1503 - Computation of entire net income.
§ 1503. Computation of entire net income. (a) The entire net income of a taxpayer shall be its total net income from all sources which shall be presumably the same as the life insurance company taxable income (which shall include, in the case of a stock life insurance company which has an existing policyholders surplus account, the amount of direct and indirect distributions during the taxable year to shareholders from such account), taxable income of a partnership or taxable income, but not alternative minimum taxable income, as the case may be, which the taxpayer is required to report to the United States treasury department, for the taxable year or, in the case of a corporation exempt from federal income tax (other than the tax on unrelated business taxable income imposed under section 511 of the internal revenue code) but not exempt from tax under section fifteen hundred one, the taxable income which such taxpayer would have been required to report but for such exemption, except as hereinafter provided. (b) Modifications. In computing entire net income, the following modifications shall be made: (1) Entire net income shall not include: (A) income, gains and losses from subsidiary capital which do not include the amount of a recovery in respect of any war loss; (B) fifty percent of dividends other than from subsidiaries except that in the case of a life insurance company, such modification shall apply only with respect to the company's share of such dividends, which share means the percentage determined under paragraph one of subsection (a) of section eight hundred twelve of the internal revenue code; (C) any refund or credit of a tax imposed under this article or section one hundred eighty-seven, or article twenty-three of this chapter heretofore in effect to the extent properly included as income for federal income tax purposes, for which no exclusion or deduction was allowed in determining the taxpayer's entire net income under this article for any prior year; (D) that portion of wages or salaries paid or incurred for the taxable year for which a deduction is not allowed pursuant to the provisions of section two hundred eighty-C of the internal revenue code; (E) in the case of a taxpayer who is separately or as a partner of a partnership doing an insurance business as a member of the New York insurance exchange described in section six thousand two hundred one of the insurance law, any item of income, gain, loss or deduction of such business which is the taxpayer's distributive or pro rata share for federal income tax purposes or which the taxpayer is required to take into account separately for federal income tax purposes; (F) for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property which is a qualified mass commuting vehicle described in subparagraph (D) of paragraph eight of subsection (f) of section one hundred sixty-eight of the internal revenue code (relating to qualified mass commuting vehicles), any amount which is included in the taxpayer's taxable income for federal income tax purposes solely as a result of an election made pursuant to the provisions of such paragraph eight as it was in effect for agreements entered into prior to January first, nineteen hundred eighty-four; (G) for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property which is a qualified mass commuting vehicle described in subparagraph (D) of paragraph eight of subsection (f) of section one hundred sixty-eight of the internal revenue code (relating to qualified mass commuting vehicles), any amount which the taxpayer could have excluded from its taxable income for federal income tax purposes had it not made the election provided for insuch paragraph eight as it was in effect for agreements entered into prior to January first, nineteen hundred eighty-four; (H) the amount deductible pursuant to paragraph ten of this subdivision; (I) upon the disposition of property to which paragraph ten of this subdivision applies, the amount, if any, by which the aggregate of the amounts described in subparagraph (M) of paragraph two of this subdivision attributable to such property exceeds the aggregate of the amounts described in paragraph ten of this subdivision attributable to such property; (J) the amount of unearned premiums on outstanding business at the end of the taxable year included in premiums earned pursuant to the provisions of section 832(b)(4)(B) of the internal revenue code; (K) the amount of unearned premiums on outstanding business at the end of the taxable year included in premiums earned pursuant to the provisions of section 832(b)(7)(B)(i) of the internal revenue code; (L) the amount included in premiums earned pursuant to the provisions of section 832(b)(8)(A)(i) of the internal revenue code which is the difference between the amount of discounted unearned premiums on outstanding business at the end of the taxable year and the amount of unearned premiums on outstanding business at the end of the taxable year; (M) for taxable years beginning after December thirty-first, nineteen hundred eighty-six and before January first, nineteen hundred ninety-two, the amount of unearned premiums on outstanding business included in premiums earned pursuant to the provisions of sections 832(b)(4)(C) and 832(b)(7)(B)(ii) of the internal revenue code; (N) the amount which is the difference