Corporate Tax Reform

Part P of Chapter 60 of the Laws of 2016 amended the definition of a qualified financial instrument (QFI) to clarify that stock that generates other exempt income¹, and is not marked to market under IRC section 475 or 1256, is not a QFI with respect to such other exempt income (even if other stocks are marked to market in the tax year)².       

Generally, when a taxpayer holds one stock that is marked to market, that stock, and all other stock held by the taxpayer, are treated as QFIs. When a taxpayer elects the 8% fixed percentage method for apportionment, all income, gain or loss generated by QFIs is included in business income. This amendment excludes all stock that generates other exempt income and is not marked to market from the definition of a QFI, with respect to the other exempt income generated. Therefore, other exempt income generated from such stock is excluded from business income. 

This amendment does not change the treatment of gains or losses from the sale of stock that generates or could generate other exempt income. Such gains and losses are always included in business income. All stock that generates or could generate other exempt income continues to be considered business capital and is subject to the capital base tax.

Part P also corrected cross-references, typographical errors and citations, and repealed obsolete references in the corporate tax reform provisions in Article 9-A of the Tax Law.

These changes apply to tax years beginning on or after January 1, 2015 

(Section 210-A.5(a) of the Tax Law)

¹Other exempt income includes dividends and certain controlled foreign corporation income received from unitary affiliates that are not included in a combined report with the taxpayer.
²Stock that is not marked to market may still be considered a QFI with respect to the net gains from the sale of such stock if the taxpayer holds other stock that is marked to market.

Part P also:

•  Corrects cross-references in the Tax Law to the empire state film production credit, the minimum wage reimbursement credit, and the empire zone wage tax credit;
•  Repeals obsolete references to Article 32 in the minimum wage tax credit;
•  Repeals obsolete references to the empire zone wage tax credit in the Article 9-A rules for ordering tax credits;
•  Corrects typographical errors in the economic nexus rules and the special additional mortgage recording tax credit; and
•  Corrects citations in the commonly owned group election for combined reporting.

These changes apply to tax years beginning on or after January 1, 2015, the same effective date as all of the other corporate tax reform changes.

(Sections 24(c), 24(e)(4), 38(a), 38(e), 209.1(e), 210-B.7(c), 210-B.9(a), 210-B.45, and 210-C.3(a) of the Tax Law)

Part NN of Chapter 60 of the Laws of 2016 provides that for purposes of the asset tests under the entire net income subtraction modifications for qualified residential loan portfolios and community banks and small thrifts, total assets include leased real property that is not properly reflected on a balance sheet. This change reflects the Tax Department’s current interpretation that is expressed in the instructions for Form CT-3.2, Subtraction Modification for Qualified Banks.   Similar changes were also made to these modifications in the New York City Business Corporation Tax. In addition, this policy is also applied to the New York City-specific subtraction modification for qualified affordable housing and low income community loans.

These changes apply to tax years beginning on or after January 1, 2015, the same effective date as all of the other corporate tax reform changes.

(Sections 208.9(r) and 208.9(s) of the Tax Law, Sections 11-652.8(q), 11-652.8(s), and 11-652.8(t) of the Administrative Code of the City of New York)

Part P, Sections 9 through 16, makes the following amendments to the Administrative Code of the City of New York:These changes are effective for tax years beginning on or after January 1, 2015, the same effective date as all of the other corporate tax reform changes.

•  Clarifies that the option to use New York State entire net income for corporations that have a 100% business allocation percentage under the General Corporation tax years beginning before January 1, 2015;
•  Adds a reference to the New York State Tax Law in the catch-all provision of Administrative Code §11-651, so that references to the old General Corporation Tax in the Tax Law can also be considered references to the new 2015 Corporate Tax;
•  Corrects terminology in the definition of investment capital;
•  Adds reference to the nine percent tax rate for large financial corporations in the calculation of the unincorporated business tax paid credit under Administrative Code §11-654.18(a)2(ii);
•  Extends the biotechnology credit in Administrative Code §11-654.21 to match the City Council extension enacted for New York City’s other business taxes;
•  Corrects a cross-reference in the apportionment rule for receipts from sales of tangible personal property and electricity that are traded as commodities; and
•  Makes the conforming amendment to the definition of qualified financial instrument mentioned above for New York State.

(Sections 11-604.1(I), 11-651.2, 11-652.4(a), 11-654.18(a)(2), 11-654.18(b)(1), 11-654.21(a)(8), 11-654.2.2(c) of the Administrative Code of the City of New York)