New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter I - Franchise and Certain Business Taxes › Subchapter A - Business Corporation Franchise Tax › Part 3 - COMPUTATION OF TAX › Subpart 3-2 - GENERAL RULES › Section 3-2.4 - Average value

Current through Register Vol. 46, No. 28, July 10, 2024
(Tax Law, section 210(2))
(a) In determining average value, the
					 taxpayer must use fair market value (FMV) for real property and marketable
					 securities and must use the value shown on the balance sheet included with its
					 Federal tax return for personal property other than marketable securities. If
					 the taxpayer is not required to include a balance sheet in its Federal income
					 tax return, it must use the value for personal property other than marketable
					 securities that it would have used if it had been required to include a balance
					 sheet with its Federal income tax return. In the case of an alien corporation
					 that under any provision of the IRC is not treated as a "domestic corporation"
					 as defined in IRC section 7201, only amounts that are effectively connected
					 with the United States trade or business are included. However, corporations
					 more than 50% directly or indirectly owned or controlled by the taxpayer (or
					 combined group) must be valued using the equity method of accounting in
					 accordance with generally accepted accounting principles (GAAP), provided the
					 value cannot be less than zero. The equity method of accounting calls for each
					 such corporation to be valued based on the average value of its owner's equity
					 account per its balance sheet. Allowance must be made for variations in the
					 amount of assets held by the taxpayer during the period covered by the report,
					 as well as for variations in market prices. Average value generally is computed
					 on a quarterly basis where the taxpayer's usual accounting practice permits
					 such computation. However, at the option of the taxpayer, a more frequent basis
					 (such as a monthly, weekly or daily average) may be used. Where the taxpayer's
					 usual accounting practice does not permit a quarterly or more frequent
					 computation of average value, a semiannual or annual computation may be used
					 where no distortion of average value will result. If, because of variations in
					 the amount or value of any class of assets, it appears to the commissioner that
					 averaging on an annual, semiannual or quarterly basis does not properly reflect
					 average value, the commissioner may require averaging on a more frequent basis.
					 Any method of determining average value that is adopted by the taxpayer on any
					 report and accepted by the commissioner may not be changed on any subsequent
					 report without the prior consent of The commissioner.
(b) Generally, the value of assets must be
					 determined without reduction for liabilities. However, if a taxpayer's assets
					 include reverse repurchase agreements and/or securities borrowing agreements,
					 then the sum of the FMV of these assets must be reduced, but not below zero, by
					 the sum of the FMV of all repurchase agreements and/or securities lending
					 agreements included in the taxpayer's liabilities.
(1) Examples.
Example 1: A taxpayer owns shares of common stock of X
						Corporation. The FMVs, during the period covered by its report, on a quarterly
						basis, were as follows:
(1) at the end
					 of first quarter, it owned no shares;
(2) at the end of second quarter, it owned no
					 shares;
(3) at the end of third
					 quarter, it owned no shares; and
(4) at the end of fourth quarter, it owned
					 100 shares with a value of $100 a share.
The average value during the period covered by the
						report, on a quarterly basis, of the taxpayer's holdings of X Corporation's
						common stock would be $2,500, computed as follows:
Fair market values of stock
End of 1st quarter
0
End of 2nd quarter
0
End of 3rd quarter
0
End of 4th quarter
$10,000
Total
$10,000
Average Value: 10,000 ÷ 4 = $2,500
Example 2: The taxpayer's inventories and their values
						during the period covered by its report, on a quarterly basis, were as
						follows:
(1) at the end of
					 first quarter, 1,000 tons with a value of $2 a ton;
(2) at the end of second quarter, 2,000 tons
					 with a value of $2 a ton;
(3) at
					 the end of third quarter, 2,000 tons with a value of $3 a ton; and
(4) at the end of fourth quarter, 1,000 tons
					 with a value of $2 a ton.
The average value of the taxpayer's inventories during
						the period covered by the report, computed on a quarterly basis, would be
						$3,500, computed as follows:
Value of inventories
End of 1st quarter
$2,000
End of 2nd quarter
$4,000
End of 3rd quarter
$6,000
End of 4th quarter
$2,000
Total
$14,000
Average Value: 14,000 ÷ 4 = $3,500
Example 3: The taxpayer did not dispose of or acquire any
						part of its plant or equipment during the period covered by its report. The
						values of its plant and equipment were as follows:
(1) at the beginning of the year, the value
					 was $800,000; and
(2) at the end of
					 the year, the value was $780,000.
The average value of the taxpayer's plant and equipment
						during the period covered by its report, computed on the basis of the average
						values at the beginning end and end of such period, would be $790,000, computed
						as follows:
Beginning of year
$800,000
End of year
$780,000
Total
$1,580,000
Average Value: = 1,580,000 ÷ 2 =
									 $790,000