NY Tax L § 292 (2021)
2021 New York Laws TAX - Tax Article 13 - Tax on Unrelated Business Income 292 - Unrelated Business Taxable Income.

§  292.  Unrelated business taxable income. (a) The unrelated business taxable income of a taxpayer subject to the tax imposed by  section  two hundred  ninety  shall  be  such  taxpayer's  federal unrelated business taxable income, as defined in the laws of  the  United  States  for  the taxable year, with the following modifications:  (1)  There shall be added to federal unrelated business taxable income the amount of any tax imposed under this article.  (2) There shall be subtracted from federal unrelated business  taxable income  the  amount  of  any  refund  or credit for overpayment of a tax imposed under this article or article twenty-three of this chapter.  (3) The net operating loss deduction which shall be allowed  shall  be the same as the net operating loss deduction allowed under paragraph six of subsection (b) of section five hundred twelve of the internal revenue code of nineteen hundred fifty-four, except that  (A)  any  net  operating  loss  included in determining such deduction shall be adjusted to reflect the addition and subtraction from unrelated business taxable income required by  paragraphs  one  and  two  of  this subdivision,  (B)  such deduction shall not include any net operating loss sustained during any taxable year  beginning  prior  to  January  first,  nineteen hundred  seventy,  or  during any taxable year in which the taxpayer was not subject to the tax imposed by this article, and  (C) such deduction shall not exceed the deduction for the taxable year allowable under paragraph six of subsection (b) of section five  hundred twelve of the internal revenue code of nineteen hundred fifty-four.  (4)  There shall be subtracted from federal unrelated business taxable income any amount which is included therein  solely  by  reason  of  the application of section 501(m)(2)(A) or 512(a)(7) of the internal revenue code.  (5)  Shareholders  of S corporations. (A) In the case of a shareholder of an S corporation,  (i) where the election provided for in subsection (a) of  section  six hundred  sixty  of  this  chapter  is  in  effect  with  respect to such corporation, there shall be added to federal unrelated business  taxable income  an  amount  equal  to  the  shareholder's  pro rata share of the corporation's reductions for taxes described in paragraphs two and three of subsection (f) of section thirteen hundred sixty-six of the  internal revenue code, and  (ii)  where  such  election  has  not  been  made with respect to such corporation, there shall be subtracted from federal  unrelated  business taxable  income any items of income of the corporation included therein, and there shall be added to federal unrelated  business  taxable  income any items of loss or deduction included therein, and  (iii)  in the case of a New York S termination year, the amount of any such items of S corporation income, loss, deduction and  reductions  for taxes shall be adjusted in the manner provided in paragraph two or three of subsection (s) of section six hundred twelve of this chapter.  (B)  In  the case of a shareholder of a corporation which was, for any of its taxable years beginning after nineteen  hundred  ninety-seven,  a federal S corporation but a New York C corporation:  (i)  There shall be added to federal unrelated business taxable income S corporation distributions to the extent not included  therein  because of the application of section thirteen hundred sixty-eight or subsection (e)  of  section  thirteen  hundred  seventy-one of the internal revenue code, which represent income not previously subject to  tax  under  this article  because  the election provided for in subsection (a) of section six  hundred  sixty  of  this  chapter  had  not  been  made.  Any  such distribution  treated  in  the  manner  described  in  paragraph  two of  subsection (b) of such section thirteen  hundred  sixty-eight  shall  be treated as ordinary income for purposes of this article.  (ii)  Where  gain  or  loss  is included in unrelated business taxable income  upon  the  disposition  of  stock  or   indebtedness   of   such corporation,  (I)  there  shall  be  added  to unrelated business taxable income the amount of increase in basis of such stock or indebtedness  with  respect to  such  New York C years of the corporation, pursuant to subparagraphs (A) and (B) of paragraph one  of  subsection  (a)  of  section  thirteen hundred sixty-seven of such code, and  (II)  there shall be subtracted from unrelated business taxable income the amount of decrease in such basis with respect to  such  New  York  C years  of  the  corporation,  pursuant  to  subparagraphs (B) and (C) of paragraph two  of  subsection  (a)  of  such  section  thirteen  hundred sixty-seven, and  (III) there shall be subtracted from unrelated business taxable income the  amount  of  modifications to unrelated business taxable income with respect to such stock pursuant to clause (i) of subparagraph (B) of this paragraph.  (C) Cross reference. For definitions relating to S  corporations,  see subdivision one-A of section two hundred eight of this chapter.  (6)  Related  members  expense  add back. (A) Definitions. (i) Related member.  "Related  member"  means  a  related  person  as   defined   in subparagraph  (c)  of  paragraph three of subsection (b) of section four hundred sixty-five of the internal  revenue  code,  except  that  "fifty percent" shall be substituted for "ten percent".  (ii)  Effective  rate of tax. "Effective rate of tax" means, as to any state or U.S. possession, the maximum statutory rate of tax  imposed  by the  state or possession on or measured by a related member's net income multiplied by the apportionment percentage, if any,  applicable  to  the related member under the laws of said jurisdiction. For purposes of this definition, the effective rate of tax as to any state or U.S. possession is  zero  where  the  related  member's net income tax liability in said jurisdiction is reported on a combined or consolidated return  including both the taxpayer and the related member where the reported transactions between  the  taxpayer  and the related member are eliminated or offset. Also, for purposes of this definition, when computing the effective rate of tax for a jurisdiction in which a  related  member's  net  income  is eliminated or offset by a credit or similar adjustment that is dependent upon  the  related  member  either  maintaining  or  managing intangible property or collecting interest income in that jurisdiction, the maximum statutory rate of tax imposed by said jurisdiction shall be decreased to reflect the statutory rate of tax that applies to the related member  as effectively reduced by such credit or similar adjustment.  (iii)   Royalty  payments.  Royalty  payments  are  payments  directly connected to the acquisition, use, maintenance or management, ownership, sale, exchange,  or  any  other  disposition  of  licenses,  trademarks, copyrights,  trade  names, trade dress, service marks, mask works, trade secrets, patents and any other similar types  of  intangible  assets  as determined  by  the  commissioner,  and  include  amounts  allowable  as interest  deductions  under  section  one  hundred  sixty-three  of  the internal  revenue  code  to  the  extent  such  amounts  are directly or indirectly for, related to or in connection with the  acquisition,  use, maintenance  or  management, ownership, sale, exchange or disposition of such intangible assets.  (iv) Valid business purpose. A valid business purpose is one  or  more business  purposes  other  than  the  avoidance or reduction of taxation which alone or in combination constitute the primary motivation for some  business activity or transaction, which activity or transaction  changes in  a  meaningful  way, apart from tax effects, the economic position of the taxpayer. The economic position of the taxpayer includes an increase in  the  market share of the taxpayer, or the entry by the taxpayer into new business markets.  (B) Royalty expense add backs. (i) For the purpose  of  computing  New York unrelated business taxable income, a taxpayer must add back royalty payments directly or indirectly paid, accrued, or incurred in connection with  one  or  more  direct  or  indirect  transactions with one or more related members during the taxable year  to  the  extent  deductible  in calculating federal unrelated business taxable income;  (ii)  Exceptions.  (I) The adjustment required in this paragraph shall not apply to the portion  of  the  royalty  payment  that  the  taxpayer establishes,  by  clear  and  convincing evidence of the type and in the form  specified  by  the  commissioner,  meets  all  of  the   following requirements: (a) the related member was subject to tax in this state or another  state or possession of the United States or a foreign nation or some combination thereof on a tax base that included the royalty payment paid, accrued or incurred by the taxpayer; (b) the related member during the same taxable year directly or indirectly paid, accrued  or  incurred such  portion  to  a  person  that  is not a related member; and (c) the transaction giving rise to the royalty payment between the taxpayer  and the related member was undertaken for a valid business purpose.  (II)  The adjustment required in this paragraph shall not apply if the taxpayer establishes, by clear and convincing evidence of the  type  and in  the form specified by the commissioner, that: (a) the related member was subject to tax on or measured by its net income  in  this  state  or another  state  or  possession  of the United States or some combination thereof; (b) the tax base for said  tax  included  the  royalty  payment paid,  accrued  or  incurred  by  the  taxpayer;  and  (c) the aggregate effective  rate  of  tax  applied  to  the  related  member   in   those jurisdictions  is  no  less than eighty percent of the statutory rate of tax that applied to the taxpayer under section  two  hundred  ninety  of this article for the taxable year.  (III) The adjustment required in this paragraph shall not apply if the taxpayer  establishes,  by clear and convincing evidence of the type and in the form specified by the commissioner, that: (a) the royalty payment was paid, accrued or incurred to a related member  organized  under  the laws of a country other than the United States; (b) the related member's income  from  the  transaction was subject to a comprehensive income tax treaty between such country and  the  United  States;  (c)  the  related member  was  subject  to  tax  in  a  foreign  nation on a tax base that included the royalty payment paid, accrued or incurred by the  taxpayer; (d)  the  related member's income from the transaction was taxed in such country at an effective rate of tax at least equal to  that  imposed  by this  state;  and  (e) the royalty payment was paid, accrued or incurred pursuant to a transaction that  was  undertaken  for  a  valid  business purpose and using terms that reflect an arm's length relationship.  (IV)  The adjustment required in this paragraph shall not apply if the taxpayer and the commissioner agree in writing to the application or use of alternative adjustments or computations. The commissioner may, in his or her discretion, agree  to  the  application  or  use  of  alternative adjustments or computations when he or she concludes that in the absence of  such  agreement  the  income  of  the taxpayer would not be properly reflected.  (7) The amount of  any  deduction  allowed  pursuant  to  section  one hundred  ninety-nine  of  the  internal  revenue  code  must be added to federal unrelated business taxable income.  (8) There must be added to federal unrelated business  taxable  income the  amount  of  any  federal  deduction for taxes imposed under article twenty-three of this chapter.  (b) If the period covered by a return under this article is other than the  period  covered  by  the  return  to  the  United  States  treasury department, unrelated business taxable income  shall  be  determined  by multiplying  the  unrelated  business  taxable  income  reported to such department (as modified pursuant to the provisions of this  article)  by the  number  of  calendar  months  or major parts thereof covered by the return under this article and dividing by the number of calendar  months or  major  part  thereof covered by the return to such department. If it shall appear that such method of determining unrelated business  taxable income does not properly reflect the taxpayer's income during the period covered  by  the  return under this article, the tax commission shall be authorized, in its discretion, to determine such income  solely  on  the basis  of  the taxpayer's income during the period covered by its return under this article.