Big Apple’s Draft Corporate Tax Regulations Include a Bushel of Core Differences from New York State’s Final Regulations

Issue No: 2024-18

Summary

New York State finalized its corporate tax regulations on December 27, 2023, which are generally retroactively applicable to January 1, 2015. New York City has recently announced the drafting of regulations that will likely differ from the State regulations in several key respects. Taxpayers should consider whether to apply favorable anticipated regulatory changes to current year tax filings and/or amended returns for periods open under the statute of limitations.

In Detail

After a long process, New York State promulgated final corporate tax regulations on December 27, 2023.?? These regulations are generally retroactively applicable to New York’s adoption of corporate tax reform effective January 1, 2015.

The New York State Regulations implement substantial changes to New York combined reporting and adopt rules implementing market sourcing for sales factor purposes, among other notable changes.?

The New York City Department of Finance (“DOF”) has begun its process of drafting regulations and has proposed several deviations from the New York State regulations, particularly in regard to?receipts factor sourcing.?? The DOF is hosting public information sessions on May 14th and May 15th regarding the proposed deviations from the State corporate tax regulations and is seeking public comment.

Summary of Proposed City Regulations Expected to Differ From?State Regulations

Sourcing of Receipts From?Other Business Receipts and From Digital Products and Services

State Rule

• Source to location of benefit received (other business receipts) or location of primary use (digital products and services).
• Billing address Safe Harbor – presumed sourcing to billing address if 250 business customers or more.

City Proposed Rule

• Billing address Safe Harbor – increase safe harbor from 250 threshold for State to 1,000 business customers.

Sourcing Of Partnership Income

State Rule

• Aggregate – include partnership factors in corporate apportionment calculation (used where corporation and partnership are connected).
• Entity – source partnership income using corporate apportionment percentage, without factor inclusion.

City Proposed Rule

• Source partnership income at the partnership level using Unincorporated Business Tax Rules.

Sourcing of Receipts from Passive Investment Customers

State Rule

• Source management, distribution?and administration receipts to investor location (if known to service provider).
• Source receipts based upon location of contract management (if investor location unknown).

City Rule

• Replace secondary contract management location rule with a flat 8% sourcing.

Clear and Convincing

City Rule

• City is deciding not to follow State rules requiring clear and convincing evidence.? City rule applies to both taxpayers and the City.

?Real Estate Mortgage Investment Conduit (REMIC)

City Rule

• City will tax REMIC excess inclusion income whereas State exempts the income.?

Insights

The proposed New York City regulations will likely not be finalized until the end of 2024 at the earliest. Taxpayers should consider whether to apply taxpayer favorable anticipated regulatory changes to current year tax filings and/or amended returns for periods open under the statute of limitations.

In addition, the DOF announcement highlights substantial differences between New York State’s and New York City’s corporate tax regimes.

NOW is the time to reach out to the SALT team with any questions.

Steve Kralik

Richard L. Feldman