Computation of Tax

RCNY tit. 19, ch. 11, subch. C

in effect

19 RCNY § 11-21 General.

§ 11-21 General. (a) Under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code, every corporation is treated as a holding corporation to the extent that it holds investments in subsidiaries, as an investment trust to the extent that it holds other securities, and as a business corporation to the extent that it is engaged in ordinary business. In the case of every such corporation, Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code defines and treats differently (1) its subsidiary capital (capital invested in subsidiaries) and the income therefrom; (2) its investment capital and investment income (See 19 RCNY § 11-36 "Investment Capital" and 19 RCNY § 11-69 "Investment Income"); and (3) its business capital and business income (all capital other than subsidiary capital and investment capital, and all income other than investment income and income from subsidiary capital). However, for the sake of simplicity, the law gives some corporations which are predominantly business corporations an election to be taxed entirely as business corporations, and some corporations which predominantly hold investments in securities, an election to be taxed entirely as investment trusts. (b) The taxpayer's "entire net income," or the portion thereof allocated to New York City, is the primary measure for the computation of the tax under Subchapter 2 of Chapter 6 of Title 11. In computing entire net income, all income from subsidiary capital (which does not include any recovery in respect of any war loss) and one-half of all dividends from nonsubsidiary corporations are excluded. The rate of the tax measured by entire net income is five and one-half percent for taxable years beginning before January 1, 1971, and six and seven-tenths percent for taxable years beginning on or after such date. (c) Subchapter 2 of Chapter 6 of Title 11 also provides for three alternative bases for measuring the tax: (1) the tax on capital, measured by the value of assets (exclusive of subsidiary capital); (2) the tax measured by entire net income plus compensation paid to officers and certain stockholders; and (3) the fixed minimum tax of $25. In every case, the corporation is required to pay the tax measured by its entire net income, or one of the three alternative taxes, whichever is greatest. However, a real estate investment trust, as defined in subdivision 7 of § 11-603 of the Administrative Code, shall be subject only to the tax measured by its entire net income or the minimum tax of $25, whichever is greater. In addition, every corporation having any subsidiary capital is required to pay a tax measured thereby at the rate of one-half mill.

19 RCNY § 11-22 Use of Dollar Amounts in Computation.

§ 11-22 Use of Dollar Amounts in Computation. (a) Any amount required to be included in a report shall be entered at the nearest whole dollar amount. However, this does not apply to the items which must be taken into account in making the computations necessary to determine such amount. For example, each sale must be taken into account at its exact amount, including cents, in computing the amount of gross sales to be included in the tax report. A taxpayer may elect not to use whole dollar amounts by reporting all amounts in full, including cents, if a similar election is made for Federal tax purposes. Such election must be made at the time of filing the report and is irrevocable with respect to the taxable year covered by the report. A new election, however, may be made on any report for any subsequent taxable period. (b) For the purpose of the computation to the nearest dollar, a fractional part of a dollar shall be disregarded unless it amounts to one-half dollar or more, in which case the amount (determined without regard to the fractional part of a dollar) shall be increased by one dollar. Example: Exact amount To be reported as $500,000.49 $500,000.00 $500,000.50 $500,001.00 $500,000.51 $500,001.00

19 RCNY § 11-23 Alternative Measures for Computation of Tax.

§ 11-23 Alternative Measures for Computation of Tax. (§ 11-604(1)(a), Administrative Code.) (a) Every corporation subject to tax under Subchapter 2 of Chapter 6 of Title 11 is required to pay: (1) a tax computed by one of the four alternative methods set forth below (whichever results in the highest tax), except that a real estate investment trust, as defined in subdivision 7 of § 11-603 of the Administrative Code, is required to pay only the tax determined under alternative (i) or alternative (iv), whichever is greater: (i) five and one-half percent for taxable years beginning before January 1, 1971 and six and seven-tenths percent for taxable years beginning on or after such date, of its entire net income 19 RCNY § 11-27, infra, or the portion thereof allocated to New York City; (ii) five and one-half percent for taxable years beginning before January 1, 1971 and six and seven-tenths percent for taxable years beginning on or after such date, of an amount equal to 30 percent of the balance remaining after adding to entire net income compensation paid to officers and certain stockholders and deducting therefrom $15,000 (or a proportionate part thereof in the case of a report for less than a year) and any net loss for the reported year, or the portion of such amount allocated to New York City; (iii) one mill (or one-fourth of a mill in the case of a cooperative housing corporation or a housing company organized and operated pursuant to the provisions of Article 2 or 4 of the Private Housing Finance Law) of the total of its business capital and investment capital, or the portion thereof allocated to New York City; (iv) $25; plus (2) a tax computed at the rate of one-half mill on the amount of its subsidiary capital, if any, or the portion thereof allocated to New York City. See 19 RCNY §§ 11-45 through 11-49, infra as to the tax measured by subsidiary capital. (b) For purposes of this section, a cooperative housing corporation means a corporation: (1) having one and only one class of stock outstanding, (2) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation, (3) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and (4) eighty percent or more of the gross income of which for the taxable year is derived from tenant-stockholders.

19 RCNY § 11-24 Computation of Tax on Combined Reports.

§ 11-24 Computation of Tax on Combined Reports. (§ 11-605(4), Administrative Code.) Where corporations are taxed on a combined basis, the tax will be measured by the combined entire net income or combined capital of all the corporations included in the combined report. (See: 19 RCNY § 11-32, infra.) As to when combined reports will be permitted or required, see 19 RCNY § 11-91, infra. For cross reference to other sections relating to combined reports, see 19 RCNY § 11-93, infra.

19 RCNY § 11-25 Adjustments to Correct Distortions of Income or Capital.

§ 11-25 Adjustments to Correct Distortions of Income or Capital. (§ 11-605(5), Administrative Code.) (a) In case it shall appear to the Commissioner of Finance that any agreement, understanding or arrangement exists between the taxpayer and any other corporation or any person or firm, whereby the activity, business, income or capital of the taxpayer within the City is improperly or inaccurately reflected, the Commissioner of Finance is authorized in his discretion to adjust items of income, deductions and capital, and to eliminate assets in computing any allocation percentage provided any income directly traceable thereto is also excluded from entire net income, so as equitably to determine the tax. (b) Where (1) any taxpayer conducts its activity or business under any agreement, arrangement or understanding in such manner as either directly or indirectly to benefit its members or stockholders, or any of them, or any person or persons directly or indirectly interested in such activity or business, by entering into any transaction at more or less than a fair price which, but for such agreement, arrangement or understanding, might have been paid or received therefor, or (2) any taxpayer, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, enters into any transaction with such other corporation on such terms as to create an improper loss or net income, the Commissioner of Finance may include in the entire net income of the taxpayer the fair profits which, but for such agreement, arrangement or understanding, the taxpayer might have derived from such transaction.

19 RCNY § 11-26 Tax Measured by Entire Net Income.

§ 11-26 Tax Measured by Entire Net Income. (a) The primary tax is measured by entire net income, or the portion thereof allocated to New York City, if such calculation results in a higher amount than that computed on any of the other three alternative bases. The rate of the tax measured by entire net income is five and one-half percent for taxable years beginning before January 1, 1971, and six and seven-tenths percent for taxable years beginning on or after such date. (b) Entire net income is divided into business income and investment income. The portion of the entire net income allocated to New York City is determined by multiplying business income by a business allocation percentage, multiplying investment income by an investment allocation percentage, and adding together the results so obtained. (See: 19 RCNY §§ 11-61 et seq.)

