N.Y.
Tax Law Section 292
Unrelated business taxable income
(a)
The unrelated business taxable income of a taxpayer subject to the tax imposed by section two hundred ninety shall be such taxpayer’s federal unrelated business taxable income, as defined in the laws of the United States for the taxable year, with the following modifications:(1)
There shall be added to federal unrelated business taxable income the amount of any tax imposed under this article.(2)
There shall be subtracted from federal unrelated business taxable income the amount of any refund or credit for overpayment of a tax imposed under this article or article twenty-three of this chapter.(3)
The net operating loss deduction which shall be allowed shall be the same as the net operating loss deduction allowed under paragraph six of subsection (b) of section five hundred twelve of the internal revenue code of nineteen hundred fifty-four, except that (A) any net operating loss included in determining such deduction shall be adjusted to reflect the addition and subtraction from unrelated business taxable income required by paragraphs one and two of this subdivision, (B) such deduction shall not include any net operating loss sustained during any taxable year beginning prior to January first, nineteen hundred seventy, or during any taxable year in which the taxpayer was not subject to the tax imposed by this article, and (C) such deduction shall not exceed the deduction for the taxable year allowable under paragraph six of subsection (b) of section five hundred twelve of the internal revenue code of nineteen hundred fifty-four.(4)
There shall be subtracted from federal unrelated business taxable income any amount which is included therein solely by reason of the application of section 501(m)(2)(A) or 512(a)(7) of the internal revenue code.(5)
Shareholders of S corporations. (A) In the case of a shareholder of an S corporation, (i) where the election provided for in subsection (a) of § 660 (Election by shareholders of S corporations)section six hundred sixty of this chapter is in effect with respect to such corporation, there shall be added to federal unrelated business taxable income an amount equal to the shareholder’s pro rata share of the corporation’s reductions for taxes described in paragraphs two and three of subsection (f) of section thirteen hundred sixty-six of the internal revenue code, and(ii)
where such election has not been made with respect to such corporation, there shall be subtracted from federal unrelated business taxable income any items of income of the corporation included therein, and there shall be added to federal unrelated business taxable income any items of loss or deduction included therein, and(iii)
in the case of a New York S termination year, the amount of any such items of S corporation income, loss, deduction and reductions for taxes shall be adjusted in the manner provided in paragraph two or three of subsection (s) of § 612 (New York adjusted gross income of a resident individual)section six hundred twelve of this chapter. (B) In the case of a shareholder of a corporation which was, for any of its taxable years beginning after nineteen hundred ninety-seven, a federal S corporation but a New York C corporation:(i)
There shall be added to federal unrelated business taxable income S corporation distributions to the extent not included therein because of the application of section thirteen hundred sixty-eight or subsection (e) of section thirteen hundred seventy-one of the internal revenue code, which represent income not previously subject to tax under this article because the election provided for in subsection (a) of § 660 (Election by shareholders of S corporations)section six hundred sixty of this chapter had not been made. Any such distribution treated in the manner described in paragraph two of subsection (b) of such section thirteen hundred sixty-eight shall be treated as ordinary income for purposes of this article.(ii)
Where gain or loss is included in unrelated business taxable income upon the disposition of stock or indebtedness of such corporation, (I) there shall be added to unrelated business taxable income the amount of increase in basis of such stock or indebtedness with respect to such New York C years of the corporation, pursuant to subparagraphs (A) and (B) of paragraph one of subsection (a) of section thirteen hundred sixty-seven of such code, and (II) there shall be subtracted from unrelated business taxable income the amount of decrease in such basis with respect to such New York C years of the corporation, pursuant to subparagraphs (B) and (C) of paragraph two of subsection (a) of such section thirteen hundred sixty-seven, and (III) there shall be subtracted from unrelated business taxable income the amount of modifications to unrelated business taxable income with respect to such stock pursuant to clause (i) of subparagraph (B) of this paragraph. (C) Cross reference. For definitions relating to S corporations, see subdivision one-A of § 208 (Definitions)section two hundred eight of this chapter.(6)
Related members expense add back. (A) Definitions.(i)
Related member. “Related member” means a related person as defined in subparagraph (c) of paragraph three of subsection (b) of section four hundred sixty-five of the internal revenue code, except that “fifty percent” shall be substituted for “ten percent”.(ii)
Effective rate of tax. “Effective rate of tax” means, as to any state or U.S. possession, the maximum statutory rate of tax imposed by the state or possession on or measured by a related member’s net income multiplied by the apportionment percentage, if any, applicable to the related member under the laws of said jurisdiction. For purposes of this definition, the effective rate of tax as to any state or U.S. possession is zero where the related member’s net income tax liability in said jurisdiction is reported on a combined or consolidated return including both the taxpayer and the related member where the reported transactions between the taxpayer and the related member are eliminated or offset. Also, for purposes of this definition, when computing the effective rate of tax for a jurisdiction in which a related member’s net income is eliminated or offset by a credit or similar adjustment that is dependent upon the related member either maintaining or managing intangible property or collecting interest income in that jurisdiction, the maximum statutory rate of tax imposed by said jurisdiction shall be decreased to reflect the statutory rate of tax that applies to the related member as effectively reduced by such credit or similar adjustment.(iii)
