S T A T E   O F   N E W   Y O R K
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                                 9459--A

                          I N  A S S E M B L Y

                              March 4, 2016
                               ___________

Introduced  by M. of A. AUBRY, BICHOTTE, BRINDISI, FARRELL, RYAN, ORTIZ,
  STIRPE, PICHARDO,  MILLER,  MOSLEY,  LIFTON,  COOK,  BLAKE,  ABINANTI,
  JAFFEE,  HYNDMAN,  CAHILL,  GOTTFRIED, HOOPER, JOYNER, PEOPLES-STOKES,
  JEAN-PIERRE -- Multi-Sponsored by -- M. of A. BARRON, BRENNAN,  DINOW-
  ITZ, GLICK, HEVESI, KEARNS, LENTOL, MAGEE, MARKEY, NOLAN, SIMON, SKAR-
  TADOS,  THIELE  -- read once and referred to the Committee on Ways and
  Means -- committee discharged,  bill  amended,  ordered  reprinted  as
  amended and recommitted to said committee

AN  ACT  to  amend  the  tax  law,  in relation to investment management
  services to a partnership or other entity

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Paragraph  (a) of subdivision 6 of section 208 of the tax
law, as amended by section 5 of part T of chapter  59  of  the  laws  of
2015, is amended to read as follows:
  (a)  (i)  The term "investment income" means income, including capital
gains in excess of capital  losses,  from  investment  capital,  to  the
extent  included  in  computing  entire  net  income,  less,  (A) in the
discretion of the commissioner, any  interest  deductions  allowable  in
computing  entire  net income which are directly or indirectly attribut-
able to investment capital or investment income, (B) ANY OF CAPITAL GAIN
INCLUDED IN FEDERAL TAXABLE INCOME THAT HAS  TO  BE  RECHARACTERIZED  AS
BUSINESS  INCOME  PURSUANT  TO PARAGRAPH (U) OF SUBDIVISION NINE OF THIS
SECTION; provided, however, that in  no  case  shall  investment  income
exceed  entire  net  income.  (ii)  If the amount of interest deductions
subtracted under subparagraph (i) of this paragraph  exceeds  investment
income,  the  excess of such amount over investment income must be added
back to entire net income. (iii) If  the  taxpayer's  investment  income
determined  without  regard  to the interest deductions subtracted under
subparagraph (i) of this paragraph comprises more than eight percent  of
the  taxpayer's  entire net income, investment income determined without
regard to such interest deductions cannot exceed eight  percent  of  the
taxpayer's entire net income.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD14325-03-6
              

