x. AB pays unincorporated business tax of $16x. AB's Form NYC-204 for 1995 indicates that A's distributive share from AB is $300x and that B's distributive share is $100x. (B is not entitled to a UBT Paid Credit with respect to AB because B does not include any portion of his distributive share from AB in any unincorporated business gross income reported by him. See 19 RCNY § 28-05(a)(1).) A has UBTI of $200x without regard to its distributive share of income, gain, loss or deduction from AB ("Separate UBTI"). A is subject to the unincorporated business tax and is entitled to a UBT Paid Credit with respect to tax paid by AB. A's UBT Paid Credit is determined as follows:
Separate UBTI | DS | DSP | Total UBTI | TAX w/o credit | |
AB | NA | NA | NA | $400x | $16x |
A | $200x | $300x | 75% | $500x | $20x |
B |
NA | $100x | 25% | NA | NA |
Measure 1: A's distributive share percentage is 75%. ($300x/$400x.) Measure 1 is $12x determined by multiplying AB's tax of $16x by A's distributive share percentage (75%).
Measure 2: A's total UBTI is $500x, on which the tax would be $20x before any UBT Paid Credit. The tax on A's separate UBTI of $200x would be $8x. Thus the incremental tax effect on A's total UBTI of A's distributive share from AB is $12x ($20x - $8x = $12x). Therefore, A's UBT Paid Credit is $12x. Example 4: Treatment of partner's losses and carryover of credit. The facts are the same as in example 3 except that for A's taxable year beginning January 1, 1995. A also has an operating loss of ($100x) without regard to its distributive share from AB. For the taxable year beginning January 1, 1996, the facts are the same as for 1995. For the taxable year beginning January 1, 1997, AB's UBTI is $400x. A's distributive share from AB is $300x. A's separate UBTI is $50x. A's UBT Paid Credits for 1995, 1996, and 1997 are calculated as follows:
1995
Separate UBTI | DS | DSP | Total UBTI | UBT Liability w/o credit | |
AB | NA | NA | NA | $400x | $16x |
A | ($100x) | $300x | 75% | $200x | $8x |
Measure 1: A's distributive share percentage of AB's tax liability is the same as in Example 3 above, $12x (75% × $16x).
Measure 2: A's total UBTI is $200x, on which the tax liability would be $8x. A's separate UBTI is a loss of ($100x) resulting in no tax. The incremental tax effect on A's total UBTI of A's distributive share from AB is $8x ($8x - 0 = $8x). Therefore, A's UBT Paid Credit allowed for 1995 is $8x. No part of the unused credit may be carried forward from years beginning before January 1, 1996.
1996
Separate UBTI | DS | DSP | Total UBTI | UBT Liability w/o credit | |
AB | NA | NA | NA | $400x | $16x |
A | ($100x) | $300x | 75% | $200x | $8x |
Measure 1: For 1996, Measure 1 for Partner A is the same as for 1995, $12x.
Measure 2: A's total UBTI is $200x, on which the tax liability would be $8x. However, for taxable years beginning after 1995 for purposes of this calculation, A's separate UBTI as modified is treated as $0 rather than ($100x). There would be no tax liability on its separate UBTI as modified. A's total UBTI as modified is treated as $300x (separate modified UBTI of $0 + $300x of A's distributive share). A's tax liability on this amount would be $12x. Thus, the incremental tax effect of the inclusion in A's total modified UBTI of its distributive share from AB is $12x ($12x - 0).
A is allowed a credit of $12x. However, because A's actual tax liability for 1996 would be $8x before any UBT Paid Credit, A can only take a credit of $8x in 1996. The remaining credit allowed of $4x is eligible to be carried over by A to the next seven taxable years.
1997
Separate UBTI | DS | DSP | Total UBTI | UBT Liability w/o credit | |
AB | $400x | NA | NA | $400x | $16x |
A | $50x | $300x | 75% | $350x | $14x |
Measure 1: For 1997, Measure 1 for Partner A is the same as for 1995, $12x.
Measure 2: A's total UBTI is $350x, on which the tax liability would be $14x. A's separate UBTI would be $50x on which the tax would be $2x. Thus, the incremental tax effect on A's total UBTI of its distributive share from AB is $12x ($14x - $2x).
