Computation of tax under the aggregate method

# (a)

# (1)

Under the aggregate method, the corporation's distributive share (see IRC section 704) of each partnership item of receipts, income, gain, loss, and deduction and the corporation's proportionate part of each partnership asset and liability and each partnership activity are included in the computation of the corporation's business income base, capital base, and the fixed dollar minimum tax and will have the same source and character in the hands of the corporate partner for article 9-A purposes as such item has in the hands of the partnership for Federal income tax purposes. Where an item, amount or activity of the partnership is not characterized for Federal income tax purposes or is not required to be taken into account for Federal income tax purposes, the source and character of each item, amount or activity of the partnership will be determined as if such item, amount or activity realized, incurred or experienced by the partnership were realized, incurred or experienced directly by the corporate partner.

# (2)

A corporation's proportionate part of the partnership's assets and liabilities and activities is determined in accordance with the corporation's capital interest in the partnership. If using a corporation's capital interest in a partnership to determine the corporation's share of partnership items constituting business capital and investment capital does not properly reflect the corporation's share of partnership items constituting business income, investment income, and other exempt income, then the corporation's proportionate part of the partnership's assets and liabilities and activities is determined using the percentage resulting from the manner in which the partners divide the partnership's profits in a profit year and losses in a loss year.

(i) Example.
Corporations A and B are partners in Partnership P. A will perform services for a 40% interest in the profits and losses of Partnership P and B will contribute $1,000 for a 60% interest in the profits and losses of Partnership P. B's capital interest is 100% and A's capital interest is zero.
Partnership P's only asset is $500 of stock, which pays dividends of $30 during the taxable year.
Based on capital interests, A's proportionate part of P's stock is zero
($500 x 0%) and B's proportionate part of P's stock is $500 ($500 x
100%). In this case, using capital interests does not properly reflect A's share of P's stock. This is because A receives 40% of P's dividends and using capital interests attributes none of P's stock to A. Likewise, B receives 60% of P's dividends and using capital interests attributes all of P's stock to B.
In this case, both A and B must determine their proportionate part of P's assets and liabilities in accordance with their profits and loss interest (40% and 60%, respectively) in P. As a result, A's distributive share of the dividends is $12 ($30 multiplied by 40%) and B's distributive share is $18 ($30 multiplied by 60%).

# (3)

(i) An allocation of an item, amount or activity, even if recognized for Federal income tax purposes, will not be recognized where it has as a principal purpose the avoidance or evasion of any tax imposed on the corporation, or the combined group of which the corporation is a member, by New York State or any of its political subdivisions. Where an allocation is not recognized, the corporation's distributive share will be determined in accordance with the partner's interest in the partnership (determined by taking into account all facts and circumstances).
(ii) The determination of whether a principal purpose of an allocation of an item, amount or activity is the avoidance or evasion of any tax imposed on the corporation, or the combined group of which the corporation is a member, by New York State or any of its political subdivisions depends on all the surrounding facts and circumstances. Among the relevant circumstances to be considered are the following:
(a) whether the allocation has substantial economic effect;

# (b)

whether the related items of partnership income, gain, loss, and deduction from the same source are subject to the same allocation;

# (c)

whether the allocation was made without recognition of normal business factors and only after the amount of the allocated item could reasonably be estimated;

# (d)

the duration of the allocation; and

# (e)

the overall tax consequences of the allocation.
(iii) A special allocation to a corporate partner of a New York tax credit that is computed at the partnership level may be allowed only if the following conditions are satisfied:
(a) the sole component in the calculation of the tax credit is a partnership expenditure;
(b) the tax credit is allocated in the same way as that expenditure is allocated among the partners;
(c) the allocation of the tax credit does not have as a principal purpose the avoidance or evasion of any tax imposed on the corporation, or the combined group of which the corporation is a member;
and