A. 9459--A                          2

  S  2.  Subparagraph  (ix) of paragraph (a) of subdivision 1 of section
210 of the tax law is amended by adding  a  new  clause  8  to  read  as
follows:
  (8) THE NET OPERATING LOSS DEDUCTION ALLOWED UNDER SECTION ONE HUNDRED
SEVENTY-TWO  OF  THE  INTERNAL  REVENUE  CODE SHALL FOR PURPOSES OF THIS
PARAGRAPH BE DETERMINED TAKING INTO CONSIDERATION  THE  RE-CHARACTERIZA-
TION  OF INCOME PURSUANT TO PARAGRAPH (U) OF SUBDIVISION NINE OF SECTION
TWO HUNDRED EIGHT OF THIS ARTICLE.
  S 3. Subdivision 9 of section 208 of the tax law is amended by  adding
a new paragraph (u) to read as follows:
  (U)  SPECIAL RULE FOR CORPORATE PARTNERS PERFORMING INVESTMENT MANAGE-
MENT SERVICES. IN THE CASE OF A TAXPAYER THAT IS A PARTNER WHO  PERFORMS
INVESTMENT  MANAGEMENT SERVICES (AS DEFINED IN SUBSECTION (H) OF SECTION
SIX HUNDRED THIRTY-ONE OF THIS CHAPTER) FOR THE PARTNERSHIP, THE TAXPAY-
ER WILL NOT BE TREATED AS A PARTNER FOR PURPOSES OF  THIS  ARTICLE  WITH
RESPECT  TO  THE  AMOUNT  OF THE PARTNER'S DISTRIBUTIVE SHARE OF INCOME,
GAIN, LOSS AND DEDUCTION (INCLUDING ANY GUARANTEED PAYMENTS) WHICH IS IN
EXCESS OF THE AMOUNT THAT SUCH DISTRIBUTIVE SHARE WOULD HAVE BEEN IF THE
PARTNER HAD PERFORMED NO INVESTMENT MANAGEMENT SERVICES.  INSTEAD,  SUCH
EXCESS  AMOUNT  SHALL  BE  TREATED AS AN AMOUNT RECEIVED FROM A TRADE OR
BUSINESS CARRIED ON BY THE TAXPAYER, AND NOTWITHSTANDING  ANY  STATE  OR
FEDERAL  LAW  TO THE CONTRARY, SUCH EXCESS AMOUNT SHALL BE CHARACTERIZED
AS A PAYMENT FOR SERVICES RENDERED. FOR PURPOSES OF THIS PARAGRAPH,  THE
AMOUNT  OF THE DISTRIBUTIVE SHARE THAT WOULD HAVE BEEN DETERMINED IF THE
PARTNER PERFORMED NO SERVICES, SHALL NOT BE LESS THAN ZERO.
  S 4. Section 210 of the tax law is amended by adding a new subdivision
4 to read as follows:
  4. RULE FOR INVESTMENT MANAGEMENT SERVICES TO A PARTNERSHIP  OR  OTHER
ENTITY. FOR PURPOSES OF SUBDIVISION THREE OF THIS SECTION, THE AMOUNT OF
DISTRIBUTIVE  SHARE  OF  PARTNERSHIP  INCOME,  GAIN,  LOSS  OR DEDUCTION
(INCLUDING ANY GUARANTEED PAYMENTS) RECEIVED AS A PARTNER  BY  A  CORPO-
RATION  WHICH RENDERS INVESTMENT MANAGEMENT SERVICES TO A PARTNERSHIP OR
OTHER ENTITY, AS DEFINED IN SUBSECTION (H) OF SECTION SIX HUNDRED  THIR-
TY-ONE  OF  THIS  CHAPTER,  WHICH  IS  IN EXCESS OF THE AMOUNT THAT SUCH
DISTRIBUTIVE SHARE WOULD HAVE BEEN  IF  THE  PARTNER  HAD  PERFORMED  NO
INVESTMENT  MANAGEMENT  SERVICES, SHALL BE TREATED AS A BUSINESS RECEIPT
THAT ARISES FROM THE PERFORMANCE  OF  SERVICES.  FOR  PURPOSES  OF  THIS
SUBDIVISION,  THE  AMOUNT OF THE DISTRIBUTIVE SHARE THAT WOULD HAVE BEEN
DETERMINED IF THE PARTNER PERFORMED NO SERVICES, SHALL NOT BE LESS  THAN
ZERO.
  S 5. Subsection (b) of section 617 of the tax law, as amended by chap-
ter 606 of the laws of 1984, is amended to read as follows:
  (b)  Character  of  items.  Each item of partnership and S corporation
income, gain, loss, or deduction shall have the  same  character  for  a
partner  or  shareholder  under  this  article as for federal income tax
purposes. Where an item is not  characterized  for  federal  income  tax
purposes,  it shall have the same character for a partner or shareholder
as if realized directly from the source from which realized by the part-
nership or S corporation or incurred in the same manner as  incurred  by
the  partnership  or  S  corporation.    SEE  SUBSECTIONS (F) AND (G) OF
SECTION SIX HUNDRED THIRTY-TWO OF THIS ARTICLE  FOR  SPECIAL  RULES  FOR
PARTNERS AND SHAREHOLDERS PERFORMING INVESTMENT MANAGEMENT SERVICES.
  S 6. Subsection (d) of section 631 of the tax law, as amended by chap-
ter 28 of the laws of 1987, is amended to read as follows:
  (d) Purchase and sale for own account.-- (1) A nonresident, other than
a  dealer  holding property primarily for sale to customers in the ordi-