between the amount of discounted unpaid losses at the end of the taxable year used in the computation of losses incurred pursuant to section 832(b)(5)(A) of the internal revenue code, and the amount of unpaid losses that would be used in such computation for the taxable year if such losses were not discounted pursuant to the provisions of section 846(a) of the internal revenue code; (O) the amount by which losses incurred as defined in section 832(b)(5)(A) of the internal revenue code are reduced in accordance with section 832(b)(5)(B) of such code; and (P) the amount included in federal gross income pursuant to sections 847(5) and 847(6) of the internal revenue code. (Q) The amount deductible pursuant to paragraph twelve of this subsection. (R) for taxable years beginning after December thirty-first, two thousand two, the amount deductible pursuant to paragraph fourteen of this subdivision. (2) Entire net income shall be determined without the exclusion, deduction or credit of: (A) the amount of any specific exemption or credit allowed in any law of the United States imposing any tax on or measured by the income of corporations; (B) any part of any income from dividends or interest on any kind of stock, securities or indebtedness, except as provided in subparagraphs (A) and (B) of paragraph one hereof; (C) taxes paid or accrued to the United States on or measured by income or premiums; (D) taxes imposed under this article; (E) In those instances where a credit for the special additional mortgage recording tax is allowed under paragraph one of subdivision (e) of section fifteen hundred eleven of this article, the amount allowed asan exclusion or deduction for the special additional mortgage recording tax imposed by subdivision one-a of section two hundred fifty-three of this chapter in determining the entire net income which the taxpayer is required to report to the United States treasury department for such taxable year; (F) unless the credit allowed pursuant to subdivision (e) of section fifteen hundred eleven of this article is reflected in the computation of the gain or loss so as to result in an increase in such gain or decrease in such loss, for federal income tax purposes, from the sale or other disposition of the property with respect to which the special additional mortgage recording tax imposed pursuant to subdivision one-a of section two hundred fifty-three of this chapter was paid, the amount of the special additional mortgage recording tax imposed by subdivision one-a of section two hundred fifty-three of this chapter which was paid and which is reflected in the computation of the basis of the property so as to result in a decrease in such gain or increase in such loss for federal income tax purposes from the sale or other disposition of the property with respect to which such tax was paid; (G) ninety percent of interest on indebtedness directly or indirectly owed to any stockholder or shareholder (including subsidiaries of a corporate stockholder or shareholder), or members of the immediate family of an individual stockholder or shareholder, owning in the aggregate in excess of five per centum of the issued capital stock of the taxpayer, except that such interest may, in any event, be deducted (i) up to an amount not exceeding one thousand dollars, (ii) in full to the extent that it relates to 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 corporation or its predecessors, but were not stockholders or shareholders thereof, (iii) in full to the extent that it is paid to a federally licensed small business investment company; (H) in the discretion of the commissioner, any amount of interest directly or indirectly and any other amount directly attributable as a carrying charge or otherwise to subsidiary capital or to income, gains or losses from subsidiary capital; (I) in the case of a life insurance company, the provisions of subparagraph (B) of this paragraph shall not apply to the policyholders' share of the items described in such subparagraph. For purposes of this subparagraph, the policyholders' share means the percentage determined under paragraph two of subsection (a) of section eight hundred twelve of the internal revenue code. (J) in the case of a taxpayer who is separately or as a partner of a partnership doing an insurance business as a member of the New York insurance exchange described in section six thousand two hundred one of the insurance law, such taxpayer's distributive or pro rata share of the allocated entire net income of such business as determined under this section and section fifteen hundred four of this article, provided however, in the event such allocated entire net income is a loss, such taxpayer's distributive or pro rata share of such loss shall not be subtracted from federal taxable income in computing entire net income under this section. (K) for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property which is a qualified mass commuting vehicle described in subparagraph (D) of paragraph eight of subsection (f) of section one hundred sixty-eight of the internal revenue code (relating to qualified mass commuting vehicles), any amount which the taxpayer claimed as a deduction for federal income taxpurposes solely as a result of an election made pursuant to the provisions of such paragraph eight as it was in effect for agreements entered into prior to January