N.Y. Tax Law § 1503 — Computation of entire net income

§ 1503. Computation of entire net income. (a) The entire net income\nof a taxpayer shall be its total net income from all sources which shall\nbe presumably the same as the life insurance company taxable income\n(which shall include, in the case of a stock life insurance company that\nhas a balance, as determined as of the close of such company's last\ntaxable year beginning before January first, two thousand eighteen, in\nan existing policyholders surplus account, as such term is defined in\nsection 815 of the internal revenue code as such section was in effect\nfor taxable years beginning before January first, two thousand eighteen,\nthe amount of one-eighth of such balance), taxable income of a\npartnership or taxable income, but not alternative minimum taxable\nincome, as the case may be, which the taxpayer is required to report to\nthe United States treasury department, for the taxable year or, in the\ncase of a corporation exempt from federal income tax (other than the tax\non unrelated business taxable income imposed under section 511 of the\ninternal revenue code) but not exempt from tax under section fifteen\nhundred one, the taxable income which such taxpayer would have been\nrequired to report but for such exemption, except as hereinafter\nprovided.\n (b) Modifications. In computing entire net income, the following\nmodifications shall be made:\n (1) Entire net income shall not include:\n (A) income, gains and losses from subsidiary capital which do not\ninclude the amount of a recovery in respect of any war loss, except that\nthis modification shall not apply to the amount described in\nsubparagraph (S) of this paragraph;\n (B) fifty percent of dividends other than from subsidiaries, except\nthat this modification shall not apply to the amount described in\nsubparagraph (S) of this paragraph, and except that, in the case of a\nlife insurance company, such modification shall apply only with respect\nto the company's share of such dividends, which share means the\npercentage determined under paragraph one of subsection (a) of section\neight hundred twelve of the internal revenue code;\n (C) any refund or credit of a tax imposed under this article or\nsection one hundred eighty-seven, or article twenty-three of this\nchapter heretofore in effect to the extent properly included as income\nfor federal income tax purposes, for which no exclusion or deduction was\nallowed in determining the taxpayer's entire net income under this\narticle for any prior year;\n (D) that portion of wages or salaries paid or incurred for the taxable\nyear for which a deduction is not allowed pursuant to the provisions of\nsection two hundred eighty-C of the internal revenue code;\n (E) in the case of a taxpayer who is separately or as a partner of a\npartnership doing an insurance business as a member of the New York\ninsurance exchange described in section six thousand two hundred one of\nthe insurance law, any item of income, gain, loss or deduction of such\nbusiness which is the taxpayer's distributive or pro rata share for\nfederal income tax purposes or which the taxpayer is required to take\ninto account separately for federal income tax purposes;\n (F) for taxable years beginning after December thirty-first, nineteen\nhundred eighty-one, except with respect to property which is a qualified\nmass commuting vehicle described in subparagraph (D) of paragraph eight\nof subsection (f) of section one hundred sixty-eight of the internal\nrevenue code (relating to qualified mass commuting vehicles), any amount\nwhich is included in the taxpayer's taxable income for federal income\ntax purposes solely as a result of an election made pursuant to the\nprovisions of such paragraph eight as it was in effect for agreements\nentered into prior to January first, nineteen hundred eighty-four;\n (G) for taxable years beginning after December thirty-first, nineteen\nhundred eighty-one, except with respect to property which is a qualified\nmass commuting vehicle described in subparagraph (D) of paragraph eight\nof subsection (f) of section one hundred sixty-eight of the internal\nrevenue code (relating to qualified mass commuting vehicles), any amount\nwhich the taxpayer could have excluded from its taxable income for\nfederal income tax purposes had it not made the election provided for in\nsuch paragraph eight as it was in effect for agreements entered into\nprior to January first, nineteen hundred eighty-four;\n (H) the amount deductible pursuant to paragraph ten of this\nsubdivision;\n (I) upon the disposition of property to which paragraph ten of this\nsubdivision applies, the amount, if any, by which the aggregate of the\namounts described in subparagraph (M) of paragraph two of this\nsubdivision attributable to such property exceeds the aggregate of the\namounts described in paragraph ten of this subdivision attributable to\nsuch property;\n (J) the amount of unearned premiums on outstanding business at the end\nof the taxable year included