19 RCNY § 11-27 Definition of Entire Net Income.

§ 11-27 Definition of Entire Net Income. (§ 11-602(8), Administrative Code.) (a) Entire Net Income means total net income from all sources, and is the same as the taxable income which the taxpayer is required to report to the United States Treasury Department for purposes of the Federal income tax imposed by chapter 1 of the Internal Revenue Code or which the taxpayer would have been required to report if it had not made an election under subchapter S of chapter 1 of the Internal Revenue Code, with the exceptions hereinafter set forth, and subject to any modification required by paragraphs (d) and (e) of subdivision 3 of § 11-604 of the Administrative Code. However, neither the taxable income actually reported nor the taxable income actually determined for Federal income tax purposes is necessarily the same as the taxable income required to be reported for Federal income tax purposes under the provisions of the Internal Revenue Code. Ordinarily, the determination of the Commissioner of Internal Revenue is followed, but it is not binding on the Commissioner of Finance. (b) Federal Taxable Income is the starting point in the computation of entire net income. This means taxable income as defined in section 63 of the Internal Revenue Code, not any special type of taxable income such as "investment company taxable income" however, the taxable income of a real estate investment trust is its "real estate investment trust taxable income" as defined in paragraph 2 of subdivision (b) of § 857 (as modified by § 858) of the Internal Revenue Code, plus the amount taxable under paragraph 3 of subdivision (b) of § 857 of such code. After determining Federal taxable income, it must be adjusted as follows: (1) Add to Federal taxable income: (i) all interest income which has not been included in computing Federal taxable income, such as interest on state and municipal bonds and certain obligations of the United States and its instrumentalities, less interest incurred to carry such investment, to the extent such interest has not been deducted in computing Federal taxable income; (ii) all Federal taxes on or measured by income or profits which were deducted in computing Federal taxable income; (iii) net operating losses of other years which were deducted in computing Federal taxable income; (iv) all New York State franchise taxes imposed under Article 9 or 9-A of the Tax Law which were deducted in computing Federal taxable income; (v) all New York City general corporation taxes imposed under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code; (vi) the amount deducted in computing Federal taxable income for interest on indebtedness (whether or not evidenced by written instrument) directly or indirectly owed to an individual stockholder or members of his immediate family (brothers and sisters of the whole or half blood, spouse, ancestors and descendants) who, in the aggregate, own beneficially more than five percent of the taxpayer's issued capital stock, or to a corporate stockholder including its subsidiaries which owns beneficially more than five percent of the taxpayer's issued capital stock, minus 10 percent of the amount so deducted or $1,000, whichever is larger. However, this provision does not apply to (A) interest paid or accrued on bonds or other evidences of indebtedness issued, with stock, pursuant to a bona fide plan of reorganization to persons who, prior to such reorganization, were bona fide creditors of the taxpayer or any predecessor corporation, but were not stockholders thereof, or (B) interest paid by a taxpayer all of the entire net income of which is allocated by the investment allocation percentage (see: 19 RCNY § 11-68(a) and (b), infra). (vii) all losses from subsidiary capital which were deducted in computing Federal taxable income; and (viii) in the case of a taxpayer organized outside the United States, all income from sources outside the United States less all allowable deductions attributable thereto, which were not taken into account in computing Federal taxable income. (ix) the amount deducted in computing Federal taxable income for interest directly or indirectly attributable, and any other amount directly attributable as a carrying charge or otherwise, to subsidiary capital or to income, gains or losses from subsidiary capital, except to the extent not required in the exercise of discretion by the Commissioner of Finance. (2) Deduct from taxable income: (i) all dividends, interest and gains from subsidiary capital (which does not include any recovery in respect of any war loss) which were taken into account in computing Federal taxable income, but not any other income from subsidiaries; (ii) fifty percent of all dividends from corporations other than subsidiaries, which were included in computing Federal taxable income; (iii) income, war-profits, and excess profits taxes imposed by foreign countries or possessions of the United States, allocable to income included in entire net income, any part of which was allowed as a credit against the Federal income tax under the applicable provisions of the Internal Revenue Code; (iv) all amounts received for the operation of school buses from school districts and from non-profit corporations and associations, organized and operated exclusively for religious, charitable or educational purposes, less any deductions allowed in computing Federal taxable income which are directly or indirectly attributable to such receipts; (v) a net operating loss deduction (See: 19 RCNY § 11-28, infra, for method of computation). (c) For purposes of this subdivision, receipts for the operation of school buses means receipts for the transportation of pupils, teachers and other persons acting in a supervisory capacity, to and from school or school activities in omnibuses subject to the requirements of subdivision 20 of § 375 of the Vehicle and Traffic Law. Deductions attributable to school bus receipts may be determined from the corporate books, if in the opinion of the Commissioner of Finance, the books properly disclose the deductions attributable to school bus receipts. Otherwise, the deductions attributable to school bus receipts may be determined by applying to total allowable deductions the percentage which school bus receipts bear to total receipts from transportation by omnibus, or by any other method approved by the Commissioner of Finance. (d) Recoveries with respect to war losses are required to be included in entire net income, to the extent included in Federal taxable income, irrespective of whether the war losses were theretofore deducted in computing entire net income under Subchapter 2 of Chapter 6 of Title 11, unless the corporation elected under the provisions of the Internal Revenue Code to exclude such recoveries from Federal taxable income in the year of recovery resulting in a computation or recomputation of any tax imposed by the United States. (See: 19 RCNY § 11-84, infra.) (e) At the election of the taxpayer, a deduction from entire net income will be allowed for expenditures for the construction, reconstruction, erection or improvement of industrial waste treatment facilities and air pollution control facilities, computed as provided in paragraph (g) of subdivision 8 of § 11-602 of the Administrative Code. (f) With respect to gain derived from the sale or other disposition of any property acquired prior to January 1, 1966 which had a Federal adjusted basis on such date (or on the date of its sale or other disposition prior to January 1, 1966) lower than its fair market value on January 1, 1966 or the date of its sale or other disposition prior thereto, except property described in subsections 1 and 4 of § 1221 of the Internal Revenue Code, there shall be deducted from entire net income, the difference between (1) the amount of the taxpayer's Federal taxable income, and (2) the amount of the taxpayer's Federal taxable income (if smaller than the amount described in (1) above) computed as if the Federal adjusted basis of each such property (on the sale or other disposition of which gain was derived) on the date of the sale or other disposition had been equal to either (i) its fair market value on January 1, 1966 or the date of its sale or other disposition prior to January 1, 1966, plus or minus all adjustments to basis made with respect to such property for Federal income tax purposes for periods on and after January 1, 1966 or (ii) the amount realized from its sale or disposition, whichever is lower; provided, however, that the total modification provided by this paragraph may not exceed the amount of the taxpayer's net gain from the sale or other disposition of all property. (g) The entire net income of a real estate investment trust shall be computed without regard to the modification required by clause (2) of paragraph (a) and by paragraph (f) of subdivision 8 of § 11-602 of the Administrative Code. (h) Each corporation included in a Federal consolidated group must compute its Federal taxable income for purposes of § 11-602 of the Administrative Code as if such corporation had computed its Federal taxable income on a separate basis for Federal income tax purposes. Provided, however, in the case of a target corporation, as defined in section 338(d)(2) of the Internal Revenue Code, that is a member of a selling consolidated group, as defined in section 338(h)(10)(B) of the Internal Revenue Code, with respect to which an election under section 338(h)(10) has been made, such election shall be recognized for purposes of Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code. For purposes of determining entire net income, the Federal taxable income of such target corporation shall include any gain or loss on the deemed asset sale by such target corporation recognized by virtue of such election. For purposes of determining entire net income, the Federal taxable income of a member of the selling consolidated group, as so defined, that is subject to tax under such subchapter shall not include any gain or loss on the sale or exchange of stock of such target corporation not recognized by virtue of such election. (i) For purposes of determining entire net income of an affiliated target corporation, as defined in Treasury Regulation section 1.338(h)(10)-1(b)(3) that is a member of a selling affiliated group that does not file a federal consolidated return, and for which an election under section 338(h)(10) of the Internal Revenue Code has been made, the Federal taxable income of such affiliated target corporation shall include any gain or loss on the deemed asset sale by such affiliated target corporation recognized by virtue of such election. For purposes of determining entire net income of the selling affiliate of such affiliated target corporation, Federal taxable income shall not include any gain or loss on the sale or exchange of stock of such affiliated target corporation not recognized by virtue of such election. (j) Because the starting point for determining the entire net income of an S corporation is the taxable income that the corporation would have been required to report for Federal tax purposes had no S election been made, any election pursuant to section 338(h)(10) of the Internal Revenue Code made with respect to a target corporation that is an S corporation for Federal tax purposes will be deemed to be an invalid election and will not be recognized for purposes of Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code. If pursuant to this subdivision, a section 338(h)(10) election of an S corporation is not recognized, the corresponding election pursuant to section 338(g) of the Internal Revenue Code will be deemed invalid and will not be recognized for purposes of such subchapter. See Treas. Reg. § 1.338(h)(10)-1(c)(4). As a consequence of the nonrecognition of the section 338(g) election pursuant to this subdivision, the basis of the assets of the target corporation will be determined without regard to any adjustments made pursuant to section 338(b).

19 RCNY § 11-28 Net Operating Loss Deduction.

§ 11-28 Net Operating Loss Deduction. (§ 11-602(8)(f), Administrative Code.) (a) A deduction similar to that allowed under § 172 of the Internal Revenue Code may be allowable in computing entire net income for the purposes of Subchapter 2 of Chapter 6 of Title 11. For New York City tax purposes, as for Federal tax purposes, except as provided in subdivision (b) of this section, a net operating loss may be carried back to each of the three taxable years preceding the year in which the loss was sustained, and may be carried forward to each of the five following taxable years. The New York City net operating loss deduction is presumably the same as that allowed for Federal tax purposes, subject to three limitations explained hereunder. (b) One of these limitations is that no deduction is allowable for a loss sustained during any taxable year in which the taxpayer was not subject to tax under Subchapter 2 of Chapter 6 of Title 11. Example 1: A corporation is incorporated in Pennsylvania in January, 1967. During the taxable year 1967, it sustains an operating loss of $10,000. In January, 1968, it begins to do business in New York City. For the taxable year 1968, it has entire net income of $10,000. No deduction is allowed for any part of the loss sustained in 1967, since the corporation was not subject to New York City General Corporation Tax in 1967. (c) Another limitation on the New York City net operating loss deduction is that any net operating loss which may be carried back or forward for Federal tax purposes must be adjusted to reflect the additions and subtractions required by 19 RCNY § 11-27 above. Example 2: For the calendar year 1969, a taxpayer has Federal gross income of $400,000, including $100,000 dividends from nonsubsidiary corporations, and it has deductible operating expenses of $400,000, including $5,000 New York franchise tax and $5,000 New York City General Corporation Tax. Its Federal net operating loss is $85,000 and its New York City net operating loss is $40,000, computed as follows: Federal Gross income $400,000 Less operating expense $400,000 Taxable income before special deductions 0 Less special dividends – received deduction $85,000 Net operating loss ($85,000) New York City Federal taxable income (loss) ($85,000) Add amount of Federal deductions for New York franchise tax $5,000 City General Corporation Tax $5,000 Dividends received $85,000 $95,000 $10,000 Subtract 50 percent of dividends received $50,000 New York City net operating loss ($40,000) Example 3: If the dividends in example 2 were from subsidiaries, the New York City net operating loss would be $90,000, computed as follows: Federal taxable income (loss) ($85,000) Add amount of Federal deductions for New York franchise tax $5,000 City General Corporation Tax $5,000 Dividends received $85,000 $95,000 $10,000 Subtract Dividends from subsidiaries $100,000 New York City net operating loss ($90,000) (d) The third limitation on the New York City net operating loss deduction is that in any year it may not exceed the deduction allowable for that year for Federal tax purposes under § 172 of the Internal Revenue Code. Example 4: If the taxpayer in example 3 in 1966 and 1967 had Federal gross income of $500,000, including $100,000 of dividends from subsidiary corporations and expenses of $350,000 including New York franchise taxes of $5,000 and New York City General Corporation Tax of $5,000, its Federal and City net operating loss deductions will be $65,000 in 1966 and $20,000 in 1967, computed as follows: Federal 1966 Gross income $500,000 Expense $350,000 $150,000 Less dividends received $85,000 $65,000 Net operating loss deduction (out of total Federal loss for 1969 of $85,000) $65,000 Taxable income 0 1967 Gross income $500,000 Expenses $350,000 $150,000 Less dividends received $85,000 $65,000 1969 operating loss carry-back $85,000 Less amount deducted in 1966 $65,000 Net operating loss deduction $20,000 Taxable income $45,000 New York City 1966 Federal taxable income 0 Add New York franchise tax $5,000 City General Corporation Tax $5,000 Deduction for dividends $85,000 Federal net operating loss deduction $65,000 $160,000 $160,000 Less 100 percent of dividends $100,000 $60,000 Net operating loss deduction (out of total New York City loss for 1969 of $90,000) $65,000 Entire net income (loss) ($5,000) 1967 Federal taxable income $45,000 Add New York franchise tax $5,000 City General Corporation Tax $5,000 Deduction for dividends $85,000 Federal net operating loss deductions $20,000 $115,000 $160,000 Less 100 percent of dividends $100,000 $60,000 Net operating loss deduction (the unused balance of the New York City loss of $90,000 for 1969 – see example 3, supra – would be $25,000, but the New York City deduction may not exceed the Federal deduction $20,000 Entire net income $40,000 Since allowance of the net operating loss deduction in 1966 results in a net loss for the carry-back year, the taxpayer will be subject to tax for that year on one of the alternative bases mentioned in 19 RCNY § 11-23, supra. It should be noted that the $5,000 loss shown above may be subtracted in determining the base of the alternative tax measured by entire net income plus compensation paid to officers and stockholders (See: 19 RCNY § 11-34, infra). It may not, however, be carried back or forward to any other year as a net operating loss deduction. Although deductions totaling only $85,000 are allowed for 1966 and 1967 on account of the $95,000 loss sustained in 1969, the $10,000 balance cannot be carried forward to any year subsequent to 1967. Because, for Federal tax purposes, the entire amount of the 1969 loss has been used up in the 1966 and 1967 deductions, no Federal deductions will be allowable in any other year, and the New York City deduction for any year can never exceed the Federal deduction. Example 5: In 1969 a corporation has a Federal net operating loss of $10,000 and a New York City net operating loss of $8,000. The corporation is allowed a Federal deduction of $10,000 for said loss in 1966. In 1966 its New York City General Corporation Tax was computed on the mill tax basis (see: 19 RCNY § 11-35, infra). There was, thus, no income base for the 1966 City General Corporation Tax against which the 1969 New York City operating loss can be applied. Nor can any New York City deduction on account of this loss be allowed in 1967 or any other year since (a) the Federal deduction on account of the loss was wholly allowed for 1966, (b) it was allowed in no part for any other year, and (c) the New York City deduction can never exceed the Federal deduction. (e) The fact that a net operating loss is carried back or forward as a deduction in some other year does not prevent its use in computing, for the year in which the loss was sustained, the tax measured by entire net income plus compensation paid to officers and stockholders (see: 19 RCNY § 11-34, infra). Example 6: In 1969 a corporation paid salaries of $30,000 to its officers and stockholders and sustained a New York City net operating loss of $10,000 for which it is allowed a deduction of the same amount against its entire net income for 1966. Such net operating loss would nevertheless be taken into consideration in computing the third alternative tax for 1969, as follows: Salaries minus $15,00 $15,000 Net operating loss $10,000 $5,000 30 percent of such balance $1,500 Tax at 5 1/2 percent $82.50 (f) (1) In the case of a corporation which reports for New York City General Corporation Tax purposes on a combined basis with one or more related corporations, either in the year in which a net operating loss is sustained or in the year in which a deduction is claimed on account of such loss, the allowance of such deduction is subject to the same limitations which would apply for purposes of the Federal income tax if such corporation had filed for such year a consolidated Federal income tax return with the same related corporations. These limitations apply to allowance of the New York City net operating loss deduction regardless of whether in fact such corporation, for Federal income tax purposes, filed an individual or a consolidated return. (2) In general, any carry-back or carry-over from a year in which a combined report was filed (for New York City General Corporation Tax purposes) must be based upon the combined net operating loss of the group of corporations filing such report. The portion of such combined loss attributable to any member of the group which files a separate report for a preceding or succeeding taxable year will be an amount bearing the same relation to the combined loss as the net operating loss of such corporation bears to the total net operating losses of all members of the group having such losses, to the extent that they were taken into account in computing the combined net operating loss. Example 7: In 1966, X Corp. filed a separate New York City General Corporation Tax report showing entire net income of $20,000 and also filed a separate Federal income tax return showing Federal taxable income of the same amount. In 1969, it filed a separate Federal return showing a net operating loss of $10,000 but joined with Y Corp. and Z Corp. in filing a combined New York City General Corporation Tax report showing the following: X Corp. – net operating loss ($10,000) Y Corp. – net operating loss ($20,000) Z Corp. – entire net income $15,000 Combined net operating loss ($15,000) For New York City General Corporation Tax purposes, the deduction allowable to X Corp. against its 1966 income must be based upon the combined net operating loss shown above, and the portion of the combined loss attributable to X Corp. is one-third thereof or $5,000. This is because the net operating loss of X Corp. was one-third of the total net operating losses of all members of the combined group having such losses (X Corp., $10,000 and Y Corp., $20,000).