first, nineteen hundred eighty-four; (L) for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property which is a qualified mass commuting vehicle described in subparagraph (D) of paragraph eight of subsection (f) of section one hundred sixty-eight of the internal revenue code (relating to qualified mass commuting vehicles), any amount which the taxpayer would have been required to include in the computation of its taxable income for federal income tax purposes had it not made the election permitted pursuant to such paragraph eight as it was in effect for agreements entered into prior to January first, nineteen hundred eighty-four; (M) in the case of property placed in service in taxable years beginning before nineteen hundred ninety-four, for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property subject to the provisions of section two hundred eighty-F of the internal revenue code and property subject to the provisions of section one hundred sixty-eight of the internal revenue code which is placed in service in this state in taxable years beginning after December thirty-first, nineteen hundred eighty-four, the amount allowable as a deduction determined under section one hundred sixty-eight of the internal revenue code; (N) upon the disposition of property to which paragraph ten of this subdivision applies, the amount, if any, by which the aggregate of the amounts described in such paragraph ten attributable to such property exceeds the aggregate of the amounts described in subparagraph (M) of this paragraph attributable to such property; (N-1) premiums paid for environmental remediation insurance, as defined in section twenty-three of this chapter, and deducted in determining federal taxable income, to the extent of the amount of the environmental remediation insurance credit allowed under such section twenty-three and subdivision (w) of section fifteen hundred eleven of this article; (O) the amount of unearned premiums on outstanding business at the end of the preceding taxable year excluded from premiums earned pursuant to the provisions of section 832(b)(4)(B) of the internal revenue code; (P) the amount of unearned premiums on outstanding business at the end of the preceding year excluded from premiums earned pursuant to the provisions of section 832(b)(7)(B)(i) of the internal revenue code; (Q) the amount excluded from premiums earned pursuant to the provisions of section 832(b)(8)(A)(i) of the internal revenue code which is the difference between the amount of discounted unearned premiums on outstanding business at the end of the preceding taxable year and the amount of unearned premiums on outstanding business at the end of the preceding taxable year; (R) the amount which is the difference between the amount of discounted unpaid losses at the end of the preceding federal taxable year used in the computation of losses incurred for the taxable year pursuant to section 832(b)(5)(A) of the internal revenue code, and the amount of unpaid losses at the end of the preceding federal taxable year that would have been used in such computation for the taxable year if such losses were not discounted pursuant to the provisions of section 846(a) of the internal revenue code; and (S) the amount of the deduction claimed by the taxpayer pursuant to the provisions of section 847(1) of the internal revenue code. (T) for taxable years beginning after December thirty-first, two thousand two, in the case of qualified property described in paragraphtwo of subsection k of section 168 of the internal revenue code, other than qualified resurgence zone property described in paragraph sixteen of this subdivision, and other than qualified New York Liberty Zone property described in paragraph two of subsection b of section 1400L of the internal revenue code (without regard to clause (i) of subparagraph (C) of such paragraph), which was placed in service on or after June first, two thousand three, the amount allowable as a deduction under section 167 of the internal revenue code. (U) The amount of any deduction allowed pursuant to section one hundred ninety-nine of the internal revenue code. (V) The amount of any federal deduction for taxes imposed under article twenty-three of this chapter. (3) In determining entire net income, there shall be subtracted, to the extent not deductible in determining federal taxable income: (A) interest on indebtedness incurred or continued to purchase or carry obligations or securities the income from which is subject to tax under this article but exempt from federal income tax; (B) ordinary and necessary expenses paid or incurred during the taxable year attributable to income which is subject to tax under this article but exempt from federal income tax; and (C) the amortizable bond premium for the taxable year on any bond the interest on which is subject to tax under this article but exempt from federal income tax. (4) Any "net operating loss deduction" or "operations loss deduction" allowable under sections one hundred seventy-two or eight hundred ten of the internal revenue code, respectively, which is allowable to the taxpayer for federal income tax purposes: (A) shall be adjusted to reflect the modifications required by the other paragraphs of this subdivision; (B) shall not, however, exceed any such deduction allowable to the taxpayer for the taxable year for federal income tax purposes; and (C) shall not include any such loss incurred in a taxable year beginning prior to January first, nineteen hundred seventy-four or during any taxable year in which the taxpayer was not subject to the tax imposed under section fifteen hundred one. (5) In case of property of a taxpayer acquired prior to January first, nineteen hundred seventy-four, and disposed of thereafter, the computation of entire net income shall be modified as follows: (A) no gain shall be deemed to have been derived if either the cost or the fair market price or value on January first, nineteen hundred seventy-four, exceeds the value realized; (B) no loss shall be deemed to have been sustained if either the cost or the fair market price or value on January first, nineteen hundred seventy-four, is less than the value realized; (C) where both the cost and the fair market price or value on January first, nineteen hundred seventy-four, are less than the value realized, the basis for computing gain shall be the cost or the fair market price or value on such date, whichever is higher; (D) where both the cost and the fair market price or value on January first, nineteen hundred seventy-four, are in excess of the value realized, the basis for computing loss shall be the cost or the fair market price or value on such date, whichever is lower. (6) There shall be excluded from the computation of entire net income any amount allowed as a deduction for federal income tax purposes for the taxable year under section twelve hundred twelve of the internal revenue code as a capital loss carryforward to the taxable year which resulted from a capital loss occurring in any taxable year in which the taxpayer was not subject to tax under section fifteen hundred one.(7) There shall be excluded from the computation of entire net income the amount of any income or gain from the sale of real or personal property which is includible in determining federal taxable income for the taxable year pursuant to the installment method under section four hundred fifty-three of the internal revenue code to the extent such income or gain is from a sale of such property which occurred in a taxable year when the taxpayer was not subject to tax under section fifteen hundred one. (8) Entire net income shall be computed without regard to subsection (b) of section eight hundred thirty-one of the internal revenue code. (9) In computing the entire net income of a taxpayer (A) which is a fire or life insurance company organized and operated, without profit to any private shareholder or individual, exclusively for the purpose of aiding and strengthening charitable, religious, missionary, educational or philanthropic institutions, by issuing insurance and annuity contracts only to or for the benefit of such institutions, to individuals engaged in the services of such institutions and to members of the immediate families of such individuals, or (B) which is a life insurance company which has been organized for the purpose of establishing a non-profit voluntary employees beneficiary association to provide life, sick, accident or other benefits to eligible employees or their beneficiaries, and is operated exclusively for said purposes and without profit, direct or indirect, to any private shareholder or individual, and is duly exempt from income taxation pursuant to the United States internal revenue code, the life insurance company taxable income (which shall include, in the case of a stock life insurance company which has an existing policyholders surplus account, the amount of direct and indirect distributions during the taxable year to shareholders from such account) or taxable income, as the case may be, of such taxpayer for the taxable year shall be computed without regard to any income, gains, losses, deductions, reserves, surplus or any other item, derived from, or attributable or allocable to, contracts described in subsection (a) of section eight hundred eighteen of the internal revenue code. (10) In the case of property placed in service in taxable years beginning before nineteen hundred ninety-four, for taxable years beginning after December thirty-first, nineteen hundred eighty-one, except with respect to property subject to the provisions of section two hundred eighty-F of the internal revenue code and property subject to the provisions of section one hundred sixty-eight of the internal revenue code which is placed in service in this state in taxable years beginning after December thirty-first, nineteen hundred eighty-four, and provided a deduction has not been excluded from the determination of entire net income pursuant to subparagraph (K) of paragraph two of this subdivision, a taxpayer shall be allowed with respect to property which is subject to the provisions of section one hundred sixty-eight of the internal revenue code the depreciation deduction allowable under section one hundred sixty-seven of the internal revenue code as such section would have applied to property placed in service on December thirty-first, nineteen hundred eighty. (11)(A) Notwithstanding the provisions of subparagraph (P) of paragraph one of this subdivision, for taxable years beginning after December thirty-first, nineteen hundred ninety-two and ending before December thirty-first, nineteen hundred ninety-six, entire net income shall include the amount determined under subparagraph (B) of this paragraph. This