in premiums earned pursuant to the\nprovisions of section 832(b)(4)(B) of the internal revenue code;\n (K) the amount of unearned premiums on outstanding business at the end\nof the taxable year included in premiums earned pursuant to the\nprovisions of section 832(b)(7)(B)(i) of the internal revenue code;\n (L) the amount included in premiums earned pursuant to the provisions\nof section 832(b)(8)(A)(i) of the internal revenue code which is the\ndifference between the amount of discounted unearned premiums on\noutstanding business at the end of the taxable year and the amount of\nunearned premiums on outstanding business at the end of the taxable\nyear;\n (M) for taxable years beginning after December thirty-first, nineteen\nhundred eighty-six and before January first, nineteen hundred\nninety-two, the amount of unearned premiums on outstanding business\nincluded in premiums earned pursuant to the provisions of sections\n832(b)(4)(C) and 832(b)(7)(B)(ii) of the internal revenue code;\n (N) the amount which is the difference between the amount of\ndiscounted unpaid losses at the end of the taxable year used in the\ncomputation of losses incurred pursuant to section 832(b)(5)(A) of the\ninternal revenue code, and the amount of unpaid losses that would be\nused in such computation for the taxable year if such losses were not\ndiscounted pursuant to the provisions of section 846(a) of the internal\nrevenue code;\n (O) the amount by which losses incurred as defined in section\n832(b)(5)(A) of the internal revenue code are reduced in accordance with\nsection 832(b)(5)(B) of such code; and\n (P) the amount included in federal gross income pursuant to sections\n847(5) and 847(6) of the internal revenue code.\n (Q) The amount deductible pursuant to paragraph twelve of this\nsubsection.\n (R) for taxable years beginning after December thirty-first, two\nthousand two, the amount deductible pursuant to paragraph fourteen of\nthis subdivision.\n (S) The income required to be included in the taxpayer's federal gross\nincome pursuant to subsection (a) of section 951 of the internal revenue\ncode by reason of subsection (a) of section 965 of such code as adjusted\nby subsection (b) of such section but without regard to subsection (c)\nof such section to the extent such income is received from a corporation\nthat is not included in a combined return with the taxpayer.\n (T) Any amount excepted, for purposes of subsection (a) of section one\nhundred eighteen of the internal revenue code, from the term\n"contribution to the capital of the taxpayer" by paragraph two of\nsubsection (b) of section one hundred eighteen of the internal revenue\ncode.\n (U) To the extent not excluded from income pursuant to subparagraph\n(A) of this paragraph, ninety-five percent of the income required to be\nincluded in the taxpayer's federal gross income pursuant to subsection\n(a) of section 951A of the internal revenue code, without regard to the\ndeduction under section 250 of the internal revenue code, that is\ngenerated by a corporation that is not included in a combined report\nwith the taxpayer.\n (V) To the extent not excluded from income pursuant to subparagraph\n(A) or (B) of this paragraph, any amount treated as a dividend received\nby the taxpayer under section 78 of the internal revenue code that is\nattributable to the income required to be included in the taxpayer's\nfederal gross income pursuant to subsection (a) of section 951A of such\ncode.\n (W) The amount of any gain added back to determine entire net income\nin a previous taxable year pursuant to subparagraph (Z) of paragraph two\nof this subdivision that is included in federal gross income for the\ntaxable year.\n (2) Entire net income shall be determined without the exclusion,\ndeduction or credit of:\n (A) the amount of any specific exemption or credit allowed in any law\nof the United States imposing any tax on or measured by the income of\ncorporations;\n (B) any part of any income from dividends or interest on any kind of\nstock, securities or indebtedness, except as provided in subparagraphs\n(A), (B) and (S) of paragraph one hereof;\n (C) taxes paid or accrued to the United States on or measured by\nincome or premiums;\n (D) taxes imposed under this article;\n (E) In those instances where a credit for the special additional\nmortgage recording tax is allowed under paragraph one of subdivision (e)\nof section fifteen hundred eleven of this article, the amount allowed as\nan exclusion or deduction for the special additional mortgage recording\ntax imposed by subdivision one-a of section two hundred fifty-three of\nthis chapter in determining the entire net income which the taxpayer is\nrequired to report to the United States treasury department for such\ntaxable year;\n (F) unless the credit allowed pursuant to subdivision (e) of section\nfifteen hundred eleven of this article is reflected in the computation\nof the gain or loss so as to result in an increase in such gain or\ndecrease in such loss, for federal income tax purposes, from the sale or\nother disposition of the property with respect to which the special\nadditional mortgage recording tax imposed pursuant to subdivision one-a\nof section two hundred fifty-three of this chapter was paid, the amount\nof the special additional mortgage recording tax imposed by subdivision\none-a of section two hundred fifty-three of this chapter which was paid\nand which is reflected in the computation of the basis of the property\nso as to result in a decrease in such gain or increase in such loss for\nfederal income tax purposes from the sale or other disposition of the\nproperty with respect to which such tax was paid;\n (G) ninety percent of interest on indebtedness directly or indirectly\nowed to any stockholder or shareholder (including subsidiaries of a\ncorporate stockholder or shareholder), or members of the immediate\nfamily of an individual stockholder or shareholder, owning in the\naggregate in excess of five per centum of the issued capital stock of\nthe taxpayer, except that such interest may, in any event, be deducted\n (i) up to an amount not exceeding one thousand dollars,\n (ii) in full to the extent that it relates to bonds or other evidences\nof indebtedness issued, with stock, pursuant to a bona fide plan of\nreorganization, to persons, who, prior to such reorganization, were bona\nfide creditors of the corporation or its predecessors, but were not\nstockholders or shareholders thereof,\n (iii) in full to the extent that it is paid to a federally licensed\nsmall business investment company;\n (H) in the discretion of the commissioner, any amount of interest\ndirectly or indirectly and any other amount directly attributable as a\ncarrying charge or otherwise to subsidiary capital or to income, gains\nor losses from subsidiary capital, or to the income described in\nsubparagraphs (S), (U) and (V) of paragraph one of this subdivision;\n (I) in the case of a life insurance company, the provisions of\nsubparagraph (B) of this paragraph shall not apply to the policyholders'\nshare of the items described in such subparagraph. For purposes of this\nsubparagraph, the policyholders' share means the percentage determined\nunder paragraph two of subsection (a) of section eight hundred twelve of\nthe internal revenue code.\n (J) in the case of a taxpayer who is separately or as a partner of a\npartnership doing an insurance business as a member of the New York\ninsurance exchange described in section six thousand two hundred one of\nthe insurance law, such taxpayer's distributive or pro rata share of the\nallocated entire net income of such business as determined under this\nsection and section fifteen hundred four of this article, provided\nhowever, in the event such allocated entire net income is a loss, such\ntaxpayer's distributive or pro rata share of such loss shall not be\nsubtracted from federal taxable income in computing entire net income\nunder this section.\n (K) for taxable years beginning after December thirty-first, nineteen\nhundred eighty-one, except with respect to property which is a qualified\nmass commuting vehicle described in subparagraph (D) of paragraph eight\nof subsection (f) of section one hundred sixty-eight of the internal\nrevenue code (relating to qualified mass commuting vehicles), any amount\nwhich the taxpayer claimed as a deduction for federal income tax\npurposes solely as a result of an election made pursuant to the\nprovisions of such paragraph eight as it was in effect for agreements\nentered into prior to January first, nineteen hundred eighty-four;\n (L) for taxable years beginning after December thirty-first, nineteen\nhundred eighty-one, except with respect to property which is a qualified\nmass commuting vehicle described in subparagraph (D) of paragraph eight\nof subsection (f) of section one hundred sixty-eight of the internal\nrevenue code (relating to qualified mass commuting vehicles), any amount\nwhich the taxpayer would have been required to include in the\ncomputation of its taxable income for federal income tax purposes had it\nnot made the election permitted pursuant to such paragraph eight as it\nwas in effect for agreements entered into prior to January first,\nnineteen hundred eighty-four;\n (M) in the case of property placed in service in taxable years\nbeginning before nineteen hundred ninety-four, for taxable years\nbeginning after December thirty-first, nineteen hundred eighty-one,\nexcept with respect to property subject to the provisions of section two\nhundred eighty-F of the internal revenue code and property subject to\nthe provisions of section one hundred sixty-eight of the internal\nrevenue code which is placed in service in this state in taxable years\nbeginning after December thirty-first, nineteen hundred eighty-four, the\namount allowable as a deduction determined under section one hundred\nsixty-eight of the internal revenue code;\n (N) upon the disposition of property to which paragraph ten of this\nsubdivision applies, the amount, if any, by which the aggregate of the\namounts