Therefore, A is allowed a credit of $12x in 1997. Assuming that there were no changes in the ownership of A in 1997, A may also carry over to 1997 the excess credit allowed in 1996 of $4x that it could not take. Therefore, the total credit available to A in 1997 is $16x. However, because A's tax liability in 1997 is $14x, the total credit that A may take in 1997 is $14x. A must first take its $12x credit from 1997, thereby reducing its tax liability to $2x. A may then take $2x of its credit from 1996 to reduce its liability to $0. The remaining credit of $2x from 1996 is eligible to be carried over by A to the next six taxable years.
Example 5: The facts are the same as in example 4 except that on January 1, 1997, one of the two 50% partners in A sells his interest in A to a third party. Because the partners in A in 1997 only owned 50% of A in 1996, A is not entitled to use any portion of the $4x credit carryover from 1996 in 1997. See subdivision (d)(3)(ii) of this § 28-03.
Example 6: Partners in multiple partnerships.
AB and BC are partnerships doing business in New York City. B is a partner in both AB and BC. B is a partnership doing business in New York City with a 100% business allocation percentage. For each of its taxable years 1995 and 1996, B's separate UBTI is a loss of ($400x). For each of the taxable years 1995 and 1996, AB's UBTI is $400x. AB pays tax of $16x on that income each year. AB's unincorporated business tax return for each of those years indicates that B's distributive share from AB is $300x and that B's distributive share percentage is 75%. For each of the taxable years 1995 and 1996, BC's UBTI is $1000x. BC pays tax of $40x on that income each year. BC's unincorporated business tax return for each of those years indicates that B's distributive share from BC is $500x and that B's distributive share percentage is 50%. B is subject to the unincorporated business tax and is entitled to a UBT Paid Credit for 1995 and 1996 related to its distributive shares from AB and BC determined as follows:
1995
Separate UBTI | DS from AB | DS from BC | Total UBTI | UBT Liability w/o credit | |
AB | NA | NA | NA | $400x | $16x |
AC | NA | NA | NA | $1000x | $40x |
B | ($400x) | $300x | $500x | $400x | $16x |
B's credit with respect to AB:
Measure 1: B's distributive share percentage of AB's tax is $12x, determined by multiplying AB's tax of $16x by B's distributive share percentage, 75%
Measure 2: B's tax liability on its total UBTI is $16x before any UBT Paid Credit. B's tax liability on its UBTI of $100x without its distributive share from AB ($400x - $300x), would be $4x. The incremental tax effect on B's total UBTI of its distributive share from AB is $12x ($16x - $4x).
Therefore, B's UBT Paid Credit allowed with respect to AB is $12x.
B's credit with respect to BC:
Measure 1: B's distributive share percentage of BC's tax liability is $20x, determined by multiplying BC's tax liability of $40x by B's distributive share percentage of 50%.
Measure 2: B's tax liability on its total UBTI of $400x would be $16x. Without its distributive share from BC, B would have a loss of ($100x) on which there would be no tax. The incremental tax effect on B's total UBTI of its distributive share from BC is $16x ($16x - 0).
Thus, B's UBT Paid Credit allowed with respect to BC is $16x.
Total Credit for 1995: B's total UBT Paid Credit with respect to AB and BC is $28x. However, because B's tax liability on its total UBTI without the credit would be only $16x, the total UBT Paid Credit allowed to B in 1995 is limited to $16x. There is no carryover of the remaining $12x credit to any subsequent year.
1996
Separate UBTI | DS – DSP AB | DS – DSP BC | Total UBTI | UBT Liability w/o credit | |
AB | NA | NA | NA | $400x | $16x |
BC | NA | NA | NA | $1000x | $40x |
B | ($400x) | $300x - 75% | $500x - 50% | $400x | $16x |
B's credit with respect to AB:
Measure 1: For 1996, Measure 1 for B is the same as for 1995, $12x.
Measure 2: B's total UBTI is $400x, on which the tax liability would be $16x. For purposes of calculating Measure 2 in 1996, B's operating loss of ($400x) is treated as zero so that its total modified UBTI is treated as $800x, on which the tax would be $32x. Without its distributive share of $300x from AB, B's modified UBTI would be $500x on which the tax would be $20x. The incremental tax effect on B's modified UBTI of B's distributive share from AB is $12x ($32x - $20x).
Therefore, B's UBT Paid Credit allowed with respect to AB is $12x.
Calculation of B's credit with respect to BC:
Measure 1: For 1996, Measure 1 for B is the same as for 1995, $20x.
Measure 2: B's total UBTI is $400x, on which the tax would be $16x. For purposes of calculating Measure 2 in 1996, B's operating loss of ($400x) treated as zero so that its total modified UBTI is treated as $800x, on which the tax would be $32x. Without its distributive share of $500x from BC, B's UBTI would be $300x, on which the tax would be $12x. Thus, the incremental tax effect of B's distributive share from BC is $20x ($32x - $12x).
Thus, B's UBT Paid Credit allowed with respect to BC is $20x.
Total Credits for 1996:
B's total UBT Paid Credit allowed with respect to AB and BC is $32x ($12x + $20x). However, because B's tax liability without the credits would be only $16x, the credit that B can take in the taxable year 1996 is limited to $16x, B's tax liability. The $16x of credits taken in 1996 is deemed to be composed of $6x of the UBT Paid Credit allowed with respect to AB ($16x × $12x/$32x) and $10x of the UBT Paid Credit allowed with respect to BC ($16x × $20x/$32x). See subparagraph (3)(iii) of this subdivision (d). B can carry the $16x excess of the amount of credit allowed over the amount that may be taken to the succeeding seven years. The credit carryover is deemed to be composed of $6x of the UBT Paid Credit allowed with respect to AB and $10x of the UBT Paid Credit allowed with respect to BC.
Example 7: Multiple tiers of partnerships and flow through of credits.
Partnership C is a partner in Partnership B. B is a partner in partnership A. For each of the years 1995, 1996, 1997 and 1998, A's UBTI is $1000x, and A's tax liability is $40x, before a credit of $10x allowed to A pursuant to 11-503(i) (the REAP credit). The following chart summarizes the information relevant to A for the four taxable years.
A | 1995 | 1996 | 1997 | 1998 |
UBTI | $1000x | $1000x | $1000x | $1000x |
Tax after REAP credit | $30x | $30x | $30x | $30x |
For each year, B's distributive share from A is $400x. Its distributive share percentage with respect to A is 40%. In 1995 and 1996 B has separate UBTI of $200x. In 1997 B has separate UBTI loss of ($300x). In 1998 B has separate UBTI of $600x. The following chart summarizes the information relevant to B for the four taxable years:
B | 1995 | 1996 | 1997 | 1998 |
Separate UBTI | $200x | $200x | ($300x) | $600x |
DSP in A | 40% | 40% | 40% | 40% |
DS from A | $400x | $400x | $400x | $400x |
Total UBTI | $600x | $600x | $100x | $1000x |
Tax w/o UBT Paid Credit | $24x | $24x | $4x | $40x |
For each year, C's distributive share percentage in B is 50% and C has separate UBTI of $400x. The following chart summarizes the information relevant to C for the four taxable years:
C | 1995 | 1996 | 1997 | 1998 |
Separate UBTI | $400x | $400x | $400x | $400x |
DSP in B | 50% | 50% | 50% | 50% |
DS from B | $300x | $300x | $50x | $500x |
Total UBTI | $700x | $700x | $450x | $900x |
Tax w/o UBT Paid Credit | $28x | $28x | $18x | $36x |
Calculation of the Credit for 1995:
B's Credit:
Measure 1: B's distributive share percentage of the sum of A's tax and applicable credits is $12x (B's distributive share percentage of 40% multiplied by A's tax liability after the REAP credit ($30x)). (Note: A's REAP credit is not added to A's tax liability in 1995 for purposes of this calculation. The effect of this is that B does not get the benefit of A's REAP credit in 1995. In 1996 and later years, B will get the benefit of A's REAP credit.)
Measure 2: B's tax liability on its total UBTI of $600x would be $24x. The tax on B's separate UBTI of $200x would be $8x.
Thus, the incremental tax effect on B's total UBTI of its distributive share of $400x from A is $16x ($24x - $8x).
Therefore, B's UBT Paid Credit allowed is $12x. B's tax liability after the credit is $12x.
C's Credit:
Measure 1: C's distributive share percentage of the sum of B's tax and UBT Paid Credit is $12x (C's distributive share percentage of 50% multiplied by the sum of B's tax liability ($12x) and B's UBT Paid Credit with respect to A ($12x).
Measure 2: C's tax liability on its total UBTI of $700x would be $28x. The tax on C's separate UBTI of $400x would be $16x.
Thus, the incremental tax effect on C's total UBTI of its distributive share of $300x from B is $12x ($28x - $16x).