amount shall be included in entire net income only if the taxpayer claimed the deduction allowed by subdivision one of sectioneight hundred forty-seven of the internal revenue code in any taxable year beginning after December thirty-first, nineteen hundred eighty-seven and ending before January first, nineteen hundred ninety-three. (B) The amount to be included in entire net income under this paragraph shall be determined as follows. The taxpayer shall calculate the total amount that will be required to be included in federal gross income pursuant to the provisions of subdivisions five and six of section eight hundred forty-seven of the internal revenue code for federal taxable years beginning after December thirty-first, nineteen hundred ninety-two as a result of the deduction claimed by the taxpayer in federal taxable years beginning after December thirty-first, nineteen hundred eighty-seven and before January first, nineteen hundred ninety-three pursuant to the provisions of subdivision one of section eight hundred forty-seven of the internal revenue code. The taxpayer shall divide such total amount by three. An amount equal to the resulting quotient shall be included in entire net income in each of the taxpayer's first three taxable years beginning on or after January one, nineteen hundred ninety-three. 12. Emerging technology investment deferral. In the case of any sale of a qualified emerging technologies investment held for more than thirty-six months and with respect to which the taxpayer elects the application of this subsection, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds the cost of any qualified emerging technologies investment purchased by the taxpayer during the three hundred sixty-five-day period beginning on the date of such sale, reduced by any portion of such cost previously taken into account under this paragraph. For purposes of this paragraph the following shall apply: (1) A qualified investment is stock of a corporation or an interest, other than as a creditor, in a partnership or limited liability company that was acquired by the taxpayer as provided in Internal Revenue Code § 1202(c)(1)(B), except that the reference to the term "stock" in such section shall be read as "investment," or by the taxpayer from a person who had acquired such stock or interest in such a manner. (2) A qualified emerging technology investment is a qualified investment, that was held by the taxpayer for at least thirty-six months, in a company defined in paragraph (c) of subdivision one of section thirty-one hundred two-e of the public authorities law or an investment in a partnership or limited liability company that is taxed as a partnership to the extent that such partnership or limited liability company invests in qualified emerging technology companies. (3) For purposes of determining whether the nonrecognition of gain under this subsection applies to a qualified emerging technologies investment that is sold, the taxpayer's holding period for such investment and the qualified emerging technologies investment that is purchased shall be determined without regard to Internal Revenue Code § 1223. 13. Amounts deferred. The amount deferred under paragraph twelve of this subdivision shall be added to entire net income when the reinvestment in the New York qualified emerging technology company which qualified a taxpayer for such deferral is sold. * (14) For taxable years beginning after December thirty-first, two thousand two, in the case of qualified property described in paragraph two of subsection k of section 168 of the internal revenue code, other than qualified resurgence zone property described in paragraph sixteen of this subdivision, and other than qualified New York Liberty Zone property described in paragraph two of subsection b of section 1400L ofthe internal revenue code (without regard to clause (i) of subparagraph (C) of such paragraph), which was placed in service on or after June first, two thousand three, a taxpayer shall be allowed with respect to such property the depreciation deduction allowable under section 167 of the internal revenue code as such section would have applied to such property had it been acquired by the taxpayer on September tenth, two thousand one. * NB There are 2 par (14)'s * (14) Related members expense add back and income exclusion. (A) Definitions. (i) Related member or members. For purposes of this paragraph, the term related member or members means a person, corporation, or other entity, including an entity that is treated as a partnership or other pass-through vehicle for purposes of federal taxation, whether such person, corporation or entity is a taxpayer or not, where one such person, corporation, or entity, or set of related persons, corporations or entities, directly or indirectly owns or controls a controlling interest in another entity. Such entity or entities may include all taxpayers under article nine, nine-A, thirteen, twenty-two, thirty-two, thirty-three or thirty-three-A of this chapter. (ii) Controlling interest. A controlling interest shall mean (I) in the case of a corporation, either thirty percent or more of the total combined voting power of all classes of stock of such corporation, or thirty percent or more of the capital, profits or beneficial interest in such voting stock of such corporation, and (II) in the case of a partnership, association, trust