described in such paragraph ten attributable to such property\nexceeds the aggregate of the amounts described in subparagraph (M) of\nthis paragraph attributable to such property;\n (N-1) premiums paid for environmental remediation insurance, as\ndefined in section twenty-three of this chapter, and deducted in\ndetermining federal taxable income, to the extent of the amount of the\nenvironmental remediation insurance credit allowed under such section\ntwenty-three and subdivision (w) of section fifteen hundred eleven of\nthis article;\n (O) the amount of unearned premiums on outstanding business at the end\nof the preceding taxable year excluded from premiums earned pursuant to\nthe provisions of section 832(b)(4)(B) of the internal revenue code;\n (P) the amount of unearned premiums on outstanding business at the end\nof the preceding year excluded from premiums earned pursuant to the\nprovisions of section 832(b)(7)(B)(i) of the internal revenue code;\n (Q) the amount excluded from premiums earned pursuant to the\nprovisions of section 832(b)(8)(A)(i) of the internal revenue code which\nis the difference between the amount of discounted unearned premiums on\noutstanding business at the end of the preceding taxable year and the\namount of unearned premiums on outstanding business at the end of the\npreceding taxable year;\n (R) the amount which is the difference between the amount of\ndiscounted unpaid losses at the end of the preceding federal taxable\nyear used in the computation of losses incurred for the taxable year\npursuant to section 832(b)(5)(A) of the internal revenue code, and the\namount of unpaid losses at the end of the preceding federal taxable year\nthat would have been used in such computation for the taxable year if\nsuch losses were not discounted pursuant to the provisions of section\n846(a) of the internal revenue code; and\n (S) the amount of the deduction claimed by the taxpayer pursuant to\nthe provisions of section 847(1) of the internal revenue code.\n (T) for taxable years beginning after December thirty-first, two\nthousand two, in the case of qualified property described in paragraph\ntwo of subsection k of section 168 of the internal revenue code, other\nthan qualified resurgence zone property described in paragraph sixteen\nof this subdivision, and other than qualified New York Liberty Zone\nproperty described in paragraph two of subsection b of section 1400L of\nthe internal revenue code (without regard to clause (i) of subparagraph\n(C) of such paragraph), which was placed in service on or after June\nfirst, two thousand three, the amount allowable as a deduction under\nsection 167 of the internal revenue code.\n (U) The amount of any deduction allowed pursuant to section one\nhundred ninety-nine of the internal revenue code.\n (V) The amount of any federal deduction for taxes imposed under\narticle twenty-three of this chapter.\n (W) The amount of any federal deduction allowed pursuant to subsection\n(c) of section 965 of the internal revenue code.\n (X) The amount of any federal deduction allowed pursuant to section\n250(a)(1)(A) of the internal revenue code.\n (Y) The amount of the federal deduction allowed pursuant to section\n250(a)(1)(B) of the internal revenue code.\n (Z) The amount of any gain excluded from federal gross income for the\ntaxable year by subparagraph (A) of paragraph (1) of subsection (a) of\nsection 1400Z-2 of the internal revenue code.\n (3) In determining entire net income, there shall be subtracted, to\nthe extent not deductible in determining federal taxable income:\n (A) interest on indebtedness incurred or continued to purchase or\ncarry obligations or securities the income from which is subject to tax\nunder this article but exempt from federal income tax;\n (B) ordinary and necessary expenses paid or incurred during the\ntaxable year attributable to income which is subject to tax under this\narticle but exempt from federal income tax; and\n (C) the amortizable bond premium for the taxable year on any bond the\ninterest on which is subject to tax under this article but exempt from\nfederal income tax.\n (4) Any "net operating loss deduction" or "operations loss deduction"\nallowable under sections one hundred seventy-two or eight hundred ten of\nthe internal revenue code, respectively, which is allowable to the\ntaxpayer for federal income tax purposes:\n (A) shall be adjusted to reflect the modifications required by the\nother paragraphs of this subdivision;\n (B) shall not, however, exceed any such deduction allowable to the\ntaxpayer for the taxable year for federal income tax purposes; and\n (C) shall not include any such loss incurred in a taxable year\nbeginning prior to January first, nineteen hundred seventy-four or\nduring any taxable year in which the taxpayer was not subject to the tax\nimposed under section fifteen hundred one.