United States: MoFo New York Tax Insights, Vol 10, Issue 8

Last Updated: August 8 2019
Article by Irwin M. Slomka and Kara M. Kraman


The New York State Department of Taxation and Finance has released revisions to its draft business corporate franchise tax regulations interpreting the general rules in Tax Law § 210-A for computing the business apportionment factor under New York State corporate tax reform, which went into effect in 2015. The revisions, if promulgated, will impact many businesses, including those in the financial services industry. Draft Apportionment Rules, Part 4 (N.Y.S. Dep't of Taxation & Fin., released July 18, 2019). The new draft comes just two weeks after the Department released other draft regulation revisions relating to digital products and other services and other business receipts.

The latest revisions are extensive in scope, and include both changes to provisions in the previous draft version and the addition of some entirely new provisions. Some of the more notable changes and additions are summarized below:

Business receipts. The latest draft changes the definition of "business receipts" includable in the apportionment factor, so that the term now includes receipts from unusual events that are not received in the regular course of the taxpayer's business. This would be a departure from both the long-standing Article 9-A practice – which, for example, excluded from the factor receipts from sales of capital assets or from sales outside the ordinary course of the taxpayer's business – and from the earlier version of the draft regulation, which specifically excluded receipts from unusual events.

..... "Qualified financial instruments" ("QFIs"), which are prescribed financial instruments marked to market by the taxpayer, qualify for the election to use an 8% fixed apportionment method. The new draft rule provides that securities held by a dealer that meet one of the exceptions from being marked to market for federal income tax purposes under IRC § 475(b)(1) – such as securities held for investment – will not be considered marked to market for apportionment purposes and, thus, will not be considered QFIs eligible for the 8% election, even where the dealer has not identified the securities for purposes of the marked to market exception under IRC § 475(b)(2). The result of this new draft rule would appear to be that a corporation could have securities that are actually marked to market for federal income tax purposes, but that do not qualify as QFIs for Article 9-A purposes. As a result, a securities dealer having marked to market income for both federal and Article 9-A purposes may be required to source that income in the apportionment factor under the prescribed customer sourcing methods.

Broker-dealer sourcing. Various categories of receipts of registered broker-dealers are subject to special sourcing rules. A new rule provides that the term "registered broker or dealer" does not include any corporation that is merely a partner or member in a broker-dealer entity but is not itself a registered broker or dealer.

Discretionary adjustments. The new draft now specifies that the party seeking to vary the apportionment factor bears the burden of proof to demonstrate by "clear and convincing evidence" that the standard formula does not result in a proper reflection of the taxpayer's business income or business capital in the State, and that the application of the standard formula attributes income or capital to the State that is "out of all proportion" to the business transacted by the taxpayer in the State. The earlier version permitted a discretionary adjustment whenever the factor did not "properly reflect" income or capital. The draft contains new examples involving financial services, including one involving a corporation with 95% of its income consisting of dividends and net gains from investments in stock, and 5% consisting of fees for investment advisory services. The example concludes that a discretionary adjustment would be made to include the otherwise excluded dividends and net gains in the apportionment factor in order to properly reflect the taxpayer's business income in the State.

Credit card processing services. Receipts received by credit card processors for authorizing, clearing, and settlement are sourced to where the processor's customer accesses the processor's network, with receipts not specifically addressed by statute sourced to New York based on an average of (i) 8% (roughly based on New York's share of U.S. GDP) and (ii) the percentage of customer "access points" in New York out of all of its access points in the United States. The draft contains a new sourcing method applicable to third-party processors, including receipts from volume-based activities, where the processor cannot identify the access points. In that case, the draft provides for sourcing to New York the processor's other receipts based on the average of (i) 8% and (ii) the percentage of customers with "billing addresses" in the State.

The draft regulations also contain new rules for apportioning interest income and net gains from asset-backed securities and other government agency debt, interest income, and net gains from corporate bonds, brokerage commission receipts, and net interest income from federal funds.

The Department is seeking comments by October 18, 2019. While the draft regulations contain helpful guidance, they cannot be relied upon by taxpayers until they are adopted, although the Department has not provided a timetable for their adoption. The New York City Department of Finance has indicated on its Business Corporation Tax FAQ page that it intends to issue rules that correspond to the regulations issued by New York State under Article 9-A where the underlying statutes correspond, and that corporations can rely on draft regulations posted on New York State's website until such time as the City issues its regulations.

To view the full article click here

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions