S T A T E O F N E W Y O R K
________________________________________________________________________
3554
2017-2018 Regular Sessions
I N A S S E M B L Y
January 27, 2017
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Introduced by M. of A. AUBRY, BICHOTTE, BRINDISI, FARRELL, RYAN, ORTIZ,
STIRPE, PICHARDO, M. G. MILLER, MOSLEY, LIFTON, COOK, BLAKE, ABINANTI,
JAFFEE, HYNDMAN, CAHILL, GOTTFRIED, HOOPER, JOYNER, PEOPLES-STOKES,
JEAN-PIERRE, SEPULVEDA, STECK, ROSENTHAL, FAHY -- Multi-Sponsored by
-- M. of A. BARRON, CYMBROWITZ, DINOWITZ, GLICK, HEVESI, KEARNS,
LENTOL, MAGEE, RAMOS, SIMON, SKARTADOS, THIELE -- read once and
referred to the Committee on Ways and Means
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
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD07791-01-7
A. 3554 2
regard to such interest deductions cannot exceed eight percent of the
taxpayer's entire net income.
§ 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.
§ 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.
§ 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.
§ 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.
§ 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:
A. 3554 3
(d) Purchase and sale for own account.-- (1) A nonresident, other than
a dealer holding property primarily for sale to customers in the ordi-
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.
§ 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.
§ 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
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(2) A BUSINESS CARRIED ON IN NEW YORK IN THE CASE OF A PARTNER THAT IS
A PARTNERSHIP, ESTATE OR TRUST, OR
(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.
§ 9. For taxable years beginning on or after January 1, 2017 and
before January 1, 2018, (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.
§ 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.
§ 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
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commission upon the enactment of such legislation by the states of
Connecticut, New Jersey and Massachusetts in order that such commission
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.