\n (5) In case of property of a taxpayer acquired prior to January first,\nnineteen hundred seventy-four, and disposed of thereafter, the\ncomputation of entire net income shall be modified as follows:\n (A) no gain shall be deemed to have been derived if either the cost or\nthe fair market price or value on January first, nineteen hundred\nseventy-four, exceeds the value realized;\n (B) no loss shall be deemed to have been sustained if either the cost\nor the fair market price or value on January first, nineteen hundred\nseventy-four, is less than the value realized;\n (C) where both the cost and the fair market price or value on January\nfirst, nineteen hundred seventy-four, are less than the value realized,\nthe basis for computing gain shall be the cost or the fair market price\nor value on such date, whichever is higher;\n (D) where both the cost and the fair market price or value on January\nfirst, nineteen hundred seventy-four, are in excess of the value\nrealized, the basis for computing loss shall be the cost or the fair\nmarket price or value on such date, whichever is lower.\n (6) There shall be excluded from the computation of entire net income\nany amount allowed as a deduction for federal income tax purposes for\nthe taxable year under section twelve hundred twelve of the internal\nrevenue code as a capital loss carryforward to the taxable year which\nresulted from a capital loss occurring in any taxable year in which the\ntaxpayer was not subject to tax under section fifteen hundred one.\n (7) There shall be excluded from the computation of entire net income\nthe amount of any income or gain from the sale of real or personal\nproperty which is includible in determining federal taxable income for\nthe taxable year pursuant to the installment method under section four\nhundred fifty-three of the internal revenue code to the extent such\nincome or gain is from a sale of such property which occurred in a\ntaxable year when the taxpayer was not subject to tax under section\nfifteen hundred one.\n (8) Entire net income shall be computed without regard to subsection\n(b) of section eight hundred thirty-one of the internal revenue code.\n (9) In computing the entire net income of a taxpayer\n (A) which is a fire or life insurance company organized and operated,\nwithout profit to any private shareholder or individual, exclusively for\nthe purpose of aiding and strengthening charitable, religious,\nmissionary, educational or philanthropic institutions, by issuing\ninsurance and annuity contracts only to or for the benefit of such\ninstitutions, to individuals engaged in the services of such\ninstitutions and to members of the immediate families of such\nindividuals, or\n (B) which is a life insurance company which has been organized for the\npurpose of establishing a non-profit voluntary employees beneficiary\nassociation to provide life, sick, accident or other benefits to\neligible employees or their beneficiaries, and is operated exclusively\nfor said purposes and without profit, direct or indirect, to any private\nshareholder or individual, and is duly exempt from income taxation\npursuant to the United States internal revenue code, the life insurance\ncompany taxable income (which shall include, in the case of a stock life\ninsurance company which has an existing policyholders surplus account,\nthe amount of direct and indirect distributions during the taxable year\nto shareholders from such account) or taxable income, as the case may\nbe, of such taxpayer for the taxable year shall be computed without\nregard to any income, gains, losses, deductions, reserves, surplus or\nany other item, derived from, or attributable or allocable to, contracts\ndescribed in subsection (a) of section eight hundred eighteen of the\ninternal revenue code.\n (10) In the case of property placed in service in taxable years\nbeginning before nineteen hundred ninety-four, for taxable years\nbeginning after December thirty-first, nineteen hundred eighty-one,\nexcept with respect to property subject to the provisions of section two\nhundred eighty-F of the internal revenue code and property subject to\nthe provisions of section one hundred sixty-eight of the internal\nrevenue code which is placed in service in this state in taxable years\nbeginning after December thirty-first, nineteen hundred eighty-four, and\nprovided a deduction has not been excluded from the determination of\nentire net income pursuant to subparagraph (K) of paragraph two of this\nsubdivision, a taxpayer shall be allowed with respect to property which\nis subject to the provisions of section one hundred sixty-eight of the\ninternal revenue code the depreciation deduction allowable under section\none hundred sixty-seven of the internal revenue code as such section\nwould have applied to property placed in service on December\nthirty-first, nineteen hundred eighty.