20 NYCRR § 4-3.2

General Principles

Official textus-ny/regstax.ny.gov14 subsections

# (a)

Receipts from the sale of, rental of, license to use, or granting of remote access to digital products and digital services are included in New York receipts if the location where the customer derives value from the digital product or digital service, according to the hierarchy of methods set forth in section 210-A and paragraphs (1) through (4) of subdivision (b) of this section, is in New York State. The corporation must exercise due diligence under each method described in subdivision (b) of this section before rejecting it and proceeding to the next method in the hierarchy, and it must base its determination on information known to the corporation or information that would be known to the corporation upon reasonable inquiry. 100% of such receipts are included in everywhere receipts.

# (b)

The hierarchy of methods referenced in paragraphs (1) through (4) of this subdivision used to apportion the receipt from the digital product or digital service must be applied sequentially. A corporation may abandon a method only if, after exercising due diligence, it lacks sufficient information to apply that method.

# (1)

A corporation must apportion the receipt to the customer’s primary use location (“primary use location method”; see sections 4-3.3 through 4-3.6 of this Subpart).

# (2)

A corporation must apportion the receipt to the location where the digital product or service is received by the customer (“where received method”; see section 4-3.7 of this Subpart).

# (3)

The corporation must apportion the receipt from that digital product or service to New York State in the same way as receipts from that type of digital product or service were sourced in the preceding taxable year (“preceding taxable year method”; see section 4-3.9 of this Subpart).

# (4)

The corporation must apportion the receipt from that digital product or service to New York State in the same way as its receipts from other digital products or services in the current taxable year are apportioned using the primary use location method and the where received method referenced in paragraphs (1) and (2) of this subdivision (“current taxable year method”; see section 4-3.10 of this Subpart).

# (c)

Corporations should refer first to the special rules for primary use location in section 4-3.3 of this Subpart prior to determining if a transaction qualifies as an intermediary transaction. Unless a special rule in section 4-.3.3 of this Subpart applies, a corporation then should determine if the rules for intermediary transactions in section 4-3.8 of this Subpart apply before applying the other rules in this Subpart.

# (d)

In exercising due diligence, the following standards apply:

# (1)

(i) In applying the rules under this Subpart, if the required information is not readily available to the corporation, the corporation must make reasonable inquiries to a business customer to determine the information required by these rules.
(ii) If the corporation has more than 250 business customers purchasing substantially similar digital products or digital services as purchased by the particular customer that would be sourced under this Subpart and no more than 5% of receipts from such digital products or digital services are from that particular customer, then the primary use location of the digital product or digital service is presumed to be the customer’s billing address (“business address presumption”).

# (2)

Corporations must document the steps taken before abandoning each method of the hierarchy or step within a method of the hierarchy, such as moving from a special rule for determining primary use location to the general rule for determining primary use location, including documentation of reasonable inquiries made.

# (3)

When the commissioner determines that the corporation had access to, or could have obtained upon reasonable inquiries when required, information at the time it filed its original return to apply a method of apportionment that comes earlier in the hierarchy than the method utilized by the corporation, the commissioner may require the corporation to use such method.

# (e)

If there is a presumption in applying a method in the hierarchy, the presumption may be overcome by either the corporation or the Department.

# (1)

The presumption may be overcome by the corporation if the corporation can prove, by clear and convincing evidence, that the method it proposes to use better reflects the location where the customer derives value from the digital product or digital service. In such a case, the location to which the receipts from the digital product or digital service will be sourced will be based on the evidence accumulated by the corporation.
If the corporation believes it has overcome the presumption and uses an alternative method, upon audit the Department may examine the corporation’s alternative method to determine if the presumption has been overcome and, if so, whether it was applied in a consistent manner for similar transactions.

# (2)

The presumption may be overcome by the Department if the Department can prove, by clear and convincing evidence, that the method it proposes to use better reflects the location where the customer derives value from the digital product or digital service, and that the corporation had access to, or could have obtained upon reasonable inquiries when required, information at the time it filed its original return that could have been used to apply the Department’s method.

Source: official source document (DTF adopted rule text, December 2023 corporate reform)

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