or other entity, thirty percent or more of the capital, profits or beneficial interest in such partnership, association, trust or other entity. (iii) Royalty payments. Royalty payments are payments directly connected to the acquisition, use, maintenance or management, ownership, sale, exchange, or any other disposition of licenses, trademarks, copyrights, trade names, trade dress, service marks, mask works, trade secrets, patents and any other similar types of intangible assets as determined by the commissioner, and includes amounts allowable as interest deductions under section one hundred sixty-three of the internal revenue code to the extent such amounts are directly or indirectly for, related to or in connection with the acquisition, use, maintenance or management, ownership, sale, exchange or disposition of such intangible assets. (iv) Valid business purpose. A valid business purpose is one or more business purposes, other than the avoidance or reduction of taxation, which alone or in combination constitute the primary motivation for some business activity or transaction, which activity or transaction changes in a meaningful way, apart from tax effects, the economic position of the taxpayer. The economic position of the taxpayer includes an increase in the market share of the taxpayer, or the entry by the taxpayer into new business markets. (B) Royalty expense add backs. (i) Except where a taxpayer is included in a combined return with a related member pursuant to subdivision (f) of section fifteen hundred fifteen of this article, for the purpose of computing entire net income, a taxpayer must add back royalty payments to a related member during the taxable year to the extent deductible in calculating federal taxable income. (ii) The add back of royalty payments shall not be required if and to the extent that such payments meet either of the following conditions: (I) the related member during the same taxable year directly or indirectly paid or incurred the amount to a person or entity that is not a related member, and such transaction was done for a valid business and the payments are made at arm's length;(II) the royalty payments are paid or incurred to a related member organized under the laws of a country other than the United States, are subject to a comprehensive income tax treaty between such country and the United States, and are taxed in such country at a tax rate at least equal to that imposed by this state. (C) Royalty income exclusions. For the purpose of computing entire net income, a taxpayer shall be allowed to deduct royalty payments directly or indirectly received from a related member during the taxable year to the extent included in the taxpayer's federal taxable income unless such royalty payments would not be required to be added back under subparagraph (B) of this paragraph or other similar provision in this chapter. * NB There are 2 par (14)'s (15) For taxable years beginning after December thirty-first, two thousand two, upon the disposition of property to which paragraph fourteen of this subdivision applies, the amount of any gain or loss includible in entire net income shall be adjusted to reflect the inclusions and exclusions from entire net income pursuant to subparagraph (R) of paragraph one and subparagraph (T) of paragraph two of this subdivision attributable to such property. (16) For purposes of paragraphs fourteen and fifteen of this subdivision, qualified resurgence zone property shall mean qualified property described in paragraph two of subsection k of section 168 of the internal revenue code substantially all of the use of which is in the resurgence zone, as defined below, and is in the active conduct of a trade or business by the taxpayer in such zone, and the original use of which in the resurgence zone commences with the taxpayer after December thirty-first, two thousand two. The resurgence zone shall mean the area of New York county bounded on the south by a line running from the intersection of the Hudson River with the Holland Tunnel, and running thence east to Canal Street, then running along the centerline of Canal Street to the intersection of the Bowery and Canal Street, running thence in a southeasterly direction diagonally across Manhattan Bridge Plaza, to the Manhattan Bridge and thence along the centerline of the Manhattan Bridge to the point where the centerline of the Manhattan Bridge would intersect with the easterly bank of the East River, and bounded on the north by a line running from the intersection of the Hudson River with the Holland Tunnel and running thence north along West Avenue to the intersection of Clarkson Street then running east along the centerline of Clarkson Street to the intersection of Washington Avenue, then running south along the centerline of Washington Avenue to the intersection of West Houston Street, then east along the centerline of West Houston Street, then at the intersection of the Avenue of the Americas continuing east along the centerline of East Houston Street to the easterly bank of the East River. (c) Attribution of income to different taxable years. The tax commission may, whenever necessary in order to properly reflect the entire net income of any taxpayer, determine the year or period in which any item of income or deduction shall be included, without regard to the method of accounting employed by the taxpayer.