2023 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.