19 RCNY § 11-29 Entire Net Income of Certain Bridge Commissions.

§ 11-29 Entire Net Income of Certain Bridge Commissions. (§ 11-602(8)(e), Administrative Code.) The entire net income of any bridge commission created by the act of Congress to construct a bridge across an international boundary is its gross income less the expense of maintaining and operating its properties, the annual interest on its bonds and other obligations, and the annual charge for the retirement of such bonds or obligations at maturity.

19 RCNY § 11-30 Year in Which Income or Deductions Included in Entire Net Income.

§ 11-30 Year in Which Income or Deductions Included in Entire Net Income. (§ 11-602(8)(d), Administrative Code.) In general, the method of accounting used in computing taxable income for Federal income tax purposes is used in computing entire net income. However, whenever the Commissioner of Finance deems it necessary in order properly to reflect entire net income of the taxpayer, he may determine the year or period in which any item of income or deduction shall be included, without regard to the method of accounting used by the taxpayer. Example: A taxpayer has a building, installation or construction contract covering a period in excess of one year. The taxpayer keeps his books so as to reflect the total income derived from the contract in the taxable year in which the contract is finally completed, and reports its Federal taxable income accordingly. The Commissioner of Finance may require that income from the contract be apportioned over the entire contract period, on the basis of percentage of completion in each year, or some other appropriate basis.

19 RCNY § 11-31 Adjustment of Entire Net Income to Period Covered By Report.

§ 11-31 Adjustment of Entire Net Income to Period Covered By Report. (a) If the entire net income required to be reported under Subchapter 2 of Chapter 6 of Title 11 is for a period other than the period covered by the taxpayer's Federal income tax return, its Federal taxable income is first adjusted in the manner set forth in 19 RCNY § 11-27, then divided by the number of calendar months or major parts thereof covered by the Federal income tax return, and the result multiplied by the number of calendar months or major parts thereof covered by the report under Subchapter 2 of Chapter 6 of Title 11. Example: A corporation was organized in 1959 under the laws of a State other than New York, in which other state it carried on its business until March 1, 1966, when it began to do business in New York City. It filed its return for Federal income tax purposes for the calendar year 1966, wherein its taxable income required to be reported was $70,000. In computing its entire net income for the period from March 1, 1966 to December 31, 1966, its Federal taxable income for the calendar year 1966 ($70,000) is first adjusted to conform to entire net income as defined in Subchapter 2 of Chapter 6 of Title 11, and then divided by 12 and the result multiplied by 10. (b) The method of computing entire net income set forth in the above example is, under similar circumstances, also applicable to corporations reporting on a fiscal year basis for Federal income tax purposes. (c) However, if in the opinion of the Commissioner of Finance this method does not properly reflect the taxpayer's net income for franchise tax purposes during the period covered by its report, the Commissioner may determine entire net income solely on the basis of the taxpayer's income during such period.

19 RCNY § 11-32 Computation of Entire Net Income on Combined Reports.

§ 11-32 Computation of Entire Net Income on Combined Reports. In the case of combined reports, all intercompany dividends are eliminated in computing combined entire net income. As to when combined reports will be permitted or required, see 19 RCNY § 11-91, infra.

19 RCNY § 11-33 Adjustments to Correct Distortions of Income.

§ 11-33 Adjustments to Correct Distortions of Income. For adjustments of income and deductions to correct distortions, see 19 RCNY § 11-25, supra.

19 RCNY § 11-34 Computation of Tax Measured By Entire Net Income Plus Compensation.

§ 11-34 Computation of Tax Measured By Entire Net Income Plus Compensation. (§ 11-604(1), Administrative Code.) (a) An alternative basis for measuring the primary tax is entire net income plus certain compensation with various adjustments, or the portion of such sum allocable to New York City, if such calculation results in a higher amount than that computed on any of the other three alternative bases. The rate of the tax measured by income plus compensation is five and one-half percent for taxable years beginning before January 1, 1971, six and seven-tenths percent for taxable years beginning on or after January 1, 1971 and ending on or before December 31, 1974, ten and five one-hundredths percent for taxable years beginning on or after January 1, 1975 and before January 1, 1977, nine and one half percent for taxable years beginning on or after January 1, 1977 and before January 1, 1978, nine percent for taxable years beginning on or after January 1, 1978 and before January 1, 1987, and eight and eighty-five one-hundredths percent for taxable years beginning after December 31, 1986. The applicable rates for taxable years beginning in 1974 and ending in 1975 shall be those set forth in Administrative Code § 11-604(1)(C). (b) The measure of the tax is computed as follows: (1) Add to the amount of entire net income or net loss (treated as a negative figure) (see example 4) for the year, if any, (i) all salaries and other compensation paid to every stockholder owning in excess of five percent of its issued capital stock, but only if and to the extent that a deduction was allowed for such salaries and compensation in computing entire net income (or net loss); and (ii) to the extent not required by subparagraph (i), (A) for taxable years beginning before July 1, 1996, all salaries and other compensation paid to the taxpayer's elected or appointed officers, but only if and to the extent that a deduction was allowed for such salaries and compensation in computing entire net income (or net loss); (B) for taxable years beginning on or after July 1, 1996 but before July 1, 1998, 75 percent of the total amount of salaries and other compensation paid to the taxpayer's elected or appointed officers for which a deduction was allowed in computing entire net income (or net loss); (C) for taxable years beginning on or after July 1, 1998 but before July 1, 1999, 50 percent of the total amount of salaries and other compensation paid to the taxpayer's elected or appointed officers for which a deduction was allowed in computing entire net income (or net loss); and (D) for taxable years beginning on or after July 1, 1999, no part of salaries and other compensation paid to the taxpayer's elected or appointed officers. (iii) Notwithstanding anything to the contrary in subparagraph (ii) of this paragraph (1), the full amount of salaries or other compensation paid to any elected or appointed officer for which a deduction was allowed in computing entire net income (or net loss) shall be added to that amount if such officer was, at any time during the taxable year, a stockholder owning more than five percent of the taxpayer's issued capital stock. (2) Deduct from such total (i) for taxable years beginning before July 1, 1997, § 15,000, (ii) for taxable years beginning on or after July 1, 1997 but before July 1, 1998, $30,000, (iii) for taxable years beginning on or after July 1, 1998, $40,000, (or a proportionate part of the applicable amount in the case of a return for less than a year.) (3) Multiple the balance by 30 percent. (c) An elected or appointed officer includes the chairman, president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer, comptroller, and also any other officer, irrespective of his title, who is charged with and performs any of the regular functions of any such officer. A director is not an elected or appointed officer unless he performs duties ordinarily performed by an officer. However, there must be included all compensation received by an officer from the corporation in any capacity, including director's fees. (d) A stockholder owning in excess of five percentum of its issued capital stock is a person or corporation who is the beneficial owner of more than five percent of the capital stock of the taxpayer, issued and outstanding. Rules for determining the beneficial ownership of stock are set forth in § 11-46(a), "subsidiary," infra. (e) The provision for measuring the tax on the basis of entire net income plus compensation is designed to prevent tax avoidance by the distribution of profits in the form of excessive salaries. However, measurement of the tax on such basis does not affect the power of the Commissioner of Finance to disallow deductions claimed for unreasonable salaries in computing entire net income. (f) The provisions of subdivision (b) of this section are illustrated by the following examples: Example 1: HCO Corporation is a calendar year taxpayer with three shareholders, B, C and D. B owns 4% and C and D each own 48% of HCO's stock. HCO has two subsidiaries. For calendar year 1999, HCO's gross income, other than income from its subsidiaries is $2,000,000. HCO has no investment income or capital. HCO's business allocation percentage is 100%. B is an officer of HCO; C and D are employees but not officers. HCO pays B a salary of $250,000 and C and D each a salary of $500,000. All of B's salary is attributable to subsidiary capital. No portion of C's or D's salary is attributable to subsidiary or investment capital or income. HCO has other deductions of $700,000, of which HCO attributes $100,000 to subsidiary capital and $600,000 to business capital. HCO's federal taxable income is $50,000. After adding back deductions attributable to subsidiary capital, HCO's entire net income is $400,000. The tax on the entire net income base would be $35,400 (8.85% × $400,000). HCO is not subject to tax on the capital base. HCO's alternative tax base is determined as follows: Entire net income $400,000 plus C and D's salaries $1,000,000 less fixed dollar amount ($40,000 $1,360,000 multiplied by 30% × .30 $408,000 B's salary is not added back because no deduction was allowed for it in determining entire net income. The tax on the alternative basis would be $36,108 ($408,000 × 8.85%). Therefore, HCO pays tax on the alternative tax basis. Example 2: The facts are the same as in example 1 except that only 60% of B's salary is attributable to subsidiary capital and, therefore, $150,000 of B's salary is disallowed as an expense attributable to subsidiary capital. After adding back that portion of B's salary attributable to subsidiary capital, HCO's entire net income is $300,000. For calendar year 1999, only 50% of that portion of B's salary deductible in determining HCO's entire net income is added back in calculating the alternative tax base. HCO's alternative tax base is determined as follows: Entire net income $300,000 plus C&D's salaries $1,000,000 plus 50% of B's deductible salary $50,000 less Fixed dollar amount ($40,000) $1,310,000 Multiplied by 30% × .30 $393,000 The tax on the alternative base would be $34,781 which is more than the tax calculated on the entire net income base ($26,550). Therefore, HCO would pay tax on the alternative base. Example 3: The facts are the same as in Example 1 but D is an officer but not a shareholder of HCO and the taxable year is calendar year 2000. No part of B's or D's salary is added back for years beginning after June 30, 1999. HCO's alternative tax base is determined as follows: Entire net income $400,000 plus C's salary $500,000 less fixed dollar amount ($40,000) $860,000 multiplied by 30% × .30 $258,000 The tax on the alternative base would be $22,833 ($258,000 × 8.85%). Because that amount is less than the tax measured by entire net income, $35,400, HCO would pay tax on the entire net income basis. Example 4: ABC Corporation is a calendar year taxpayer. For calendar year 2000, ABC's gross income is $1,000,000 all of which is business income. ABC's business allocation percentage is 100%. ABC pays a salary of $700,000 to A, its vice president for finance. A also owns 6% of the stock of ABC. ABC has $400,000 of other deductions. ABC has a net loss for the year of ($100,000). ABC is not liable for tax on the capital base. ABC's alternative tax base is calculated as follows: Net loss ($100,000) plus A's salary $700,000 less fixed dollar amount ($40,000) $560,000 multiplied by 30% × .30 $168,000 Because A owns more than 5% of ABC's stock, all of A's salary is added back in calculating the alternative tax base. The tax calculated on the alternative base is $14,868, which is higher than the tax on the ENI base, $0. Therefore, ABC pays tax on the alternative base.

