§ 11-64 — Property Factor

§ 11-64 Property Factor.

(a) Computation of property factor. (1) The percentage of the taxpayer's real and tangible personal property within New York City is determined by dividing the average fair market value of such property within New York City (without deduction of any encumbrances) by the average fair market value of all such property within and without New York City. Such property should be included only for the period covered by the report. In determining such percentage real property rented to the taxpayer as well as real and tangible property owned by it must be considered. (2) The average fair market value of real and tangible personal property owned by the taxpayer, both within and without New York City, is determined by the same method used to determine the amount of taxpayer's capital, in accordance with the provisions of 19 RCNY §§ 11-39 and 11-40, supra. The fair market value of real property rented to the taxpayer must be determined in accordance with the provisions of 19 RCNY § 11-64(b), infra. The same method of valuation must be used consistently with respect to property within and without the City. Any method of valuation adopted by the taxpayer on any report and accepted by the Commissioner of Finance my not be changed on any subsequent report except with the consent of the Commissioner. (3) Tangible personal property is within New York City if and so long as it is physically situated or located here, even though it may be stored in a bonded warehouse. Property of the taxpayer held in New York City by an agent, consignee or factor is (and property held outside New York City by an agent, consignee or factor is not) situated or located within New York City. Property, while in transit from a point outside New York City to a point in New York City or vice versa, does not have a fixed situs either within or without the City and, therefore, will not be deemed to be "situated" or "located" within or without New York City. Accordingly, such property while so in transit should be omitted from both the numerator and the denominator of the property factor. Property in transit from a point outside New York City to another point outside New York City is situated or located without New York City. Property in transit from a point in New York City to another point in New York City is situated or located in New York City. (4) Trucks and other rolling equipment used both within and without New York City may be allocated to New York City on the percentage that the mileage within New York City bears to the total mileage within and without New York City, or on the percentage that the time spent in New York City bears to the total time spent within and without New York City, or by any other method approved by the Commissioner of Finance. (5) The term tangible personal property means corporeal personal property, such as machinery, tools, implements, goods, wares and merchandise, and does not mean money, deposits in banks, shares of stock, bonds, notes, credits or evidences of an interest in property and evidences of debt (§ 11-602(10), Administrative Code). (b) Rented real property. (1) As heretofore noted, in determining the property factor, real property rented to the taxpayer, as well as real property and tangible personal property owned by it, must be considered. In order to avoid unnecessary hardship on taxpayers and for ease of administration, the fair market value of real property, both within and without New York City, which is rented to the taxpayer is determined by multiplying the gross rents payable during the period covered by the report by eight. (2) Gross rents as used in this subdivision, is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use or possession of the property and includes: (i) Any amount payable for the use or possession of real property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise. Example 1: A taxpayer, pursuant to the terms of a lease, pays the lessor $1,000 per month and at the end of the year pays the lessor one percent of its gross sales of $400,000. Its gross rent is $16,000. (ii) Any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs or any other amount required to be paid by the terms of a lease or other arrangement. Example 2: A taxpayer, pursuant to the terms of a lease, pays the lessor $24,000 per annum and also pays real estate taxes in the amount of $4,000 and interest on a mortgage in the amount of $2,000. Its gross rent is $30,000. (iii) A proportionate part of the cost of any improvement to real property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination of a lease or other arrangement, based on the unexpired term of the lease commencing with the date the improvement is completed (or the life of the improvement if its life expectancy is less than the unexpired term of the lease), provided, however, that where a building is erected on leased land by or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. (See 19 RCNY § 11-39, supra.) The proportionate part of the cost of an improvement (other than a building on leased land) is generally equal to the amount of the amortization allowed in computing entire net income, whether the lease does or does not contain an option of renewal. Example 3: A taxpayer enters into a 21-year lease of certain premises at a rental of $20,000 per annum and after the expiration of one year installs a new store front at a cost of $10,000 which reverts to the owner upon the expiration of the lease. Its gross rent for the first year is $20,000. However, for subsequent years its gross rent is $20,500 ($20,000 annual rent plus 1/20th of $10,000, the cost of the improvement apportioned on the basis of the unexpired term of the lease). Example 4: A taxpayer leases a parcel of vacant land for 40 years at an annual rental of $5,000 and erects thereon a building which costs $600,000. The value of the land is determined by multiplying the annual rent of $5,000 by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. (3) Gross rents do not include: (i) Intercompany rents if both the lessor and lessee are taxed on a combined basis under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code. (ii) Amounts payable as separate charges for water and electric service furnished by the lessor. (iii) Amounts payable for storage provided no designated space under the control of the taxpayer as a tenant is rented for storage purposes. (iv) That portion of any rental payment, which, in the discretion of the Commissioner of Finance is applicable to property subleased by the taxpayer and not used by it. Example 5: A taxpayer leases certain premises, all of which are of equal value, at a rental of $20,000 per annum and subleases 50 percent of such premises to one or more subtenants receiving a total of $10,000 per annum as rent from such subtenants. Since 50 percent of the rent paid by the taxpayer is applicable to the portion of the premises subleased, 50 percent thereof or $10,000 is excluded in computing the taxpayer's gross rent for such premises. (4) In exceptional cases use of the general method above outlined may result in inaccurate valuations. Accordingly, in such cases any other method which will properly reflect the value may be adopted by the Commissioner of Finance either on his own motion or on request of a taxpayer. Such other method of valuation may not be used by a taxpayer until approved by the Commissioner. Any such request shall set forth full information with respect to the property, together with the basis for the valuation proposed by the taxpayer. Such other method once approved by the Commissioner may be used by the taxpayer in its reports for subsequent years until the facts upon which such other method is based are materially changed.