\n (11)(A) Notwithstanding the provisions of subparagraph (P) of\nparagraph one of this subdivision, for taxable years beginning after\nDecember thirty-first, nineteen hundred ninety-two and ending before\nDecember thirty-first, nineteen hundred ninety-six, entire net income\nshall include the amount determined under subparagraph (B) of this\nparagraph. This amount shall be included in entire net income only if\nthe taxpayer claimed the deduction allowed by subdivision one of section\neight hundred forty-seven of the internal revenue code in any taxable\nyear beginning after December thirty-first, nineteen hundred\neighty-seven and ending before January first, nineteen hundred\nninety-three.\n (B) The amount to be included in entire net income under this\nparagraph shall be determined as follows. The taxpayer shall calculate\nthe total amount that will be required to be included in federal gross\nincome pursuant to the provisions of subdivisions five and six of\nsection eight hundred forty-seven of the internal revenue code for\nfederal taxable years beginning after December thirty-first, nineteen\nhundred ninety-two as a result of the deduction claimed by the taxpayer\nin federal taxable years beginning after December thirty-first, nineteen\nhundred eighty-seven and before January first, nineteen hundred\nninety-three pursuant to the provisions of subdivision one of section\neight hundred forty-seven of the internal revenue code. The taxpayer\nshall divide such total amount by three. An amount equal to the\nresulting quotient shall be included in entire net income in each of the\ntaxpayer's first three taxable years beginning on or after January one,\nnineteen hundred ninety-three.\n 12. Emerging technology investment deferral. In the case of any sale\nof a qualified emerging technologies investment held for more than\nthirty-six months and with respect to which the taxpayer elects the\napplication of this subsection, gain from such sale shall be recognized\nonly to the extent that the amount realized on such sale exceeds the\ncost of any qualified emerging technologies investment purchased by the\ntaxpayer during the three hundred sixty-five-day period beginning on the\ndate of such sale, reduced by any portion of such cost previously taken\ninto account under this paragraph. For purposes of this paragraph the\nfollowing shall apply:\n (1) A qualified investment is stock of a corporation or an interest,\nother than as a creditor, in a partnership or limited liability company\nthat was acquired by the taxpayer as provided in Internal Revenue Code §\n1202(c)(1)(B), except that the reference to the term "stock" in such\nsection shall be read as "investment," or by the taxpayer from a person\nwho had acquired such stock or interest in such a manner.\n (2) A qualified emerging technology investment is a qualified\ninvestment, that was held by the taxpayer for at least thirty-six\nmonths, in a company defined in paragraph (c) of subdivision one of\nsection thirty-one hundred two-e of the public authorities law or an\ninvestment in a partnership or limited liability company that is taxed\nas a partnership to the extent that such partnership or limited\nliability company invests in qualified emerging technology companies.\n (3) For purposes of determining whether the nonrecognition of gain\nunder this subsection applies to a qualified emerging technologies\ninvestment that is sold, the taxpayer's holding period for such\ninvestment and the qualified emerging technologies investment that is\npurchased shall be determined without regard to Internal Revenue Code §\n1223.\n 13. Amounts deferred. The amount deferred under paragraph twelve of\nthis subdivision shall be added to entire net income when the\nreinvestment in the New York qualified emerging technology company which\nqualified a taxpayer for such deferral is sold.\n * (14) For taxable years beginning after December thirty-first, two\nthousand two, in the case of qualified property described in paragraph\ntwo of subsection k of section 168 of the internal revenue code, other\nthan qualified resurgence zone property described in paragraph sixteen\nof this subdivision, and other than qualified New York Liberty Zone\nproperty described in paragraph two of subsection b of section 1400L of\nthe internal revenue code (without regard to clause (i) of subparagraph\n(C) of such paragraph), which was placed in service on or after June\nfirst, two thousand three, a taxpayer shall be allowed with respect to\nsuch property the depreciation deduction allowable under section 167 of\nthe internal revenue code as such section would have applied to such\nproperty had it been acquired by the taxpayer on September tenth, two\nthousand one.\n * NB There are 2 par (14)'s\n * (14) Related members expense add back. (A) Definitions. (i) Related\nmember. "Related member" means a related person as defined in\nsubparagraph (c) of paragraph three of subsection (b) of section four\nhundred sixty-five of the internal revenue code, except that "fifty\npercent" shall be substituted for "ten percent".