N.Y.
Tax Law Section 40
The tax-free NY area tax elimination credit
(a)
Allowance of credit. A taxpayer that is a business or owner of a business in the case of a business taxed as a sole proprietorship, partnership or New York S corporation, that is located in a tax-free NY area approved pursuant to article twenty-one of the economic development law and is subject to tax under article nine-A, or twenty-two of this chapter, shall be allowed a credit against such tax, pursuant to the provisions referenced in subdivision (e) of this section, to be computed as hereinafter provided.(b)
Amount of credit. The amount of the credit shall be the product of:(1)
the tax-free area allocation factor; and(2)
the tax factor.(c)
Tax-free area allocation factor. The tax-free area allocation factor shall be the percentage representing the business’s economic presence in the tax-free NY area in which the business was approved to locate pursuant to article twenty-one of the economic development law. This percentage shall be computed by:(1)
ascertaining the percentage that the average value of the business’s real and tangible personal property, whether owned or rented to it, in the tax-free NY area in which the business was located during the period covered by the taxpayer’s report or return bears to the average value of the business’s real and tangible personal property, whether owned or rented to it, within the state during such period; provided that the term “value of the business’s real and tangible personal property” shall have the same meaning as such term has in paragraph (a) of subdivision two of § 209-B (Metropolitan transportation business tax surcharge)section two hundred nine-B of this chapter; and(2)
ascertaining the percentage that the total wages, salaries and other personal service compensation, similarly computed, during such period of employees, except general executive officers, employed at the business’s location in the tax-free NY area, bears to the total wages, salaries and other personal service compensation, similarly computed, during such period, of all the business’s employees within the state, except general executive officers; and(3)
adding together the percentages so determined and dividing the result by two. For purposes of article 22 (Personal Income Tax)article twenty-two of this chapter, references in this subdivision to property, wages, salaries and other personal service compensation shall be deemed to be references to such items connected with the conduct of a business.(d)
Tax factor.(1)
General. The tax factor shall be, in the case of article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter, the largest of the amounts of tax determined for the taxable year under paragraphs (a) through (d) of subdivision one of section two hundred ten of such article after the deduction of any other credits allowable under such article. The tax factor shall be, in the case of article 22 (Personal Income Tax)article twenty-two of this chapter, the tax determined for the taxable year under subsections (a) through (d) of section six hundred one of such article after the deduction of any other credits allowable under such article.(2)
Sole proprietors, partners and S corporation shareholders. (A) Where the taxpayer is a sole proprietor of a business located in a tax-free NY area, the taxpayer’s tax factor shall be that portion of the amount determined in paragraph one of this subdivision that is attributable to the income of the business at its location in the tax-free NY area. Such attribution shall be made in accordance with the ratio of the taxpayer’s income from such business allocated within the state, entering into New York adjusted gross income, to the taxpayer’s New York adjusted gross income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment that reasonably reflects the portion of the taxpayer’s tax attributable to the income of such business. In no event may the ratio so determined exceed 1.0. The income from such business allocated within the state shall be determined as if the sole proprietor was a non-resident. (B)(i) Where the taxpayer is a member of a partnership that is a business located in a tax-free NY area, the taxpayer’s tax factor shall be that portion of the amount determined in paragraph one of this subdivision that is attributable to the income of the partnership. Such attribution shall be made in accordance with the ratio of the partner’s income from the partnership allocated within the state to the partner’s entire income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment that reasonably reflects the portion of the partner’s tax attributable to the income of the partnership. In no event may the ratio so determined exceed 1.0. The income from the partnership allocated within the state shall be determined as if any of the partners was a non-resident.(ii)
For purposes of article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter, the term “partner’s income from the partnership” means partnership items of income, gain, loss and deduction, and New York modifications thereto, entering into business income and the term “partner’s entire income” means business income, allocated within the state. For purposes of article 22 (Personal Income Tax)article twenty-two of this chapter, the term “partner’s income from the partnership” means partnership items of income, gain, loss and deduction, and New York modifications thereto, entering into New York adjusted gross income, and the term “partner’s entire income” means New York adjusted gross income. (C) (i) Where the taxpayer is a shareholder of a New York S corporation that is a business located in a tax-free NY area, the shareholder’s tax factor shall be that portion of the amount determined in paragraph one of this subdivision that is attributable to the income of the S corporation. Such attribution shall be made in accordance with the ratio of the shareholder’s income from the S corporation allocated within the state, entering into New York adjusted gross income, to the shareholder’s New York adjusted gross income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment that reasonably reflects the portion of the shareholder’s tax attributable to the income of such business. The income of the S corporation allocated within the state shall be determined by multiplying the income of the S corporation by a business allocation factor that shall be determined in clause (ii) of this subparagraph. In no event may the ratio so determined exceed 1.0.(ii)
The business allocation factor for purposes of this subparagraph shall be computed by adding together the property factor specified in subclause (I) of this clause, the wage factor specified in subclause (II) of this clause and the apportionment factor determined under § 210-A (Apportionment)section two hundred ten-A of this chapter and dividing by three. (I) The property factor shall be determined by ascertaining the percentage that the average value of the business’s real and tangible personal property, whether owned or rented to it, within the state during the period covered by the taxpayer’s report or return bears to the average value of the business’s real and tangible personal property, whether owned or rented to it, within and without the state during such period; provided that the term “value of the business’s real and tangible personal property” shall have the same meaning as such term has in paragraph (a) of subdivision two of § 209-B (Metropolitan transportation business tax surcharge)section two hundred nine-B of this chapter. (II) The wage factor shall be determined by ascertaining the percentage that the total wages, salaries and other personal service compensation, similarly computed, during such period of employees, except general executive officers, employed at the business’s location or locations within the state, bears to the total wages, salaries and other personal service compensation, similarly computed, during such period, of all the business’s employees within and without the state, except general executive officers.(3)
Combined returns or reports. (A) Where the taxpayer is a business located in a tax-free NY area and is required or permitted to make a return or report on a combined basis under article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter, the taxpayer’s tax factor shall be the amount determined in paragraph one of this subdivision that is attributable to the income of such business. Such attribution shall be made in accordance with the ratio of the business’s income allocated within the state to the combined group’s income, or in accordance with such other methods as the commissioner may prescribe as providing an apportionment that reasonably reflects the portion of the combined group’s tax attributable to the income of such business. In no event may the ratio so determined exceed 1.0. (B) The term “income of the business located in a tax-free NY area” means business income calculated as if the taxpayer was filing separately and the term “combined group’s income” means business income as shown on the combined report, allocated within the state.(4)
If a business is generating or receiving income from a line of business or intangible property that was previously conducted, created or developed by the business or a related person, as that term is defined in Economic Development Law § 431 (Definitions)section four hundred thirty-one of the economic development law, the tax factor specified in this subdivision shall be adjusted to disregard such income.(e)
Cross-references. For application of the credit provided for in this section, see the following provisions of this chapter:(1)
Article 9-A: section 210-B, subdivision 41.(2)
Article 22: section 606, subsection (i), paragraph (1), subparagraph (B), clause (xxxvi).(3)
Article 22: section 606, subsection (ww).
Source:
Section 40 — The tax-free NY area tax elimination credit, https://www.nysenate.gov/legislation/laws/TAX/40 (updated Apr. 24, 2015; accessed May 4, 2024).