(d) the allocation of the expenditure has substantial economic effect.
(4) Where a corporation is a partner in an upper tier partnership that is a partner in a lower tier partnership, the source and character of such corporation's distributive share or proportionate part, as the case may be, of each partnership item of receipts, income, gain, loss, deduction, asset, liability, and activity of the upper tier partnership that is attributable to the lower tier partnership retains the source and character determined at the level of the lower tier partnership. Such source and character are not changed by reason of the fact that such item flows through the upper tier partnership to such partner.
(b) Business income base. The corporation's distributive share of each partnership item of income, gain, loss, and deduction must be taken into account in the computation of entire net income and the business income base. These amounts must be taken into account in determining the corporation's business income, investment income, and other exempt income.
(c) Capital base. The corporation's proportionate part of each asset and liability of the partnership must be taken into account in the computation of the capital base. These amounts must be taken into account when determining business capital and investment capital. The capital base does not include any amount with respect to the corporation's interest in the partnership itself.
(d) Fixed dollar minimum. In determining the tax measured by the fixed dollar minimum, the corporation must use its New York receipts determined in subdivision (f) of this section.
(e) Small business taxpayer. For purposes of the reduced rate of tax provided in section 210(1)(a) or the exemption from the tax measured by the capital base provided in section 210(1-c) for a small business taxpayer, a corporation must meet the definition of a small business taxpayer in section 210(1)(f). In determining whether the corporation qualifies, it must take into account its distributive share or proportionate part, as the case may be, of partnership amounts of items described in section 210(1)(f).

# (f)

Business Apportionment Factor (BAF).

# (1)

A corporation must include its distributive share of the partnership’s business receipts when computing its BAF. Its distributive share of the partnership’s business receipts during the applicable partnership year should be combined with the corporation’s own receipts for the taxable year. The corporation must apportion such combined amounts using the rules specified in section 210-A and of this Subchapter. To the extent an apportionment rule uses a fraction to determine the amount of New York receipts, a corporation must include the distributive share or proportionate parts of any partnership amounts with the corporation’s own amounts in such fraction. In addition, netting of gains and losses must be computed on the combined corporation and partnership amounts.

# (2)

Where a corporation has receipts from sales to a partnership in which it is a partner, the corporation must reduce its receipts from its sales to the partnership by its distributive share of such purchases by the partnership. Where a partnership has receipts from sales to a corporation that is a partner in the partnership, the corporation does not include its distributive share of the partnership receipts from sales to the corporation in its BAF.

# (3)

Examples.
In the following examples, Partnership P has two partners, Corporation A and Corporation B.
Corporation A has a 20% interest in the partnership and Corporation B has an 80% interest. There are no allocations of an item, amount or activity.
Example 1: Corporation A’s sales are $20,000,000 for the year, $5,000,000 of which are made to Partnership P. Partnership P makes sales of $10,000,000 during the same year, none of which are to A or other partners.
Corporation A determines its everywhere receipts of $21,000,000 as follows:
Sales by Corporation A to other entities $15,000,000
Sales by Corporation A to Partnership P
Less its distributive share of Partnership
P’s purchases from Corporation A
(20% x $5,000,000)
Corporation A’s total sales to Partnership
P ($5,000,000 - $1,000,000)
Corporation A’s distributive share of
Partnership P’s total sales
(20% x $10,000,000)
Corporation A’s everywhere receipts
$5,000,000
($1,000,000)
$4,000,000
$2,000,000
$21,000,000
Example 2: The sales made by Corporation A, Corporation B, and Partnership P are as follows:
Corporation A
Corporation B
Partnership P sales to Corporation A
Partnership P sales to Corporation B
$20,000,000
$80,000,000
$3,000,000
$6,000,000
Partnership P sales to unrelated Corporation X $1,000,000
Partnership P’s total sales $10,000,000
Corporation A determines its everywhere receipts of $21,400,000 as follows:
Sales by Corporation A
Corporation A’s distributive share of
$20,000,000
$2,000,000
Partnership P’s total sales (20% x $10,000,000)
Less Corporation A’s distributive share of
Partnership P’s sales to Corporation A
(20% x $3,000,000)
Corporation A’s distributive share of
Partnership P’s sales
Corporation A’s everywhere receipts
$600,000
$1,400,000
$21,400,000
Corporation B determines its everywhere receipts of $83,200,000 as follows:
Sales by Corporation B
Corporation B’s distributive share of
Partnership P’s total sales
$80,000,000
$8,000,000
(80% x $10,000,000)
Less Corporation B’s distributive share of
Partnership P’s sales to Corporation B (80% x
$6,000,000)
$4,800,000
Corporation B’s distributive share of
Partnership P’s sales
$3,200,000
Corporation B’s everywhere receipts $83,200,000

# (4)

In instances where an apportionment rule requires the use of a fraction to compute New York receipts, the corporation must use the sum of its own amounts for the taxable year and its distributive share or proportionate part, as the case may be, of partnership amounts during the applicable partnership year when computing such fractions.

# (g)

Metropolitan Transportation Business Tax Surcharge.