19 RCNY § 11-35 Computation of Tax Measured By Business and Investment Capital.

§ 11-35 Computation of Tax Measured By Business and Investment Capital. (§ 11-604(1), Administrative Code.) An alternative basis for measuring the primary tax is total business and investment capital, or the portion thereof allocated to New York City, if such calculation results in a higher amount than that computed on any of the other three alternative bases. The rate of tax is one mill (or one-fourth of a mill in the case of a cooperative housing corporation or a housing company organized and operating pursuant to the provisions of Article 2 or 4 of the Private Housing Finance Law) on each dollar of total or allocated business and investment capital.

19 RCNY § 11-36 Definition of Business Capital.

§ 11-36 Definition of Business Capital. (§ 11-602(b), Administrative Code.) (a) The term "business capital" means the total average fair market value of all the taxpayer's assets (whether or not shown on its balance sheet), exclusive of stock issued by the taxpayer or assets constituting subsidiary capital (19 RCNY § 11-46, "subsidiary capital," infra) or investment capital (19 RCNY § 11-36, "investment capital," supra), less current liabilities (other than loans or advances outstanding for more than a year) payable by their terms on demand or not more than one year from the date incurred, to the extent such liabilities are not deducted in computing subsidiary capital or investment capital. (b) Liabilities so deductible include notes, accounts payable, wages payable, accrued taxes, expenses and interest. Notes and other written obligations payable by their terms on demand or not more than one year from their date, which are regularly renewed from year to year, are not deductible in computing business capital. Loans or advances outstanding for more than a year as of any date during the year covered by the report, are not deductible in computing business capital. Where a taxpayer owns property subject to a debt, lien or encumbrance or other obligation, the fair market value of the property, not merely the taxpayer's equity therein, shall be used in computing the average fair market value of the property in valuing business capital, whether or not the taxpayer has any personal liability under any obligation to which the property is held subject. (c) The term "business capital" includes loans to a subsidiary, the interest on which is claimed by and allowed to the subsidiary as a deduction for purposes of any tax imposed by Title 11, Chapter 6, Subchapter 2 or Subchapter 3 of the Administrative Code, provided such loans do not constitute investment capital pursuant to 19 RCNY § 11-37. (d) (1) If in a taxable year a taxpayer has business capital but no investment capital, cash in hand and cash on deposit (as defined in 19 RCNY § 11-37(a)(3)) must be treated on all reports for the taxable year as business capital. (2) If in a taxable year a taxpayer has both business and investment capital, the taxpayer may elect to treat cash on hand and cash on deposit (as defined in 19 RCNY § 11-37(a)(3)) as business capital. A taxpayer may not elect to treat part of its cash as business capital and part as investment capital. No election to treat cash as business capital may be made if the taxpayer has no business capital exclusive of cash. Any taxpayer who may elect under this paragraph (2) will be presumed to have made an irrevocable election to treat cash as business capital for that taxable year unless such taxpayer properly elects under 19 RCNY § 11-37(a)(2)(ii) to treat cash on hand and on deposit as investment capital.

19 RCNY § 11-37 Definition of Investment Capital.

§ 11-37 Definition of Investment Capital. (§ 11-602(4), Administrative Code.) (a) (1) The term "investment capital" means the taxpayer's investments in stocks, bonds and other securities issued by a corporation (except as provided in paragraph (4) of this subdivision) or by the United States, any state, territory or possession of the United States, the District of Columbia, or any foreign country, or any political subdivision or governmental instrumentality of any of the forgoing (see subdivisions (c) - (h) of this section). (2) (i) If in a taxable year a taxpayer has investment capital but no business capital, cash on hand and cash deposit must be treated on all reports for the taxable year as investment capital. (ii) If in a taxable year a taxpayer has both business and investment capital, the taxpayer may elect to treat cash on hand and cash on deposit, as defined in paragraph (3) of this subdivision, as investment capital (see 19 RCNY § 11-36(d) for election to treat cash as business capital). Once an election is made for a taxable year, it shall be irrevocable for that taxable year. The election must be made on the original return for the taxable year; any purported election made on an amended return is invalid. A separate election must be made for each taxable year. A taxpayer may not elect to treat part of its cash as investment capital and part as business capital. No election to treat cash as investment capital may be made where the taxpayer has no investment capital exclusive of cash. Any taxpayer who may elect under this subparagraph (ii) and has filed a return for the taxable year but who has not properly made such an election will be presumed to have made an irrevocable election to treat cash on hand and on deposit as business capital. (3) Any debt instrument, including a certificate of deposit, described in paragraph (2) or (3) of subdivision (c) of this section and not described in paragraph (4) of this subdivision (a) that is payable by its terms on demand or within six months and one day from the date on which the debt was incurred, is deemed to be cash on hand or on deposit. Any such debt instrument that is payable by its terms more than six months and one day from the date on which the debt was incurred is deemed to be cash on hand or on deposit on any day that is not more than six months and one day prior to its date of maturity. Cash also includes shares in a money market mutual fund. A money market mutual fund is a no-load, open-end investment company registered under the Federal Investment Company Act of 1940 that attempts to maintain a constant net asset value per share and holds itself out to be a money market fund. Example: On February 1, 1990, Corporation A, a calendar year taxpayer, purchased a certificate of deposit with a maturity date of January 31, 1991, which was a qualifying corporate debt instrument as that term is in subdivision (d) of this section. On July 1, 1990, Corporation A purchased a four-month qualifying corporate debt instrument on the day it was issued and renewed it, with the identical terms, on November 1, 1990. Corporation A bought a qualifying corporate debt instrument on August 1, 1990, the day it was issued, with a maturity date of February 2, 1991. On September 1, 1990, the corporation bought a nine-month qualifying corporate debt instrument which had been issued on January 1, 1990 and was due on October 1, 1990. The renewal of the four-month debt instrument purchased on July 1, 1990 is treated as the creation of a second, separate debt instrument, each of the two instruments being due within six months and one day of the date on which the debt was incurred. For the taxable year ending December 31, 1990, the two four-month debt instruments and the debt instrument due on February 2, 1991 is deemed to be cash because it is due on February 2, 1991 is deemed to be cash because it is due within six months and one day from the date on which it was issued. The nine-month debt instrument is deemed to be cash because each day on which the taxpayer owned it was a day not more than six months and one day prior to its maturity date. The one-year certificate of deposit is deemed to be cash on July 30, 1990 (the first day not more than six months and one day before its maturity date of January 31, 1990) and each day thereafter. (4) Investment capital does not include: (i) stock issued by the taxpayer; (ii) stocks, bonds or other securities constituting subsidiary capital; (iii) securities issued by an individual, partnership, trust or other non-governmental entity that is not a corporation within the definition contained in Administrative Code § 11-602.1 (e.g., Federal National Mortgage Association and Government National Mortgage Association pass-through certificates); (iv) regular interests and residual interests in a real estate mortgage investment conduit (REMIC), as defined in section 860D of the Internal Revenue Code; (v) assets reflected in the taxpayer's books and records in connection with futures contracts and forward contracts except as provided in subdivision (g) of this section; or (vi) stocks, bonds and other securities held by the taxpayer for sale to customers in the regular course of its business. (b) The amount of investment capital is determined as set forth in subdivision (b) of 19 RCNY § 11-38. (c) For purposes of paragraph (1) of subdivision (a) of this section, the phrase "stocks, bonds and other securities" means: (1) stocks and similar corporate equity instruments, such as business trust certificates; (2) debt instruments issued by the United States, any state, territory or possession of the United States, the District of Columbia, or any foreign country, or any political subdivision or governmental instrumentality of any of the foregoing; (3) qualifying corporate debt instruments (see subdivision (d) of this section); (4) options on any item described in paragraph (1), (2), or (3) of this subdivision and not described in paragraph (4) of subdivision (a) of this section, or on a stock or bond index, or on a futures contract on such an index, unless the options are purchased primarily to diminish the taxpayer's risk of loss from holding one or more positions in assets that constitute business or subsidiary capital; and (5) stock rights and stock warrants not in the possession of the issuer thereof. Provided, however, debt instruments described in paragraph (2) or (3) of this subdivision that are deemed to be cash pursuant to paragraph (3) of subdivision (a) of this section do not constitute stocks, bonds or other securities. (d) Qualifying corporate debt instruments. (1) The term "qualifying corporate debt instruments" means all debt instruments issued by a corporation other than the following: (i) instruments issued by the taxpayer; (ii) instruments that constitute subsidiary capital in the hands of the taxpayer; (iii) instruments acquired by the taxpayer for services rendered, or for the sale, rental or other transfer of property, where the obligor is the recipient of the services or property; however, where a taxpayer sells or otherwise transfers property that is investment capital in the hands of such taxpayer (e.g., stock) and receives in return a corporate obligation issued by the recipient of such property, such corporate obligation, if it is not otherwise excluded from the category of investment capital, would constitute investment capital in the hands of the taxpayer; (iv) instruments acquired for funds if (i) the obligor is the recipient of such funds, (ii) the taxpayer is principally engaged in the business of lending funds, and (iii) the obligation is acquired in the regular course of the taxpayer's business of lending funds; (v) accepted drafts (such as banker's acceptances and trade acceptances) where the taxpayer is the drawer of the draft; (vi) instruments issued by a corporation that is a member of an affiliated group that includes the taxpayer; and (vii) accounts receivable, including those held by a factor. (2) Terms used in this subdivision shall have the meanings prescribed as follows: (i) Affiliated group. The term "affiliated group" means a corporation or corporations and the common parent of such corporation or corporations. The "common parent" of a corporation or corporations means an individual, corporation, partnership, trust or estate that owns or controls, either directly or indirectly, at least 80 percent of the voting stock of such corporations or of each of such corporations. An affiliated group also includes all other corporations at least 80 percent of the voting stock of which is owned or controlled, either directly or indirectly, by one or more of the corporations included in the affiliated group, or by the common parent and one or more of the corporations included in the affiliated group. (ii) Principally engaged in the business of lending funds. A taxpayer is "principally engaged in the business of lending funds" for purposes of this subdivision if, during the taxable year, more than 50 percent of its receipts consist of interest from loans or net gain from the sale or redemption of notes or other evidences of indebtedness arising from loans made by the taxpayer. For purposes of the preceding sentence, receipts do not include return of principal or non-recurring, extraordinary items. (e) For purposes of this section, the phrase "stocks, bonds and other securities" includes instruments held in book entry form. (f) Repurchase agreements. (1) "Repurchase agreement" is a term used to describe a transaction in which one party (the seller/borrower), in formal terms, sells securities to a second party (the purchaser/lender) and simultaneously contracts to repurchase the same or identical securities. Depending upon the nature of the agreement, in some instances the purchaser/lender in fact will have purchased the securities, whereas in other instances the transfer of funds to the seller/borrower in fact will constitute a loan collateralized by the securities. If the purchaser/lender is a taxpayer, it is necessary to determine whether the result of such a transaction is the holding by the purchaser/lender of investment capital. If, as a result of the repurchase agreement, the purchaser/lender owns the securities and the securities are encompassed within the definition of investment capital contained in subdivision (a) of this section, such securities will constitute investment capital in the hands of the purchaser/lender. If the purchaser/lender has not acquired ownership of the securities, then it is a lender of funds and has acquired a debt instrument issued by the seller/borrower collateralized by the securities. Unless such debt instrument constitutes cash pursuant to paragraph (3) of subdivision (a) of this section, where such debt instrument is encompassed within the definition of investment capital contained in subdivision (a) and (c) of this section, such instrument will constitute investment capital in the hands of the purchaser/lender. Otherwise, it will constitute either business capital or subsidiary capital. (2) In a repurchase transaction, the question of whether the purchaser/lender is the owner of the securities, rather than the owner of a debt instrument issued by the seller/borrower, turns on whether such purchaser/lender has acquired the economic benefits and burden of ownership of the securities. The purchaser/lender is the owner of the securities if it (A) has the right freely to dispose of or pledge the securities to a third party and (B) has acquired the opportunity for profit and bears the risk of loss deriving from changes in the market value of the securities. All of these factors must be present simultaneously in order for a transfer of ownership to be recognized. The absence of any of these factors will render the transaction a loan. In such event, the purchaser/lender would be viewed as having acquired a debt instrument of the seller/borrower, collateralized by the securities. Where there is ambiguity as to the existence of any of the factors, recourse may be had to an examination of various other features of the transaction. Features that are consistent with a characterization of the transaction as a loan, but that are not dispositive in and of themselves are: (i) an obligation on the part of the purchaser/lender, where it sells the securities upon the failure of the seller/borrower to "repurchase" the securities, to turn over to the seller/borrower the proceeds in excess of the amount due to the purchaser/lender from the seller/borrower, and a right on the part of the purchaser/lender to hold the seller/borrower liable for any deficiency arising from such sale; (ii) an obligation on the part of the seller/borrower to pay interest at a stipulated rate; (iii) a disparity at the time of the initial transaction between the fair market value of the securities and the amount paid or advanced by the purchaser/lender; (iv) a right on the part of the purchaser/lender to require additional collateral if the market value of the securities declines (e.g., a mark to market provision); and (v) failure to treat the transaction as a sale or exchange for Federal income tax purposes; e.g., with respect to the reporting of gain or loss on each of the two purported sales, or the exclusion by the seller/borrower under Internal Revenue Code section 103(a) of interest, if any, earned on the securities during the period between the initial "sale" and the "repurchase." (g) Investment capital shall include assets reflected in the taxpayer's books and records in connection with futures or forward contracts if such contracts substantially diminish the taxpayer's risk of loss from holding one or more positions in assets that constitute investment capital or if such contracts substantially diminish the taxpayer's risk of loss from holding one or more positions in assets that constitute investment capital or if such contracts substantially diminish the taxpayer's risk of loss from making short sales of assets that constitute investment capital. If the taxpayer holds more positions in futures or forward contracts than are reasonably necessary to substantially diminish its risk of such losses, assets attributable to the excess positions in futures or forward contracts are not included in investment capital. (h) The following example illustrates some of the provisions of this section. Example: Corporation A is a manufacturing corporation and a taxpayer. It owns 10,000 shares of stock in Corporation B (a manufacturing firm that has 5,000,000 shares of stock issued and outstanding), a $1,000,000 Government National Mortgage Association (GNMA) pass-through certificate, a $1,000,000 Federal National Mortgage Association (FNMA) pass-through certificate and a $100,000 FNMA debenture. Corporation A's investment capital consists of the shares of stock in Corporation B, and the FNMA debenture. The FNMA debenture constitute investment capital because it is a qualifying corporate debt investment issued by a corporation. Although the FNMA and GNMA certificates are guaranteed by FNMA and GNMA, respectively, they do not constitute investment capital because they are issued by a trust and thus are not "corporate or governmental."