\n (ii) Effective rate of tax. "Effective rate of tax" means, as to any\nstate or U.S. possession, the maximum statutory rate of tax imposed by\nthe state or possession on or measured by a related member's net income\nmultiplied by the apportionment percentage, if any, applicable to the\nrelated member under the laws of said jurisdiction. For purposes of this\ndefinition, the effective rate of tax as to any state or U.S. possession\nis zero where the related member's net income tax liability in said\njurisdiction is reported on a combined or consolidated return including\nboth the taxpayer and the related member where the reported transactions\nbetween the taxpayer and the related member are eliminated or offset.\nAlso, for purposes of this definition, when computing the effective rate\nof tax for a jurisdiction in which a related member's net income is\neliminated or offset by a credit or similar adjustment that is dependent\nupon the related member either maintaining or managing intangible\nproperty or collecting interest income in that jurisdiction, the maximum\nstatutory rate of tax imposed by said jurisdiction shall be decreased to\nreflect the statutory rate of tax that applies to the related member as\neffectively reduced by such credit or similar adjustment.\n (iii) Royalty payments. Royalty payments are payments directly\nconnected to the acquisition, use, maintenance or management, ownership,\nsale, exchange, or any other disposition of licenses, trademarks,\ncopyrights, trade names, trade dress, service marks, mask works, trade\nsecrets, patents and any other similar types of intangible assets as\ndetermined by the commissioner, and include amounts allowable as\ninterest deductions under section one hundred sixty-three of the\ninternal revenue code to the extent such amounts are directly or\nindirectly for, related to or in connection with the acquisition, use,\nmaintenance or management, ownership, sale, exchange or disposition of\nsuch intangible assets.\n (iv) Valid business purpose. A valid business purpose is one or more\nbusiness purposes, other than the avoidance or reduction of taxation,\nwhich alone or in combination constitute the primary motivation for some\nbusiness activity or transaction, which activity or transaction changes\nin a meaningful way, apart from tax effects, the economic position of\nthe taxpayer. The economic position of the taxpayer includes an increase\nin the market share of the taxpayer, or the entry by the taxpayer into\nnew business markets.\n (B) Royalty expense add backs. (i) Except where a taxpayer is included\nin a combined return with a related member pursuant to subdivision (f)\nof section fifteen hundred fifteen of this article, for the purpose of\ncomputing entire net income, a taxpayer must add back royalty payments\ndirectly or indirectly paid, accrued, or incurred in connection with one\nor more direct or indirect transactions with one or more related members\nduring the taxable year to the extent deductible in calculating federal\ntaxable income.\n (ii) Exceptions. (I) The adjustment required in this paragraph shall\nnot apply to the portion of the royalty payment that the taxpayer\nestablishes, by clear and convincing evidence of the type and in the\nform specified by the commissioner, meets all of the following\nrequirements: (a) the related member was subject to tax in this state or\nanother state or possession of the United States or a foreign nation or\nsome combination thereof on a tax base that included the royalty payment\npaid, accrued or incurred by the taxpayer; (b) the related member during\nthe same taxable year directly or indirectly paid, accrued or incurred\nsuch portion to a person that is not a related member; and (c) the\ntransaction giving rise to the royalty payment between the taxpayer and\nthe related member was undertaken for a valid business purpose.\n (II) The adjustment required in this paragraph shall not apply if the\ntaxpayer establishes, by clear and convincing evidence of the type and\nin the form specified by the commissioner, that: (a) the related member\nwas subject to tax on or measured by its net income in this state or\nanother state or possession of the United States or some combination\nthereof; (b) the tax base for said tax included the royalty payment\npaid, accrued or incurred by the taxpayer; and (c) the aggregate\neffective rate of tax applied to the related member in those\njurisdictions is no less than eighty percent of the statutory rate of\ntax that applied to the taxpayer under section fifteen hundred two,\nfifteen hundred two-a, or fifteen hundred two-b of this article for the\ntaxable year.\n (III) The adjustment required in this paragraph shall not apply if the\ntaxpayer establishes, by clear and convincing evidence of the type and\nin the form specified by the commissioner, that: (a) the royalty payment\nwas paid, accrued or incurred to a related member organized under the\nlaws of a country other than the United States; (b) the related member's\nincome from the transaction was subject to a comprehensive income tax\ntreaty between such country and the United States; (c) the related\nmember was subject to tax in a foreign nation on a tax base that\nincluded the royalty payment paid, accrued or incurred by the taxpayer;\n(d) the related member's income from the transaction was taxed in such\ncountry at an effective rate of tax at least equal to that imposed by\nthis state; and (e) the royalty payment was paid, accrued or incurred\npursuant to a transaction that was undertaken for a valid business\npurpose and using terms that reflect an arm's length relationship.