Royalty payments. Royalty payments are payments directly connected to the acquisition, use, maintenance or management, ownership, sale, exchange, or any other disposition of licenses, trademarks, copyrights, trade names, trade dress, service marks, mask works, trade secrets, patents and any other similar types of intangible assets as determined by the commissioner, and include amounts allowable as interest deductions under section one hundred sixty-three of the internal revenue code to the extent such amounts are directly or indirectly for, related to or in connection with the acquisition, use, maintenance or management, ownership, sale, exchange or disposition of such intangible assets.(iv)
Valid business purpose. A valid business purpose is one or more business purposes other than the avoidance or reduction of taxation which alone or in combination constitute the primary motivation for some business activity or transaction, which activity or transaction changes in a meaningful way, apart from tax effects, the economic position of the taxpayer. The economic position of the taxpayer includes an increase in the market share of the taxpayer, or the entry by the taxpayer into new business markets. (B) Royalty expense add backs.(i)
For the purpose of computing New York unrelated business taxable income, a taxpayer must add back royalty payments directly or indirectly paid, accrued, or incurred in connection with one or more direct or indirect transactions with one or more related members during the taxable year to the extent deductible in calculating federal unrelated business taxable income;(ii)
Exceptions. (I) The adjustment required in this paragraph shall not apply to the portion of the royalty payment that the taxpayer establishes, by clear and convincing evidence of the type and in the form specified by the commissioner, meets all of the following requirements:(a)
the related member was subject to tax in this state or another state or possession of the United States or a foreign nation or some combination thereof on a tax base that included the royalty payment paid, accrued or incurred by the taxpayer;(b)
the related member during the same taxable year directly or indirectly paid, accrued or incurred such portion to a person that is not a related member; and(c)
the transaction giving rise to the royalty payment between the taxpayer and the related member was undertaken for a valid business purpose. (II) The adjustment required in this paragraph shall not apply if the taxpayer establishes, by clear and convincing evidence of the type and in the form specified by the commissioner, that:(a)
the related member was subject to tax on or measured by its net income in this state or another state or possession of the United States or some combination thereof;(b)
the tax base for said tax included the royalty payment paid, accrued or incurred by the taxpayer; and(c)
the aggregate effective rate of tax applied to the related member in those jurisdictions is no less than eighty percent of the statutory rate of tax that applied to the taxpayer under § 290 (Imposition of tax)section two hundred ninety of this article for the taxable year. (III) The adjustment required in this paragraph shall not apply if the taxpayer establishes, by clear and convincing evidence of the type and in the form specified by the commissioner, that:(a)
the royalty payment was paid, accrued or incurred to a related member organized under the laws of a country other than the United States;(b)
the related member’s income from the transaction was subject to a comprehensive income tax treaty between such country and the United States;(c)
the related member was subject to tax in a foreign nation on a tax base that included the royalty payment paid, accrued or incurred by the taxpayer;(d)
the related member’s income from the transaction was taxed in such country at an effective rate of tax at least equal to that imposed by this state; and(e)
the royalty payment was paid, accrued or incurred pursuant to a transaction that was undertaken for a valid business purpose and using terms that reflect an arm’s length relationship. (IV) The adjustment required in this paragraph shall not apply if the taxpayer and the commissioner agree in writing to the application or use of alternative adjustments or computations. The commissioner may, in his or her discretion, agree to the application or use of alternative adjustments or computations when he or she concludes that in the absence of such agreement the income of the taxpayer would not be properly reflected.(7)
The amount of any deduction allowed pursuant to section one hundred ninety-nine of the internal revenue code must be added to federal unrelated business taxable income.(8)
There must be added to federal unrelated business taxable income the amount of any federal deduction for taxes imposed under article 23 (Metropolitan Commuter Transportation Mobility Tax)article twenty-three of this chapter.(b)
If the period covered by a return under this article is other than the period covered by the return to the United States treasury department, unrelated business taxable income shall be determined by multiplying the unrelated business taxable income reported to such department (as modified pursuant to the provisions of this article) by the number of calendar months or major parts thereof covered by the return under this article and dividing by the number of calendar months or major part thereof covered by the return to such department. If it shall appear that such method of determining unrelated business taxable income does not properly reflect the taxpayer’s income during the period covered by the return under this article, the tax commission shall be authorized, in its discretion, to determine such income solely on the basis of the taxpayer’s income during the period covered by its return under this article.
Source:
Section 292 — Unrelated business taxable income, https://www.nysenate.gov/legislation/laws/TAX/292 (updated Dec. 14, 2018; accessed Oct. 26, 2024).