A. 9459--A                          3

nary course of his OR HER trade or business,  shall  not  be  deemed  to
carry on a business, trade, profession or occupation in this state sole-
ly  by reason of the purchase and sale of property or the purchase, sale
or  writing  of  stock  option  contracts,  or  both, for his OR HER own
account.
  (2) THIS SUBSECTION SHALL  NOT  APPLY  TO  A  PARTNER  OR  SHAREHOLDER
PERFORMING  INVESTMENT MANAGEMENT SERVICES AS DESCRIBED UNDER SUBSECTION
(H) OF THIS SECTION.
  S 7. Section 631 of the tax law is amended by adding a new  subsection
(h) to read as follows:
  (H)  INVESTMENT MANAGEMENT SERVICES. (1) FOR PURPOSES OF THIS SECTION,
THE TERM "INVESTMENT MANAGEMENT SERVICES" TO  A  PARTNERSHIP,  S  CORPO-
RATION  OR OTHER ENTITY MEANS PROVIDING A SUBSTANTIAL QUANTITY OF ANY OF
THE FOLLOWING SERVICES TO THE PARTNERSHIP, S CORPORATION OR OTHER  ENTI-
TY:
  (I)  ADVISING  THE  PARTNERSHIP,  S  CORPORATION,  OR ENTITY AS TO THE
ADVISABILITY OF INVESTING  IN,  PURCHASING,  OR  SELLING  ANY  SPECIFIED
ASSET, OR
  (II) MANAGING, ACQUIRING, OR DISPOSING OF ANY SPECIFIED ASSET, OR
  (III)  ARRANGING FINANCING WITH RESPECT TO ACQUIRING SPECIFIED ASSETS,
OR
  (IV) ANY ACTIVITY IN SUPPORT OF ANY SERVICE DESCRIBED IN SUBPARAGRAPHS
(I) THROUGH (III) OF THIS PARAGRAPH.
  (2) FOR PURPOSES OF THIS SUBSECTION, THE TERM "SPECIFIED ASSET"  MEANS
SECURITIES  (AS  DEFINED  IN SECTION FOUR HUNDRED SEVENTY-FIVE (C)(2) OF
THE INTERNAL REVENUE CODE WITHOUT REGARD TO THE LAST SENTENCE  THEREOF),
REAL  ESTATE  HELD  FOR RENTAL OR INVESTMENT, INTERESTS IN PARTNERSHIPS,
COMMODITIES (AS DEFINED IN SECTION FOUR HUNDRED SEVENTY-FIVE  (E)(2)  OF
THE  INTERNAL  REVENUE  CODE),  OR  OPTIONS OR DERIVATIVE CONTRACTS WITH
RESPECT TO ANY OF THE FOREGOING.
  (3) A PARTNER OR SHAREHOLDER  WILL  NOT  BE  DEEMED  TO  BE  PROVIDING
INVESTMENT  MANAGEMENT SERVICES UNDER THIS SUBSECTION IF AT LEAST EIGHTY
PERCENT OF THE AVERAGE FAIR MARKET VALUE OF THE SPECIFIED ASSETS OF  THE
PARTNERSHIP,  S  CORPORATION  OR  OTHER  ENTITY  DURING THE TAXABLE YEAR
CONSIST OF REAL ESTATE.
  S 8. Section 632  of  the  tax  law  is  amended  by  adding  two  new
subsections (f) and (g) to read as follows:
  (F)   SPECIAL  RULE  FOR  PARTNERS  PERFORMING  INVESTMENT  MANAGEMENT
SERVICES. IN THE CASE OF A PARTNER WHO  PERFORMS  INVESTMENT  MANAGEMENT
SERVICES FOR THE PARTNERSHIP, THE PARTNER WILL NOT BE TREATED AS A PART-
NER FOR PURPOSES OF THIS ARTICLE WITH RESPECT TO THE AMOUNT OF THE PART-
NER'S  DISTRIBUTIVE SHARE OF INCOME, GAIN, LOSS AND DEDUCTION (INCLUDING
ANY GUARANTEED PAYMENTS) WHICH IS IN EXCESS OF THE AMOUNT SUCH DISTRIBU-
TIVE SHARE WOULD HAVE BEEN IF THE PARTNER HAD  PERFORMED  NO  INVESTMENT
MANAGEMENT  SERVICES. INSTEAD, SUCH EXCESS AMOUNT SHALL BE TREATED AS AN
AMOUNT RECEIVED FROM A TRADE, BUSINESS, PROFESSION OR OCCUPATION CARRIED
ON IN THE PARTNER'S OWN CAPACITY FOR PURPOSES OF THIS ARTICLE.  NOTWITH-
STANDING  ANY  STATE  OR FEDERAL LAW TO THE CONTRARY, SUCH EXCESS AMOUNT
SHALL BE CHARACTERIZED AS A PAYMENT FOR SERVICES RENDERED  FOR  PURPOSES
OF  THIS  ARTICLE, AND FOR PURPOSES OF SECTION SIX HUNDRED THIRTY-ONE OF
THIS ARTICLE SHALL BE ALLOCATED IN ACCORDANCE WITH THE RULES  AND  REGU-
LATIONS APPLICABLE TO:
  (1) INDIVIDUALS RENDERING PERSONAL SERVICES IN THE CASE OF AN INDIVID-
UAL PARTNER, OR
  (2) A BUSINESS CARRIED ON IN NEW YORK IN THE CASE OF A PARTNER THAT IS
A PARTNERSHIP, ESTATE OR TRUST, OR

