2013 New York Consolidated Laws
TAX - Tax
Article 13 - (290 - 296) 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) 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.