Power of the Commissioner of Taxation and Finance to adjust the business apportionment

# (a)

Generally, the BAF results in a fair apportionment of the corporation’s business capital and business income to New York State. However, in certain instances, the BAF may not result in a proper reflection of the taxpayer’s business income or business capital in New York State and the commissioner, as an exercise of discretion or at the request of the taxpayer, is authorized to adjust the BAF in order to properly and fairly reflect the taxpayer’s business income or business capital within New York. In the case of a combined report, the term “taxpayer” in this section means the combined group, and the request to adjust the BAF on the combined report must be made by the designated agent. If the BAF is adjusted, it must be calculated to produce a fair and proper apportionment of the business income and business capital of the taxpayer, or in the case of a combined report, the combined group, reasonably attributable to New York State.

# (b)

When it appears that the BAF does not fairly and properly reflect the business income or business capital of the taxpayer in New York State, the commissioner, as an exercise of discretion or at the request of the taxpayer, may adjust the BAF by:

# (1)

excluding one or more items of receipts, net income, net gain or other items included in the determination of the BAF;

# (2)

including one or more other items in the determination of the BAF; or

# (3)

any other similar or different method calculated to effect a fair and proper apportionment of the taxpayer’s business income and business capital reasonably attributable to New York State.

# (c)

# (1)

Except as otherwise provided in paragraph (4) of this subdivision, a request to vary the BAF must be submitted in writing and must be submitted separately from any report to which it relates and must set forth full information on which the request is based.

# (2)

A taxpayer must compute its tax using the BAF determined pursuant to section 210-A and this Subchapter on its original report for a taxable year unless the commissioner has approved a written request for an adjustment to the BAF prior to the filing of the original report.

# (3)

A taxpayer that receives approval of its written request for an adjustment to the BAF after the filing of its original report may file an amended report using the approved method to compute its tax due.

# (4)

A taxpayer may file an amended report using its proposed BAF if the commissioner did not respond to the taxpayer’s written request for an adjustment to the BAF before the taxpayer filed its original report. Any such amended report must be filed in accordance with procedures established by the commissioner within the period of limitation for filing such a report and must be accompanied by a full explanation and justification for the adjustments made to the BAF. The commissioner shall review the taxpayer’s request, original report, and amended report to determine whether or not the alternative BAF results in a fair and proper reflection of the business income and business capital of the taxpayer.

# (5)

If the Audit Division commences an audit of a report of a taxpayer, the taxpayer may, during the course of that audit, make a written request that the commissioner consider, or reconsider, an alternative BAF, in which case the determination of whether or not the BAF results in a fair and proper reflection of the business income and business capital of the taxpayer will be made by the commissioner during the course of that audit.

# (d)

The party seeking to vary the BAF bears the burden of proof to demonstrate by clear and convincing evidence that the BAF determined pursuant to section 210-A and the applicable regulations in this Subchapter does not result in a proper reflection of the taxpayer’s business income or business capital within New York State and that the proposed adjustment is appropriate. The party seeking to vary the BAF must demonstrate that application of the statutory formula attributes income or capital to New York State out of all proportion to the business transacted by the taxpayer in New York State.

# (e)

Examples.
For purposes of these examples, it is assumed amounts requested to be included in the BAF are properly included in business income.
Example 1: Corporation A’s only office is located in New York. Corporation A invests in stocks for its own account and also performs some administrative and investment advisory services for customers located solely in New York.
95%t of its income consists of dividends and net gains from its stock holdings. The remaining 5% of its income consists of the fees it receives for the administrative and investment advisory services. The taxpayer does not make the fixed percentage election. As such, dividends and net gains from stock are not included in the numerator or denominator of the BAF unless the commissioner determines that inclusion of such dividends and net gains is necessary to properly reflect the taxpayer’s business income or capital. In this instance, under the statutory formula, the receipts generating 95% of the taxpayer’s income would not have any representation in the BAF. Accordingly, in order to properly reflect the taxpayer’s business income, it is appropriate to include the dividends and net gains from the stock holdings in the BAF. The dividends from the stock of corporations domiciled in New York would be included in the numerator of the BAF. The net gains would be included in the numerator of the BAF to the extent that the purchasers are located in New York, provided that if the purchaser is a registered securities broker or dealer or the transaction is made through a licensed exchange, then 8% of the net gains would be included in the numerator of the BAF. The total amount of dividends and net gains would be included in the denominator of the BAF.
Example 2: Corporation B is a registered broker-dealer. The majority of its receipts are comprised of commissions derived from the execution of securities and commodities purchase or sales orders. It has an office in New York and an office in State X. These commissions are included in the numerator of the BAF if the taxpayer’s records indicate the mailing address of the customer who is responsible for paying such commissions is in New York State.
However, in State X, these commissions are included in the numerator of the BAF if the services are performed in State X. Corporation B is concerned that the commissions for the purchase and sale orders executed by its office in State X for customers with New York mailing addresses will be sourced to State X for purposes of State X’s tax and sourced to New York for New York purposes. Corporation B requests that New York allow a discretionary adjustment to exclude such receipts from the numerator of the BAF. This discretionary adjustment is not necessary. The fact that State X also would source commissions from New York customers to State X does not mean that inclusion of those commissions in the numerator of the New York BAF does not fairly and properly reflect Corporation B’s business income in New York State.
Example 3: Corporation C is a corporate partner in Partnership X and for tax years 2015 through 2018 it computes its tax with respect to its interest in such partnership under the aggregate method. In tax year 2019, Corporation C’s only activity for the year is the selling of its financial investments that results in $5,000,000 of business receipts. 75% of its business receipts, or $3,750,000, is the net gain from the sale of its partnership interest in Partnership X. Corporation C did not make the fixed percentage election.
As such, net gains from the sale of a partnership interest are not included in the numerator or denominator of the BAF unless the commissioner determines that inclusion of such net gains is necessary to properly reflect the taxpayer’s business income or capital. In this instance, under the statutory formula, the receipts generating 75% of the taxpayer’s business receipts would not have any representation in the BAF. Accordingly, in order to properly reflect the taxpayer’s business income, it is appropriate to include the net gains from the sale of Partnership X in the BAF.
Under the aggregate method, a corporate partner is treated as participating in the partnership's transactions and activities and is viewed as having an undivided interest in the partnership's assets, liabilities and items of receipts, income, gain, loss and deduction. As such, the sale of Partnership X will be treated as the sale of the underlying assets owned by Partnership X. Corporation C must reasonably divide the net gain from the sale of its interest among the types of underlying assets owned by Partnership X. The receipts or net gains from each type of asset must be apportioned using the applicable rule in section 210-A and this Subchapter for each type of asset.
Partnership X’s assets consist of tangible personal property, real property, and goodwill. The portion of the gain attributable to the sale of tangible personal property is included in New York receipts if the tangible personal property is in New York State pursuant to section 4-2.1 of this Part. The portion attributable to the sale of real property is included in New York receipts if the real property is located in New York State pursuant to section 4-2.2 of this Part. The portion attributable to goodwill is included in New York receipts if the value is accumulated in New York State, based on the partnership’s average business allocation percentage (BAP) from the previous three years, pursuant to section 4-4.3(e) of this
Part. The net gain from the sale of the interest in Partnership X is included in everywhere receipts