19 RCNY § 11-38 Determination of Business and Investment Capital.

§ 11-38 Determination of Business and Investment Capital. (§ 11-604(2), Administrative Code.) (a) The amount of the business capital of the taxpayer is determined by taking the total average fair market value, during the period covered by the report, of all the assets of the taxpayer which constitute business capital, less certain current liabilities (19 RCNY § 11-36 "investment capital," supra). (b) The amount of the investment capital of the taxpayer is determined as follows: (1) ascertain the average value of each item of investment capital (including cash, where the election described in paragraph (2) of subdivision (a) of 19 RCNY § 11-37 is made); (2) ascertain the net value of each such item by subtracting from the average value of each such item average liabilities that are directly or indirectly attributable to that item; and (3) add the net values so arrived at. The average value of a marketable security included in investment capital is its average fair market value, and the average value of an item of investment capital that is not a marketable security is the average value shown (or which should have been shown, if not so shown) on the books and records of the taxpayer in accordance with generally accepted accounting principles.

19 RCNY § 11-39 Fair Market Value.

§ 11-39 Fair Market Value. (a) The fair market value of any asset owned by the taxpayer is the price at which a willing seller, not compelled to sell, will sell and a willing purchaser, not compelled to buy, will buy. For determination of the fair market value of real property rented to the taxpayer, see 19 RCNY § 11-64(b), infra. (b) The fair market value, on any date, of stocks, bonds and other securities regularly dealt in on an exchange, or in the over-the-counter market, is the mean between the highest and lowest selling prices on that date. If there were no sales on the valuation date, such value is the mean between the highest and the lowest selling prices on the nearest date, within a reasonable time, on which there were sales. If actual sales within a reasonable time are not available, the fair market value is the mean between the bona fide bid and asked prices on the valuation date or the nearest date within a reasonable time. (c) If actual sales prices or bona fide bid and asked prices within a reasonable time are not available or if by reason of the character or extent of the taxpayer's investments or for any other reason such prices are not truly indicative of value, the fair market value is ascertained (1) in the case of shares of stock, on the basis of the issuing corporation's net worth, earning power, book value, dividends paid, and all other relevant factors, and (2) in the case of bonds and other securities, by giving consideration to various factors including the soundness of the security, the interest yield, and the date of maturity. (d) If a taxpayer consistently values its stocks, bonds and other securities on some other basis, such as the last selling price on the valuation date, such method of valuation may be accepted by the Commissioner of Finance. In all such cases, a complete explanation of the method of valuation must be included in the report.

19 RCNY § 11-40 Average Fair Market Value.

§ 11-40 Average Fair Market Value. In determining average fair market value, due 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 variations in market prices. Average fair market value generally is computed on a quarterly basis where the taxpayer's usual accounting practice permits of 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 of quarterly or more frequent computation of average fair market value, a semiannual or annual computation may be used where no distortion of average fair market value will result. If, because of variations in the amount or value of any class of assets, it appears to the Commissioner of Finance that averaging on an annual, semiannual or quarterly basis does not properly reflect average fair market value, the Commissioner may require averaging on a more frequent basis. Any method of determining average fair market value which is adopted by the taxpayer on any report and accepted by the Commissioner of Finance may not be changed on any subsequent report, except with the consent of the Commissioner. Example 1: The taxpayer's holdings of X corporation's common stock, and the fair market value thereof, during the period covered by its report, on a quarterly basis, were as follows: (1) end of first quarter, 100 shares of the fair market value of $10,000; (2) end of second quarter, no shares; (3) end of third quarter, no shares; (4) end of fourth quarter, no shares. The average fair market 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: $10,000 + 0 + 0 + 0 = $10,000 ÷ 4 = $2,500 Example 2: The taxpayers inventories, during the period covered by the report, on a quarterly basis, were as follows: (1) end of first quarter, 1,000 tons of the fair market value of $2 a ton – $2,000; (2) end of second quarter, 2,000 tons of the fair market value of $2 a ton – $4,000; (3) end of third quarter, 2,000 tons of the fair market value of $3 a ton – $6,000; (4) end of fourth quarter, 1,000 tons of the fair market value of $2 a ton – $2,000. The average fair market value of the taxpayer's inventories during the period covered by the report, computed on a quarterly basis, would be: $2,000 + $4,000 + $6,000 + $2,000 = $14,000 ÷ 4 = $3,500. Example 3: The taxpayer did not dispose of or acquire any part of its plant and equipment during the period covered by its report. Its plant and equipment were valued as follows: (1) beginning of year, fair market value, $800,000; (2) end of year, fair market value, $780,000. The average fair market value of the taxpayer's plant and equipment during the period covered by its report, computed on the basis of the average fair market values at the beginning and end of such period, would be: $800,000 + $780,000 = $1,580,000 ÷ 2 = $790,000.

19 RCNY § 11-41 Adjustment of Capital to Period Covered by Report.

§ 11-41 Adjustment of Capital to Period Covered by Report. (§ 11-604(2), Administrative Code.) If the period covered by the report is other than 12 calendar months, the amount of business capital and investment capital each is determined by multiplying the average fair market value thereof (19 RCNY § 11-37, supra) by the number of calendar months or major parts thereof included in such period, and dividing the product thus obtained by 12. Example: A corporation previously organized under the laws of a State other than New York, begins to do business in New York City on June 10, 1966, and reports on a calendar year basis. The average fair market value of its total investment capital for such year is $60,000 and the average fair market value of its total business capital is $240,000. The amount of each class of capital, for purposes of the tax computed on the basis of the calendar year 1966 is determined by multiplying each of the above amounts by 7 (the months of June to December, inclusive) and dividing the product by 12, resulting in investment capital of $35,000 and business capital of $140,000.

19 RCNY § 11-42 Computation of Business and Investment Capital on Combined Reports.

§ 11-42 Computation of Business and Investment Capital on Combined Reports. In the case of combined reports, there are eliminated, in computing combined business and investment capital, intercorporate stockholdings and intercorporate bills, notes and accounts receivable and payable and other intercorporate indebtedness. As to when combined reports will be permitted or required, see 19 RCNY § 11-91, infra.

19 RCNY § 11-43 Adjustments to Correct Distortions.

§ 11-43 Adjustments to Correct Distortions. For adjustment of business and investment capital in order to correct distortions, see 19 RCNY § 11-25, supra.

19 RCNY § 11-44 Minimum Tax of $25.

§ 11-44 Minimum Tax of $25. (a) Minimum tax of $25. In no event is the tax for any period (exclusive of the tax measured by subsidiary capital) less than $25. (b) Minimum tax on combined reports. (1) Where the tax as computed on a combined report is measured by combined entire net income (19 RCNY § 11-26, supra), or combined entire net income plus compensation (19 RCNY § 11-34, supra), or combined business and investment capital (19 RCNY § 11-35, supra), or is measured by the minimum tax (19 RCNY § 11-44(a), supra), each corporation included in the combined report except: (i) the corporation paying the combined tax, and (ii) any corporation described in subdivision (b) of this section is required to pay a minimum tax of $125. The corporation paying the combined tax will pay the minimum tax when the minimum tax is the greater of the alternative taxes. (2) A corporation which is not subject to tax pursuant to 19 RCNY § 11-03, supra, is not required to pay a minimum tax when included in a combined report.