# (1)

The corporation takes into account its distributive share of the partnership's receipts and payroll within the Metropolitan Commuter Transportation District (MCTD) and New York State and its distributive share or proportionate part, as the case may be, of the partnership's property within the MCTD and New York State in computing its MCTD apportionment percentage as required by section 209-B(2). For purposes of section 209-B(2), a corporation that is a partner in a partnership computes its MCTD apportionment percentage by computing the property, receipts and payroll factors as follows:
(i) The average value of the corporation's real and tangible personal property, owned or rented, within the MCTD plus the average value of the corporation's distributive share or proportionate part, as the case may be, of the partnership's real and tangible personal property, owned or rented, within the MCTD during the applicable partnership year is divided by the average value of the corporation's real and tangible personal property, owned or rented, within New York State plus the average value of its distributive share or proportionate part, as the case may be, of the partnership's real and tangible personal property, owned or rented, within New York State during the applicable partnership year. Where a corporation has leased or rented real or tangible personal property to a partnership in which it is a partner, the corporation includes only the average value of such property in its property factor. The corporation does not include eight times its distributive share of the partnership's rental expense because the average value of the property is included by the corporate partner as the owner of the property. Where a corporation has leased or rented real or tangible personal property from a partnership in which it is a partner, the corporation includes both its proportionate part of the average value of such property and eight times the amount of rental expense that is deemed to have been paid to the other partners with respect to such property. The amount of rental expense deemed paid to other partners is the corporation's total rental expense paid to the partnership less the corporation's distributive share of the partnership's rental income from such property.
(ii) The corporation's business receipts within the MCTD plus the taxpayer's distributive share of the partnership's business receipts within the MCTD during the applicable partnership year (MCTD receipts) is divided by the corporation's New York receipts determined in subdivision (f) of this section. The MCTD receipts are determined using the rules in subdivision (f) of this section, but substituting MCTD for New York State.
(iii) The wages, salaries and other personal service compensation of the corporation's employees, except general executive officers, within the MCTD plus the corporation's distributive share of the wages, salaries and other personal service compensation paid by the partnership to its employees, except employees of the partnership having partnership-wide authority or having responsibility for an entire division of the partnership, within the MCTD during the applicable partnership year is divided by the wages, salaries and other personal service compensation of the corporation's employees, except general executive officers, within New York State plus the corporation's distributive share of the wages, salaries and other personal service compensation paid by the partnership to its employees, except employees of the partnership having partnership-wide authority or having responsibility for an entire division of the partnership, within New York State during the applicable partnership year.

# (2)

Examples.
In the following examples regarding the computation of the property factor of the MCTD apportionment percentage, Partnership P has two partners, Corporation A and Corporation B. Corporation A has a 20% interest in the partnership and Corporation B has an 80% interest. There are no allocations of an item, amount or activity.
Example 1: Partnership P rents a building in the MCTD owned by corporate partner A
(average value of $100,000) for $12,000 per year. Corporation A must include the average value of $100,000 for the building in both the numerator and denominator of its property factor. No portion of the property's rental value is included in Corporation A's property factor.
Corporation B must include $76,800 in the numerator and denominator of its property factor, which is its distributive share of the average value of the property rented in the MCTD by Partnership P (80% x $12,000 x 8).
Example 2: Partnership P owns a building in the MCTD and rents it to Corporation A for $12,000 per year. Corporation A must include its proportionate part of the average value of the building, $20,000 (20% X $100,000), in the numerator and denominator of its property factor. In addition, Corporation A must include eight times the amount of rental expense that is deemed to have been paid to Corporation B with respect to such property in the numerator and denominator of its property factor. Such expense of $9,600 is computed by reducing Corporation A’s rental expense of $12,000 paid to Partnership P by its distributive share of the partnership’s rental income of $2,400 (20% x $12,000). Thus, the value of the building to be used in the numerator and denominator of Corporation A's property factor is $96,800 ($20,000 + [8 X $9,600]).
Corporation B must include its proportionate part of the average value of the building, $80,000 (80% X $100,000) in the numerator and denominator of Corporation B’s property factor.

# (h)

In the case of a corporation included in a combined report that is filing under the aggregate method with respect to a partnership interest and such partnership engages in transactions with another member of the partner’s combined group, the distributive share and proportionate amounts from such partnership are subject to the same intercorporate eliminations as if such transactions occurred directly between the partner and the member of the partner’s combined group.

# (i)

The term “applicable partnership year” means any taxable year of the partnership ending within or with the taxable year of the partner.