Therefore, C's UBT Paid Credit allowed with respect to B is $12x.
Calculation of the Credit for 1996:
B's Credit:
Measure 1: B's distributive share percentage of the sum of A's tax and applicable credits is $16x (B's distributive share percentage of 40% multiplied by the sum of A's tax liability and A's REAP credit ($40x)). (Note: the REAP credit is added here to A's tax liability for purposes of calculating B's credit. The effect of this is that A's REAP credit will flow through to B.)
Measure 2: B's tax liability on its total UBTI of $600x would be $24x. The tax on B's separate UBTI of $200x would be $8x.
Thus, the incremental tax effect on B's total UBTI of its distributive share of $400x from A is $16x ($24x - $8x).
Therefore, B's UBT Paid Credit allowed is $16x. B's tax liability after the credit is $8x.
C's Credit:
Measure 1: C's distributive share percentage of the sum of B's tax and applicable credits is $12x (C's distributive share percentage of 50% multiplied by the sum of B's tax liability ($8x) and B's UBT Paid Credit with respect to A ($16x).)
Measure 2: C's tax liability on its total UBTI of $700x would be $28x. The tax on C's separate UBTI of $400x would be $16x.
Thus, the incremental tax effect on C's total UBTI of its distributive share of $300x from B is $12x ($28x - $16x).
Therefore, C's UBT Paid Credit allowed with respect to B is $12x.
Calculation of the Credit for 1997:
B's Credit:
Measure 1: B's distributive share percentage of the sum of A's tax and applicable credits is $16x (B's distributive share percentage of 40% multiplied by A's tax liability plus A's REAP credit ($40x)).
Measure 2: B's separate loss is ignored and B's separate UBTI is treated as $0 on which there would be no tax. B's tax liability on its total modified UBTI of $400x would be $16x.
Thus, the incremental tax effect on B's total modified UBTI of its distributive share of $400x from A is $16x ($16x - $0x).
Therefore, B's UBT Paid Credit allowed for 1997 is $16x. However, because B's pre-credit tax liability is only $4x, B may only take a UBT Paid Credit of $4x in 1997. B may carry forward $12x, the excess of the $16x credit allowed over the $4x credit taken, to the next seven years subject to the applicable limitations.
C's Credit:
Measure 1: C's distributive share percentage of the sum of B's tax and applicable credits is $2x (C's distributive share percentage of 50% multiplied by B's tax liability ($0x) plus B's UBT Paid Credit taken ($4x)). (Note: for purposes of calculating C's UBT Paid Credit, only the credit taken by B is included, not the total credit allowed. See the discussion of C's credit for 1998 below in this example.)
Measure 2: C's tax liability on its total UBTI of $450x would be $18x. The tax on C's separate UBTI of $400x would be $16x.
Thus, the incremental tax effect on C's total UBTI of its distributive share of $50x from B is $2x ($18x - $16x).
Therefore, C's UBT Paid Credit allowed with respect to B for 1997 is $2x.
Calculation of the Credit for 1998:
B's Credit:
Measure 1: B's distributive share percentage of the sum of A's tax and applicable credits is $16x (B's distributive share percentage of 40% multiplied by A's tax liability plus A's REAP credit ($40x).
Measure 2: B's tax liability on its total UBTI of $1000x would be $40x. The tax on B's separate UBTI of $600x would be $24x.
Thus, the incremental tax effect on B's total UBTI of its distributive share of $400x from A is $16x ($40x - $24x).
Therefore, B's UBT Paid Credit allowed for 1998 is $16x. It may also carry over to 1998 the excess credit allowed in 1997 of $12x that it could not take. Therefore, the total credit that is available to B in 1998 and that B may take is $28x. B's tax liability after the credit is $12x.
C's Credit:
Measure 1: C's distributive share percentage of the sum of B's tax and applicable credits is $20x (C's distributive share percentage of 50% multiplied by B's tax liability ($12x) plus B's UBT Paid Credit taken ($28x)). The credit taken includes the amount of $12x allowed to B in 1997 but carried forward and taken by B in 1998.
Measure 2: C's tax liability on its total UBTI of $900x would be $36x. The tax on C's separate UBTI of $400x would be $16x.
Thus, the incremental tax effect on C's total UBTI of its distributive share of $500x from B is $20x ($36x - $16x).
Therefore, C's UBT Paid Credit allowed with respect to B for 1998 is $20x.