19 RCNY § 11-45 Computation of the Tax Measured by Subsidiary Capital.

§ 11-45 Computation of the Tax Measured by Subsidiary Capital. (a) Income, gains and losses from subsidiary capital are excluded from entire net income. In place of a tax measured by such income, a separate tax measured by subsidiary capital allocated to New York City is imposed, in addition to that measured by entire net income or other applicable basis. (b) The tax measured by subsidiary capital is at the rate of three quarters of one mill for each dollar of subsidiary capital allocated within New York City. (c) Where a group of corporations files a combined report, a tax measured by the combined subsidiary capital is imposed and must be paid in addition to the tax measured by entire net income or other applicable basis. See 19 RCNY § 11-48, infra, Subsidiary Capital on Combined Reports, for rules for calculating combined subsidiary capital.

19 RCNY § 11-46 Definitions.

§ 11-46 Definitions. Subsidiary (§ 11-602(2), Administrative Code.) (1) The term "subsidiary" means a corporation over 50 percent of the voting stock of which is owned by the taxpayer. The term "voting stock" means shares of stock of a corporation, issued and outstanding, that entitle the holders thereof to vote for the election of the corporation's directors or trustees. The determination of whether or not particular shares of a corporation's stock entitle the holders thereof to vote for the election of directors or trustees of the corporation depends on the actual legal situation with respect to voting rights, as it exists from time to time. Example: A taxpayer owns all the common stock of a corporation, which in ordinary circumstances is the only class of stock entitled to vote for the election of directors. The corporation also has outstanding an issue of preferred stock the holders of which, in certain circumstances, are entitled to vote for the election of directors either together with or exclusive of the holders of the common stock. The preferred stock will be treated as voting stock if, and so long as, its holders are entitled to vote. The common stock will not be treated as voting stock if, and so long as, its holders are not entitled to vote. (2) The test of ownership is actual beneficial ownership, rather than mere record title as shown by the stock books of the issuing corporation. Actual beneficial ownership of stock does not mean indirect ownership or control of a corporation through a corporate structure consisting of several tiers and/or chains of corporations. A corporation will not be considered a subsidiary of a taxpayer merely because over 50 percent of the shares of its voting stock is registered in the name of the taxpayer, unless the taxpayer is the actual beneficial owner of such stock. However, a corporation will not be considered a subsidiary of a taxpayer if more than 50 percent of the shares of its voting stock is not registered in the taxpayer's name, unless the taxpayer submits proof that it is the actual beneficial owner of such stock. Example 1: Corporation A is engaged in a stock brokerage business. Corporation A holds record title in street name to 60 percent of the voting stock of corporation X, a publicly traded corporation. Corporation A holds record title to this stock on behalf of 100 corporate customers, none of which owns more than one percent of the stock of Corporation X. These 100 corporations are the actual beneficial owners of the stock of Corporation X held in street name by Corporation A. Even though Corporation A is the record title holder of more than 50 percent of the voting stock of Corporation X, Corporation X is not a subsidiary of Corporation A because Corporation A is not the actual beneficial owner of the stock. Example 2: Corporation C is the record title holder of 100 percent of the voting stock of Corporation D. Corporation C has the right to sell or pledge such stock. Corporation C receives all dividends paid by Corporation D. Corporation C enjoys the economic benefits, and bears the risk of economic loss, from the sale of such stock. Corporation C is the actual beneficial owner of Corporation D's voting stock. Corporation D is a subsidiary of Corporation C. Corporation B is the owner of 100 percent of the voting stock of Corporation C. Corporation B is not the actual beneficial owner of Corporation D's voting stock merely by virtue of the fact that, through its ownership of the voting stock of Corporation C, Corporation B has practical control of the activities of Corporation D. Corporation D is not a subsidiary of Corporation B. (3) A corporation may be a subsidiary if the taxpayer is the actual beneficial owner of more than 50 percent of the shares of such corporation's voting stock, even though the taxpayer has conferred the right to vote such stock on others, by means of a proxy, voting trust agreement or otherwise. (4) In any case where the record holder of shares of voting stock of a corporation is not the actual beneficial owner thereof, or where the right to vote such stock is not possessed by the record holder or by the actual beneficial owner thereof, a full and complete statement of all relevant facts must be submitted. (5) A corporation will be treated as a subsidiary of a taxpayer only for that part of the taxable year during which the taxpayer is the owner of more than 50 percent of the shares of stock of such corporation which, during that period, entitle the holders to vote for the election of directors or trustees. Subsidiary Capital. (§ 11-602(3) Administrative Code.) (1) The term subsidiary capital means the total of (i) investments of the taxpayer in stock of its subsidiaries, (ii) the amount of indebtedness owed to the taxpayer by its subsidiaries, exclusive of accounts receivable acquired in the ordinary course of trade or business for services rendered or for sales of property held primarily for sale to customers, whether or not evidenced by written instruments, interest on which is not claimed by the subsidiary and allowed as a deduction for purposes of any tax imposed by Subchapter 2 or Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code, and (iii) in certain cases, as explained below, cash on hand and on deposit, obligations of the United States and its instrumentalities, and obligations of New York State, its political subdivisions and instrumentalities, to the extent permitted by § 11-604(6) of the Administrative Code. (2) Subsidiary capital does not include stocks, bonds or other securities of a subsidiary held by the taxpayer for sale to customers in the regular course of business. (3) Indebtedness on which any interest is deducted by the subsidiary in computing any tax imposed on the subsidiary under Title 11, Chapter 6, Subchapter 2 or Subchapter 3 of the Administrative Code may not be included in the taxpayer's subsidiary capital. Such indebtedness is includible in investment capital if it meets the definition of investment capital as set forth in 19 RCNY § 11-37; otherwise, it constitutes business capital. Example: The taxpayer, parent, loaned its subsidiary $100,000. In computing entire net income for the taxable year 1990 for New York City General Corporation Tax purposes under Title 11, Chapter 6, Subchapter 2 of the Administrative Code, the subsidiary did not claim any part of the interest as a deduction. The subsidiary did claim such interest, or some part of it, as a deduction for taxable year 1991. The indebtedness is includible in the taxpayer's subsidiary capital on its report for taxable year 1990. However, for taxable year 1991 such indebtedness is includible in the taxpayer's investment capital if it meets the definition of investment capital as set forth in 19 RCNY § 11-37. Otherwise it is business capital. (4) Any taxpayer not taxed on the basis of a combined report, the subsidiary capital of which (computed without regard to this sentence) is more than 85 percent of its total capital, exclusive of cash on hand and on deposit, obligations of the United States and its instrumentalities, and obligations of New York State, its political subdivisions and its instrumentalities, may, at its election, treat as subsidiary capital a proportion of such cash and obligations not in excess of the proportion of its subsidiary capital (so computed) to its total capital (so computed). The balance of such cash may be included in either investment capital or in business capital, at the election of the taxpayer (19 RCNY § 11-37 "Investment Capital" and 19 RCNY § 11-36 "Business Capital" supra). The balance of such obligations of the United States and its instrumentalities, and obligations of New York State, its political subdivisions and its instrumentalities is includible in investment capital unless held for sale to customers in regular course of business, in which event it is includible in business capital. (5) Unless the Commissioner of Finance specifically authorizes to the contrary, each item of subsidiary capital shall be reduced by the deduction of any liabilities of the taxpayer, payable by their terms on demand or not more than one year from the date incurred, other than loans or advances outstanding for more than a year as of any date during the year covered by the report, which are attributable to that item of subsidiary capital. Such reduction will be made, for example, in cases where such liabilities have been incurred in connection with the acquisition or holding of stock or securities of a subsidiary, or the making of a loan to a subsidiary.

19 RCNY § 11-47 Determination of Subsidiary Capital.

§ 11-47 Determination of Subsidiary Capital. (§ 11-604(2), Administrative Code.) The amount of subsidiary capital of the taxpayer is determined by taking the average fair market value during the period covered by the report of all the assets of the taxpayer which constitute subsidiary capital, as in the case of investment capital, less certain current liabilities required to be deducted (19 RCNY § 11-46 "Subsidiary Capital," supra). Average fair market value is determined in the manner prescribed in 19 RCNY §§ 11-39 and 11-40, supra.

19 RCNY § 11-48 Subsidiary Capital on Combined Reports.

§ 11-48 Subsidiary Capital on Combined Reports. (Section 11-605(4), Administrative Code.) In the case of combined reports, subsidiary capital is the total of the amounts of subsidiary capital of each corporation included in the combined report allocated within New York City. There is eliminated in computing the amount of combined subsidiary capital all investments of any corporation included in the combined report in the stock of, and any indebtedness from, any subsidiary corporation included in such report. See 19 RCNY § 11-42, infra. As to when combined reports will be permitted or required, see 19 RCNY § 11-91, infra.

19 RCNY § 11-49 Adjustments to Correct Distortions.

§ 11-49 Adjustments to Correct Distortions. For adjustments of subsidiary capital in order to correct distortions, see 19 RCNY § 11-25, supra.