\n (IV) The adjustment required in this paragraph shall not apply if the\ntaxpayer and the commissioner agree in writing to the application or use\nof alternative adjustments or computations. The commissioner may, in his\nor her discretion, agree to the application or use of alternative\nadjustments or computations when he or she concludes that in the absence\nof such agreement the income of the taxpayer would not be properly\nreflected.\n * NB There are 2 par (14)'s\n (15) For taxable years beginning after December thirty-first, two\nthousand two, upon the disposition of property to which paragraph\nfourteen of this subdivision applies, the amount of any gain or loss\nincludible in entire net income shall be adjusted to reflect the\ninclusions and exclusions from entire net income pursuant to\nsubparagraph (R) of paragraph one and subparagraph (T) of paragraph two\nof this subdivision attributable to such property.\n (16) For purposes of paragraphs fourteen and fifteen of this\nsubdivision, qualified resurgence zone property shall mean qualified\nproperty described in paragraph two of subsection k of section 168 of\nthe internal revenue code substantially all of the use of which is in\nthe resurgence zone, as defined below, and is in the active conduct of a\ntrade or business by the taxpayer in such zone, and the original use of\nwhich in the resurgence zone commences with the taxpayer after December\nthirty-first, two thousand two. The resurgence zone shall mean the area\nof New York county bounded on the south by a line running from the\nintersection of the Hudson River with the Holland Tunnel, and running\nthence east to Canal Street, then running along the centerline of Canal\nStreet to the intersection of the Bowery and Canal Street, running\nthence in a southeasterly direction diagonally across Manhattan Bridge\nPlaza, to the Manhattan Bridge and thence along the centerline of the\nManhattan Bridge to the point where the centerline of the Manhattan\nBridge would intersect with the easterly bank of the East River, and\nbounded on the north by a line running from the intersection of the\nHudson River with the Holland Tunnel and running thence north along West\nAvenue to the intersection of Clarkson Street then running east along\nthe centerline of Clarkson Street to the intersection of Washington\nAvenue, then running south along the centerline of Washington Avenue to\nthe intersection of West Houston Street, then east along the centerline\nof West Houston Street, then at the intersection of the Avenue of the\nAmericas continuing east along the centerline of East Houston Street to\nthe easterly bank of the East River.\n (17) Depreciation and interest adjustments for covered properties\nowned by an institutional real estate investor. (A) Notwithstanding any\nother provision of this section, in the case of a taxpayer that is an\ninstitutional real estate investor or partner, member or shareholder of\nan entity that is an institutional real estate investor as defined in\nparagraph (c-4) of subdivision nine of section two hundred eight of this\nchapter, entire net income shall be computed with adjustments for\ndepreciation and interest related to covered properties as set forth in\nthis paragraph.\n (B) Depreciation deductions. With respect to covered properties, no\ndeduction for depreciation allowed under the internal revenue code or\nthis section shall be allowed.\n (C) Federal interest deductions. With respect to covered properties,\nthe interest deduction for federal income tax purposes allowed under\nsection one hundred sixty-three of the internal revenue code shall not\nbe allowed and must be added back in the computation of entire net\nincome, except with respect to interest paid or accrued in the taxable\nyear when such covered property is sold to an individual for use as the\nprincipal residence of such individual or sold to a nonprofit\norganization that has as its principal purpose the creation,\ndevelopment, or preservation of affordable housing. For purposes of this\nsubparagraph, any amount of interest that would have been allowed under\nsection one hundred sixty-three of the internal revenue code in\nconnection with a covered property but for an election to treat such\ninterest as chargeable to capital account shall be treated as an amount\nallowed under section one hundred sixty-three of the internal revenue\ncode.\n (c) Attribution of income to different taxable years. The tax\ncommission may, whenever necessary in order to properly reflect the\nentire net income of any taxpayer, determine the year or period in which\nany item of income or deduction shall be included, without regard to the\nmethod of accounting employed by the taxpayer.\n