A. 9459--A                          4

  (3)  A CORPORATION UNDER ARTICLE NINE-A OF THIS CHAPTER IN THE CASE OF
A PARTNER THAT IS AN S CORPORATION.
FOR  PURPOSES  OF  THIS SUBSECTION, THE AMOUNT OF THE DISTRIBUTIVE SHARE
THAT WOULD HAVE BEEN DETERMINED IF THE PARTNER  PERFORMED  NO  SERVICES,
SHALL NOT BE LESS THAN ZERO.
  (G)  SPECIAL  RULE  FOR  SHAREHOLDERS PERFORMING INVESTMENT MANAGEMENT
SERVICES. IN THE CASE OF A SHAREHOLDER WHO PERFORMS  INVESTMENT  MANAGE-
MENT SERVICES FOR THE S CORPORATION, THE SHAREHOLDER WILL NOT BE TREATED
AS A SHAREHOLDER FOR PURPOSES OF THIS ARTICLE WITH RESPECT TO THE AMOUNT
OF  THE SHAREHOLDER'S PRO RATA SHARE OF INCOME, GAIN, LOSS AND DEDUCTION
WHICH IS IN EXCESS OF THE AMOUNT SUCH PRO RATA SHARE WOULD HAVE BEEN  IF
THE   SHAREHOLDER  HAD  PERFORMED  NO  INVESTMENT  MANAGEMENT  SERVICES.
INSTEAD, SUCH EXCESS AMOUNT SHALL BE TREATED AS AN AMOUNT RECEIVED  FROM
A TRADE, BUSINESS, PROFESSION OR OCCUPATION CARRIED ON IN THE SHAREHOLD-
ER'S  OWN  CAPACITY  FOR  PURPOSES  OF THIS ARTICLE. NOTWITHSTANDING ANY
STATE OR FEDERAL LAW TO THE CONTRARY, SUCH EXCESS AMOUNT SHALL BE  CHAR-
ACTERIZED  AS A PAYMENT FOR SERVICES RENDERED FOR PURPOSES OF THIS ARTI-
CLE, AND FOR PURPOSES OF SECTION SIX HUNDRED THIRTY-ONE OF THIS  ARTICLE
SHALL BE ALLOCATED IN ACCORDANCE WITH THE RULES AND REGULATIONS APPLICA-
BLE TO:
  (1) INDIVIDUALS RENDERING PERSONAL SERVICES IN THE CASE OF AN INDIVID-
UAL SHAREHOLDER, OR
  (2)  A  BUSINESS  CARRIED  ON IN NEW YORK IN THE CASE OF A SHAREHOLDER
THAT IS AN ESTATE OR TRUST.
FOR PURPOSES OF THIS SUBSECTION, THE AMOUNT OF THE PRO RATA  SHARE  THAT
WOULD  HAVE  BEEN  DETERMINED  IF THE SHAREHOLDER PERFORMED NO SERVICES,
SHALL NOT BE LESS THAN ZERO.
  S 9. For taxable years beginning on  or  after  January  1,  2016  and
before  January  1, 2017, (i) no addition to tax under subsection (c) of
section 685 or subsection (c) of section 1085 of the tax  law  shall  be
imposed  with respect to any underpayment attributable to the amendments
made by this act of any estimated taxes that are  required  to  be  paid
prior  to  the  effective  date  of this act, provided that the taxpayer
timely made those payments; and (ii) the required installment  of  esti-
mated tax described in clause (ii) of subparagraph (B) of paragraph 3 of
subsection (c) of section 685 of the tax law, and the exception to addi-
tion  for underpayment of estimated tax described in paragraph 1 or 2 of
subsection (d) of section 1085 of  the  tax  law,  in  relation  to  the
preceding  year's  return, shall be calculated as if the amendments made
by this act had been in effect for that entire preceding year.
  S 10.  Income  from  investment  management  services  as  defined  in
subsection  (h)  of section 631 of the tax law shall be subject to a 19%
"carried interest fairness fee" payable to the state of New  York  until
such  time  as the commissioner of taxation and finance has notified the
legislative bill drafting commission that the United States Congress has
passed and the President of the United  States  has  signed  legislation
having  an  identical  effect  with  this  act applicable to such income
earned in all of the states and territories.
  S 11. This act shall take effect upon enactment into law by the states
of Connecticut, New Jersey and Massachusetts of  legislation  having  an
identical  effect  with  this act, but if the states of Connecticut, New
Jersey and Massachusetts shall have already  enacted  such  legislation,
this  act  shall take effect immediately; provided that the commissioner
of taxation and finance shall notify  the  legislative  bill    drafting
commission  upon  the  enactment  of  such  legislation by the states of
Connecticut, New Jersey and Massachusetts in order that such  commission

A. 9459--A                          5

may  maintain an accurate and timely effective data base of the official
text of the laws of the state of New York in furtherance of effectuating
the provisions of section 44 of the legislative law and section 70-b  of
the public officers law.