19 RCNY § 11-50 Unincorporated Business Tax Paid Credit.

§ 11-50 Unincorporated Business Tax Paid Credit. Note: For simplicity, in this section the term "partnership" is used to refer to any unincorporated business in which a corporation owns an interest and the term "partner" or "corporate partner" is used to refer to the owner of an interest in an unincorporated business. (a) (1) For taxable years beginning on or after July 1, 1994, if a corporation is a partner in a partnership carrying on an unincorporated business in the City of New York and is required to include all or a portion of the income of the partnership in its entire net income or receives a guaranteed payment from the partnership includible in its entire net income, the corporate partner is allowed a credit against its general corporation tax liability, if determined on the entire net income basis ("ENI Basis") or alternative income-plus-compensation basis ("Alternative Basis"), for its share of the unincorporated business tax paid by the partnership, subject to certain limitations (the "UBT Paid Credit"). The UBT Paid Credit is not allowed to a corporate partner in a partnership for any unincorporated business tax paid by the partnership with respect to any taxable year of the unincorporated business beginning before July 1, 1994. (2) For taxable years of a corporate partner beginning after 1995, the UBT Paid Credit allowed to the corporate partner may exceed the amount of UBT Paid Credit that the corporate partner may take in that year. In that event, the excess may be carried forward for up to seven years subject to certain limitations. See subdivision (c), infra, for a discussion of the carryover. However, for taxable years of a corporate partner beginning on or after July 1, 1994 but before 1996, the amount of UBT Paid Credit allowed to the corporate partner is the same as the amount of UBT Paid Credit that the partner may take against its general corporation tax liability that year and no carryover is available. (3) Application of credit to tax bases. (i) For taxable years of a corporate partner beginning before January 1, 1996, the corporate partner is allowed the UBT Paid Credit only in a year in which it would be liable, in the absence of any credits allowed by § 11-604 of the Administrative Code, for the tax on the ENI Basis or the Alternative Basis. For those taxable years, a partner liable for the tax on capital or for the minimum tax is not allowed a UBT Paid Credit. (ii) For taxable years of a corporate partner beginning after 1995, the corporate partner is allowed the UBT Paid Credit regardless of the tax base on which it is taxed. However, it may take the credit only in a year in which it pays tax on the ENI Basis or the Alternative Basis. For taxable years beginning after 1995, if a corporate partner is allowed the UBT Paid Credit in a year when it is liable for tax on capital or for the minimum tax, it may carry the UBT Paid Credit forward to the next seven succeeding taxable years. The corporation may take the credit in any of such seven years in which it is liable for tax on the ENI Basis or the Alternative Basis. (iii) The UBT Paid Credit does not alter the basis upon which a taxpayer must pay tax (e.g., on the basis of entire net income, alternative income-plus-compensation, capital, or minimum tax) even if the credit reduces the tax liability below the liability calculated on another basis. (b) Calculation of the UBT Paid Credit. (1) (i) General. A corporate partner's UBT Paid Credit allowed with respect to a specific partnership is the lesser of the amounts calculated in subparagraphs (i) ("Measure 1") and (ii) ("Measure 2") of paragraph (2) of this subdivision (b), subject to the limitation in subparagraph (iii) of paragraph (2) of this subdivision (b). Measure 1 is based on the corporate partner's share of the unincorporated business tax liability of the partnership for the partnership's taxable year ending within or with the corporate partner's taxable year. Measure 2 is based on the incremental effect on the general corporation tax liability of the corporate partner attributable to partnership items entering into the calculation of the corporate partner's general corporation tax liability. The incremental effect is modified to account for the rate differential between the unincorporated business tax and the general corporation tax. If a corporate partner is a partner in more than one partnership, Measures 1 and 2 must be determined and compared separately with respect to each partnership. (ii) Subparagraph (iii) of paragraph (2) of this subdivision limits the total amount of the UBT Paid Credit that a corporate partner may take in a taxable year to the corporate partner's general corporation tax liability for that year modified, when appropriate, to account for the rate differential between the unincorporated business tax and general corporation tax. In the case of a corporate partner that is a partner in more than one partnership, this limitation is not applied separately with respect to each partnership, but rather it is applied to the sum of the UBT Paid Credits from all partnerships. (2) Measures of the credit and limitations. (i) Measure 1. Partner's share of the partnership's unincorporated business tax liability plus certain credits. Except as provided in subparagraph (i)(C) (applicable to corporations paying tax on the Alternative Basis for tax years beginning before 1996), Measure 1 is the product of the amount determined in subparagraph (i)(A) and the corporate partner's distributive share percentage determined in subparagraph (i)(B): (A) Partnership's tax liability plus certain credits. The amount determined in this subparagraph (i)(A) is the sum of: (a) the unincorporated business tax imposed on, and paid by, the partnership for its taxable year ending within or with the taxable year of the corporate partner, and (b) (1) for taxable years of the corporate partner beginning on or after July 1, 1994, and before 1996, the amount of any UBT Paid Credit taken by the partnership for its taxable year ending within or with the taxable year of the corporate partner, or (2) for taxable years of the corporate partner beginning after 1995, the sum of all credits taken by the partnership under § 11-503 of the Administrative Code other than subdivision (b) of that section, for its taxable year ending within or with the taxable year of the corporate partner, but only to the extent that those credits do not reduce the partnership's unincorporated business tax below zero. The amount determined under this subparagraph (i)(A)(b)(2) does not include the amount of any credit refundable to the partnership. (B) Partner's distributive share percentage. (a) The corporate partner's distributive share percentage is the sum of the corporate partner's distributive shares of income, gain, loss, and deductions of the partnership and any guaranteed payment received from the partnership (the corporate partner's "net distributive share") divided by the sum of the net distributive shares of all partners of the partnership for whom such amounts are greater than zero. If the corporate partner's net distributive share is less than zero, the net distributive share is deemed to be zero and the corporate partner is not allowed a UBT Paid Credit for the taxable year with respect to that partnership. (b) For purposes of this calculation, the net distributive shares should be based upon items of income, gain, loss and deductions and guaranteed payments as calculated by the partnership for purposes of computing its unincorporated business taxable income. (c) In addition, for purposes of this calculation, the net distributive share of each corporate partner is considered separately regardless of whether that partner files its general corporation tax return as a member of a combined group with one or more other corporations. (d) If a corporate partner owns more than one type of interest in a partnership, e.g., a general and a limited partnership interest, the partner's distributive shares and guaranteed payments with respect to all such interests are combined in determining the partner's net distributive share. (C) Modification. For corporations paying tax on the Alternative Basis for tax years beginning before 1996, Measure 1 is the product of the amount determined in subparagraph (i)(A) and the corporate partner's distributive share percentage determined in subparagraph (i)(B) above multiplied by a fraction, the numerator of which is 2.655 and the denominator of which is 4. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the approximate effective general corporation tax rate on the Alternative Basis. (ii) Measure 2. Incremental tax effect of distributive share and guaranteed payments. (A) Tax Years beginning on or after July 1, 1994 and before 1996. For tax years of a corporate partner beginning on or after July 1, 1994 and before 1996, Measure 2 is the excess of the amount determined in subparagraph (ii)(A)(a) below over the amount determined in subparagraph (ii)(A)(b) below, modified as provided in subparagraph (ii)(A)(c) below. For taxpayers liable for tax on the ENI Basis, the amounts in subparagraph (ii)(A)(a) and (ii)(A)(b) below are computed on the ENI Basis. For taxpayers liable for tax on the Alternative Basis, the amounts in subparagraph (ii)(A)(a) and (ii)(A)(b) below are computed on the Alternative Basis. See subparagraph (ii)(B) for the calculation of Measure 2 for years after 1995. (a) Partner's general corporation tax liability. The amount determined in this subparagraph (ii)(A)(a) is the general corporation tax liability of the corporate partner determined on the ENI Basis or the Alternative Basis, whichever is applicable, without allowance of any of the credits allowed under § 11-604 of the Administrative Code. (b) Partner's general corporation tax liability without distributive share. The amount determined in this subparagraph (ii)(A)(b) is the general corporation tax liability of the corporate partner determined on the ENI Basis or Alternative Basis, whichever is applicable, (1) excluding any partnership items entering into the calculation of the corporate partner's entire net income and any partnership allocation factors, if taken into account in calculating the corporate partner's allocation to the City, and (2) determined without allowance of any of the credits allowed under § 11-604 of the Administrative Code. (c) Modification for taxpayers taxed on ENI Basis. For taxpayers liable for tax on the ENI Basis, the excess of the amount determined in subparagraph (ii)(A)(a) above over the amount determined in paragraph (ii)(A)(b) above must be multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the general corporation tax rate. (B) Tax years beginning after 1995. For tax years of a corporate partner beginning after 1995, Measure 2 is the excess of the amount determined in subparagraph (ii)(B)(a) below over the amount determined in subparagraph (ii)(B)(b) below, such excess modified as provided in subparagraph (ii)(B)(c) below and multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. Multiplication by this fraction adjusts for the differential between the unincorporated business tax rate and the general corporation tax rate. For taxable years beginning after 1995, all taxpayers must compute Measure 2 as if they were liable for tax on the ENI Basis. (a) Partner's general corporation tax liability. The amount determined in this subparagraph (ii)(B)(a) is the general corporation tax liability of the partner determined on the ENI Basis without allowance of any credits under § 11-604 of the Administrative Code. (b) Partner's general corporation tax liability without distributive share or guaranteed payments. The amount determined in this subparagraph (ii)(B)(b) is the general corporation tax liability of the corporate partner determined on the ENI Basis excluding any partnership items entering into the calculation of the corporate partner's entire net income, excluding partnership allocation factors, if taken into account in calculating the corporate partner's allocation to the City, and determined without allowance of any credits under § 11-604 of the Administrative Code. (c) Partner's modified general corporation tax liability. For taxable years of the corporate partner beginning after 1995, the amounts in subparagraphs (ii)(B)(a) and (ii)(B)(b) above are computed with the following modifications: (1) The amounts are computed without taking into account any deduction for a net operating loss carried to the taxable year of the partner. (2) If, prior to taking into account any distributive share or guaranteed payments from the partnership or any net operating loss deduction, the entire net income of the partner is less than zero, the partner's entire net income is deemed to be zero. (3) If the partner's net total distributive share of income, gain, loss and deductions of, and guaranteed payments from, any unincorporated business other than the partnership with respect to which the amount of credit is being calculated is less than zero, such net total distributive share is deemed to be zero. (iii) Credit limited to partner's general corporation tax. (A) For taxable years of a corporate partner subject to tax on the ENI Basis beginning on or after July 1, 1994 and before 1996, the sum of the UBT Paid Credits that the partner is allowed and may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the ENI Basis without the allowance of any credits under § 11-604 of the Administrative Code, multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. This multiplication limits the credit that is allowed and may be taken to the corporate partner's general corporation tax calculated as if the general corporation tax rate were the same as the unincorporated business tax rate. (B) For taxable years of a corporate partner subject to tax on the Alternative Basis beginning on or after July 1, 1994 and before 1996, the sum of the UBT Paid Credits that the partner is allowed and may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the Alternative Basis without the allowance of any credits under § 11-604 of the Administrative Code. (C) For taxable years of a corporate partner subject to tax on the ENI Basis beginning after 1995, the sum of the UBT Paid Credits that the corporate partner may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the tax computed on the ENI Basis without the allowance of any other credits under § 11-604 of the Administrative Code, multiplied by a fraction, the numerator of which is 4 and the denominator of which is 8.85. This multiplication limits the UBT Paid Credit that may be taken to the corporate partner's tax calculated as if the general corporation tax rate were the same as the unincorporated business tax rate. (D) For taxable years of a corporate partner subject to tax on the Alternative Basis beginning after 1995, the sum of the UBT Paid Credits that the partner may take in any given taxable year with respect to all partnerships in which it is a partner shall not exceed the amount of credit that will reduce the tax computed on the Alternative Basis to zero and each dollar of credit shall be applied so as to reduce the tax by sixty-six and thirty-eight one hundredths cents ($.6638). The purpose of applying the credit in this manner is to reflect the differential between the unincorporated business tax rate and the approximate effective general corporation tax rate under the Alternative Basis. (c) Carryover of UBT Paid Credit after 1995. For taxable years beginning after 1995, if the amount of the UBT Paid Credit allowed to a corporate partner for a taxable year exceeds the amount of UBT Paid Credit that may be taken in that year, the corporate partner may carry the excess forward to each of its seven immediately succeeding taxable years. In applying the provisions of the preceding sentence, for each taxable year of a corporate partner, the UBT Paid Credit determined under this section for the current taxable year shall be taken before taking any credit carryforward pursuant to this subdivision (c), and the amount of any credit carryforward available under this subdivision (c) attributable to the earliest taxable year shall be taken before a credit carryforward attributable to a subsequent taxable year. (d) Multiple tiers of partnerships. A corporate partner may only take a UBT Paid Credit with respect to distributive shares from partnerships in which it is a direct partner, i.e., the corporation is identified as a partner in the partnership agreement and on Schedule K-1 of IRS Form 1065 filed by the partnership. Example: Corporation C is a partner in partnership B, which, in turn, is a partner in partnership A. Corporation C calculates its UBT Paid Credit only with respect to partnership B and is not entitled to a UBT Paid Credit with respect to partnership A. NOTE: Because the calculation of the UBT Paid Credit allowed for corporation C with respect to partnership B reflects credits claimed by partnership B, including its UBT Paid Credit with respect to partnership A, corporation C will get the benefit of partnership B's UBT Paid Credit with respect to partnership A, subject to the limitations applicable in determining C's UBT Paid Credit allowed. (e) Combined Reports. (1) For corporations that file a report on a combined basis pursuant to 19 RCNY § 11-91, the UBT Paid Credit shall be computed as if the combined group were the partner in each partnership from which any of the members of such group receives a distributive share or guaranteed payments, provided, however, if more than one member of the combined group is a partner in the same partnership, for purposes of the calculation of the distributive share percentage of the combined group, the net distributive share of the combined group shall be the sum of the net distributive shares of all of the partners in the partnership who are members of the combined group for which such net distributive share (as separately determined for each partner) is greater than zero. The combined group's distributive share percentage is the combined group's net distributive share divided by the sum of the net distributive shares of all partners in the partnership (including the separate members of the combined group that are partners in the partnership) for whom or which such net total (as separately determined for each partner) is greater than zero. The combined group's distributive share percentage should be the same as the sum of the distributive share percentages calculated by the partnership on its unincorporated business tax return for each member of the partnership that is a member of the combined group. See Example 2, infra. (2) Carryovers on combined reports. (i) For corporations that file a report on a combined basis pursuant to 19 RCNY § 11-91, if the amount of UBT Paid Credit allowed to the combined group, as determined under this subdivision exceeds the amount of UBT Paid Credit taken in a taxable year, as determined under such subdivision, each corporate partner receiving a distributive share or guaranteed payment to which the credit was originally attributable may carry such excess forward to each of its seven immediately succeeding taxable years, as provided in subdivision (c) of this section, regardless of whether such corporate partner or partners files a report on a separate or combined basis. A combined group allowed a UBT Paid Credit may take a UBT Paid Credit carried over from a prior year only if the member of the combined group that received the distributive share or guaranteed payment to which the credit was originally attributable is a member of the combined group in the year to which the credit is to be carried. (ii) If more than one member of a combined group received a distributive share or guaranteed payment from a partnership to which a credit carryover is attributable, for purposes of subparagraph (i), the amount of the carryover available to each such member shall be a portion of the carryover that bears the same ratio to the full amount of the carryover as the distributive share percentage of that member of the combined group with respect to that partnership bears to the sum of the distributive share percentages of all such members with respect to that partnership. (iii) If the UBT Paid Credit carryover of a combined group for a taxable year is attributable to more than one partnership, for purposes of subparagraph (i), the amount of such credit carryover attributable to each partnership shall be a portion of such carryover which bears the same ratio to the full amount of such carryover as the amount of the UBT Paid Credit allowed for the taxable year attributable to that partnership bears to the total amount of UBT Paid Credit allowed to the combined group for that taxable year. (f) Order of credits. The UBT Paid Credit shall be taken before any other credit allowed by § 11-604 of the Administrative Code. (g) The provisions of subdivisions (a) through (f) of this section are illustrated by the following examples. The facts in the following examples have been simplified and do not reflect the deduction allowed by § 11-509(a) of the Administrative Code or the exemption allowed by § 11-510(a)(1) of the Administrative Code. See 19 RCNY § 28-03(d) for additional examples illustrating the calculation of the UBT Paid Credit. The examples that follow illustrate only those aspects of the UBT Paid Credit that relate specifically to the general corporation tax. Example 1: Credit calculation. ABC is a calendar year partnership doing business in New York City. ABC has a business allocation percentage of 100 percent. ABC has three partners, Corporation A, Corporation B and Corporation C, all of which are calendar year taxpayers and have a 100 percent business allocation percentage. ABC's unincorporated business taxable income ("UBTI") for each of the taxable years 1995 and 1996 is $3,000,000. ABC pays unincorporated business tax of $120,000 each year. For both 1995 and 1996, ABC's Form NYC-204 indicates that A, B and C each has a distributive share from ABC of $1,000,000 and a distributive share percentage of 33.33 percent. A is subject to the general corporation tax on the ENI Basis for each of its taxable years 1995 and 1996. In each of 1995 and 1996, A has entire net income of $400,000 without regard to its distributive share of income, gain, loss or deduction from ABC ("Separate ENI"). B is subject to general corporation tax on the Alternative Basis for 1995 and 1996. In each of 1995 and 1996, B's Separate ENI is a net loss of ($985,000) after a $1,000,000 deduction for the salary paid to its sole shareholder. C is a capital base taxpayer for 1995 and 1996. In each of 1995 and 1996 C's Separate ENI is a loss of ($1,000,000). Determination of the Credit for A (ENI Basis taxpayer): A's UBT Paid Credit for 1995 is determined as follows: Measure 1: A's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by A's distributive share percentage (33.33%). Measure 2: A's entire net income is $1,400,000, on which the general corporation tax would be $123,900 before any UBT Paid Credit. The general corporation tax on A's separate ENI of $400,000 would be $35,400. Thus the incremental tax effect on A's total taxable income of A's distributive share from ABC is $88,500 ($123,900 - $35,400 = $88,500.) This amount is multiplied by the fraction 4/8.85, equaling $40,000. See subdivision (b)(2)(ii)(A)(c), supra. Therefore, A's UBT Paid Credit for 1995 is $40,000. A's UBT Paid Credit for 1996 is the same as for 1995. Determination of the Credit for B (Alternative Basis taxpayer): B's UBT Paid Credit for 1995 is determined as follows: Measure 1: B's distributive share percentage is 33.33 percent. Measure 1 is $26,550, equal to ABC's unincorporated business tax of $120,000 multiplied by B's distributive share percentage (33.33%) and by the fraction 2.655/4. See subdivision (b)(2)(i)(C), supra. Measure 2: B's alternative tax base is $300,000 calculated as follows: B's ENI is $15,000 (Separate loss of ($985,000) + distributive share of $1,000,000). To this is added the shareholder's salary of $1,000,000 less $15,000 equaling $1,000,000, which is multiplied by 30 percent to arrive at the tax base of $300,000. (Administrative Code § 11-604(1)(E)(3). See also Administrative Code § 11-604(1)(H) for modifications of the alternative tax calculation for years beginning on or after July 1, 1996.) The tax on the Alternative Basis is $26,550. Excluding B's distributive share from ABC, B's alternative tax liability would be $0. (Separate loss of ($985,000) + shareholder's salary of $1,000,000 less $15,000 multiplied by 30% = $0. $0 multiplied by 8.85% = $0.) The incremental tax effect of the distributive share from ABC is $26,550 ($26,550 - $0 = $26,550). Therefore, B's UBT Paid Credit for 1995 is $26,550. B's UBT Paid Credit allowed for 1996 is determined as follows: Measure 1: B's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by B's distributive share percentage (33.33%). Measure 2: For tax years beginning after 1995, Measure 2 is calculated as if the taxpayer were on the ENI Basis. ENI, however is modified in making the calculation. B's separate ENI is a loss of ($985,000). This is treated as zero. As a result, B's modified ENI is $1,000,000 (separate modified ENI of $0 plus distributive share of $1,000,000) on which the general corporation tax would be $88,500. Excluding B's distributive share from ABC, B's modified ENI would be zero on which there would be no tax. Thus, the incremental tax effect on B of B's distributive share from ABC is $88,500 ($88,500 - 0 = $88,500). This is multiplied by the fraction 4/8.85. See subdivision (b)(2)(ii)(B) supra. Thus, Measure 2 is $40,000. Therefore, B's UBT Paid Credit allowed for 1996 is $40,000. Calculation of the amount of UBT Paid Credit that B may take in 1996. B's general corporation tax liability on the Alternative Basis is $26,550, the same as in 1995. B's allowed UBT Paid Credit of $40,000 is available to offset B's general corporation tax liability at a rate of $1 of credit for every $.6638 of tax. See subdivision (b)(2)(iii)(D), supra. B may use $39,997 of its allowed credit to reduce its tax liability to zero ($26,550/.6638 = $39,997). The remaining credit allowed of $3 is eligible to be carried over by B to the next seven taxable years. Computation of the credit for C (a capital base taxpayer): Because C is subject to the tax on capital, C is not allowed a UBT Paid Credit in 1995. There is no carryover of a UBT Paid Credit for 1995 to any other year. C's UBT Paid Credit that is allowed for 1996 is determined as follows: Measure 1: C's distributive share percentage is 33.33 percent. Measure 1 is $40,000, equal to ABC's unincorporated business tax of $120,000 multiplied by C's distributive share percentage (33.33%). Measure 2: Measure 2 is calculated as if C were on the ENI Basis. ENI, however, is modified in making the calculation. C's separate ENI is a loss of ($1,000,000). This is treated as $0. As a result, C's modified ENI is $1,000,000 (separate modified ENI of $0 plus distributive share of $1,000,000), on which there would be general corporation tax of $88,500 on the ENI Basis. Excluding C's distributive share from ABC, C's modified ENI would be zero on which there would be no tax. Thus, the incremental tax effect of C's distributive share from ABC is $88,500 ($88,500 - 0 = $88,500). This is multiplied by the fraction 4/8.85. Thus, Measure 2 is $40,000. Therefore, C's UBT Paid Credit allowed for 1996 is $40,000. Because C is on the capital base C can not take a UBT Paid Credit in 1996. The entire credit allowed of $40,000 is eligible to be carried over by C to the next seven taxable years but may only be used in a year in which C is taxed on the ENI Basis or the Alternative Basis. Example 2: Calculation of the credit for a combined group. ABCD is a partnership doing business in New York City. ABCD allocates 100 percent of its unincorporated business income to the City. ABCD has no investment income. ABCD has four partners, A, B, C and D. Partner A is an individual who does not independently do business in New York City. Partners B, C and D are all corporations that are members of a combined group (CG) that files a combined general corporation tax return. CG has a 100 percent business allocation percentage. Partners B, C, and D do not have any separate income. ABCD's UBTI for calendar year 1996 is $500,000. ABCD pays unincorporated business tax of $20,000. ABCD's four partners share equally in income of $800,000 from ABCD. In addition, Partner D has a special allocation of a loss of ($300,000) from ABCD. Therefore, D's net total distributive share is a net loss of ($100,000). Calculation of Distributive Share Percentage ("DSP"). The distributive share percentages of the partners are indicated in the following table: Distributive Share (DS) DS – Modified for Calculation of DSP DSP A $200,000 $200,000 33.33% B $200,000 $200,000 33.33% C $200,000 $200,000 33.33% D ($100,000) $0 0% Total $500,000 $600,000 100% CG's distributive share percentage, 66.66 percent may be determined by adding the distributive share percentages of its members, B and C, that have net distributive shares greater than zero. Calculation of CG's UBT Paid Credit. Measure 1: ABCD's unincorporated business tax of $20,000 is multiplied by CG's distributive share percentage (66.66%). Thus, Measure 1 is $13,332. Measure 2: CG's separate ENI is 0. The distributive shares of its members total $300,000 ($200,000 + $200,000 - $100,000). The general corporation tax on that amount would be $26,550. Thus, the incremental tax effect of CG's distributive share from ABCD is $26,550 ($26,550 - 0 = $26,550). This is multiplied by the fraction 4/8.85. Thus, Measure 2 is $12,000. Note: While D's net loss is not taken into account in calculating CG's distributive share percentage or in determining Measure 1, it is taken into account in determining Measure 2. Therefore, CG's UBT Paid Credit is equal to $12,000.

Source: City of New York, Charter, Administrative Code and Rules (American Legal Publishing XML export, codelibrary.amlegal.com)URL: https://codelibrary.amlegal.com/codes/newyorkcity/latest/NYCrules/0-0-0-36711Fetched: 10/24/2026