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SECTION 292
Unrelated business taxable income
Tax (TAX) CHAPTER 60, ARTICLE 13
§ 292. Unrelated business taxable income. (a) The unrelated business
taxable income of a taxpayer subject to the tax imposed by section two
hundred ninety shall be such taxpayer's federal unrelated business
taxable income, as defined in the laws of the United States for the
taxable year, with the following modifications:

(1) There shall be added to federal unrelated business taxable income
the amount of any tax imposed under this article.

(2) There shall be subtracted from federal unrelated business taxable
income the amount of any refund or credit for overpayment of a tax
imposed under this article or article twenty-three of this chapter.

(3) The net operating loss deduction which shall be allowed shall be
the same as the net operating loss deduction allowed under paragraph six
of subsection (b) of section five hundred twelve of the internal revenue
code of nineteen hundred fifty-four, except that

(A) any net operating loss included in determining such deduction
shall be adjusted to reflect the addition and subtraction from unrelated
business taxable income required by paragraphs one and two of this
subdivision,

(B) such deduction shall not include any net operating loss sustained
during any taxable year beginning prior to January first, nineteen
hundred seventy, or during any taxable year in which the taxpayer was
not subject to the tax imposed by this article, and

(C) such deduction shall not exceed the deduction for the taxable year
allowable under paragraph six of subsection (b) of section five hundred
twelve of the internal revenue code of nineteen hundred fifty-four.

(4) There shall be subtracted from federal unrelated business taxable
income any amount which is included therein solely by reason of the
application of section 501(m)(2)(A) or 512(a)(7) of the internal revenue
code.

(5) Shareholders of S corporations. (A) In the case of a shareholder
of an S corporation,

(i) where the election provided for in subsection (a) of section six
hundred sixty of this chapter is in effect with respect to such
corporation, there shall be added to federal unrelated business taxable
income an amount equal to the shareholder's pro rata share of the
corporation's reductions for taxes described in paragraphs two and three
of subsection (f) of section thirteen hundred sixty-six of the internal
revenue code, and

(ii) where such election has not been made with respect to such
corporation, there shall be subtracted from federal unrelated business
taxable income any items of income of the corporation included therein,
and there shall be added to federal unrelated business taxable income
any items of loss or deduction included therein, and

(iii) in the case of a New York S termination year, the amount of any
such items of S corporation income, loss, deduction and reductions for
taxes shall be adjusted in the manner provided in paragraph two or three
of subsection (s) of section six hundred twelve of this chapter.

(B) In the case of a shareholder of a corporation which was, for any
of its taxable years beginning after nineteen hundred ninety-seven, a
federal S corporation but a New York C corporation:

(i) There shall be added to federal unrelated business taxable income
S corporation distributions to the extent not included therein because
of the application of section thirteen hundred sixty-eight or subsection
(e) of section thirteen hundred seventy-one of the internal revenue
code, which represent income not previously subject to tax under this
article because the election provided for in subsection (a) of section
six hundred sixty of this chapter had not been made. Any such
distribution treated in the manner described in paragraph two of
subsection (b) of such section thirteen hundred sixty-eight shall be
treated as ordinary income for purposes of this article.

(ii) Where gain or loss is included in unrelated business taxable
income upon the disposition of stock or indebtedness of such
corporation,

(I) there shall be added to unrelated business taxable income the
amount of increase in basis of such stock or indebtedness with respect
to such New York C years of the corporation, pursuant to subparagraphs
(A) and (B) of paragraph one of subsection (a) of section thirteen
hundred sixty-seven of such code, and

(II) there shall be subtracted from unrelated business taxable income
the amount of decrease in such basis with respect to such New York C
years of the corporation, pursuant to subparagraphs (B) and (C) of
paragraph two of subsection (a) of such section thirteen hundred
sixty-seven, and

(III) there shall be subtracted from unrelated business taxable income
the amount of modifications to unrelated business taxable income with
respect to such stock pursuant to clause (i) of subparagraph (B) of this
paragraph.

(C) Cross reference. For definitions relating to S corporations, see
subdivision one-A of section two hundred eight of this chapter.

(6) Related members expense add back. (A) Definitions. (i) Related
member. "Related member" means a related person as defined in
subparagraph (c) of paragraph three of subsection (b) of section four
hundred sixty-five of the internal revenue code, except that "fifty
percent" shall be substituted for "ten percent".

(ii) Effective rate of tax. "Effective rate of tax" means, as to any
state or U.S. possession, the maximum statutory rate of tax imposed by
the state or possession on or measured by a related member's net income
multiplied by the apportionment percentage, if any, applicable to the
related member under the laws of said jurisdiction. For purposes of this
definition, the effective rate of tax as to any state or U.S. possession
is zero where the related member's net income tax liability in said
jurisdiction is reported on a combined or consolidated return including
both the taxpayer and the related member where the reported transactions
between the taxpayer and the related member are eliminated or offset.
Also, for purposes of this definition, when computing the effective rate
of tax for a jurisdiction in which a related member's net income is
eliminated or offset by a credit or similar adjustment that is dependent
upon the related member either maintaining or managing intangible
property or collecting interest income in that jurisdiction, the maximum
statutory rate of tax imposed by said jurisdiction shall be decreased to
reflect the statutory rate of tax that applies to the related member as
effectively reduced by such credit or similar adjustment.

(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 include 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) For the purpose of computing New
York unrelated business taxable income, a taxpayer must add back royalty
payments directly or indirectly paid, accrued, or incurred in connection
with one or more direct or indirect transactions with one or more
related members during the taxable year to the extent deductible in
calculating federal unrelated business taxable income;

(ii) Exceptions. (I) The adjustment required in this paragraph shall
not apply to the portion of the royalty payment that the taxpayer
establishes, by clear and convincing evidence of the type and in the
form specified by the commissioner, meets all of the following
requirements: (a) the related member was subject to tax in this state or
another state or possession of the United States or a foreign nation or
some combination thereof on a tax base that included the royalty payment
paid, accrued or incurred by the taxpayer; (b) the related member during
the same taxable year directly or indirectly paid, accrued or incurred
such portion to a person that is not a related member; and (c) the
transaction giving rise to the royalty payment between the taxpayer and
the related member was undertaken for a valid business purpose.

(II) The adjustment required in this paragraph shall not apply if the
taxpayer establishes, by clear and convincing evidence of the type and
in the form specified by the commissioner, that: (a) the related member
was subject to tax on or measured by its net income in this state or
another state or possession of the United States or some combination
thereof; (b) the tax base for said tax included the royalty payment
paid, accrued or incurred by the taxpayer; and (c) the aggregate
effective rate of tax applied to the related member in those
jurisdictions is no less than eighty percent of the statutory rate of
tax that applied to the taxpayer under section two hundred ninety of
this article for the taxable year.

(III) The adjustment required in this paragraph shall not apply if the
taxpayer establishes, by clear and convincing evidence of the type and
in the form specified by the commissioner, that: (a) the royalty payment
was paid, accrued or incurred to a related member organized under the
laws of a country other than the United States; (b) the related member's
income from the transaction was subject to a comprehensive income tax
treaty between such country and the United States; (c) the related
member was subject to tax in a foreign nation on a tax base that
included the royalty payment paid, accrued or incurred by the taxpayer;
(d) the related member's income from the transaction was taxed in such
country at an effective rate of tax at least equal to that imposed by
this state; and (e) the royalty payment was paid, accrued or incurred
pursuant to a transaction that was undertaken for a valid business
purpose and using terms that reflect an arm's length relationship.

(IV) The adjustment required in this paragraph shall not apply if the
taxpayer and the commissioner agree in writing to the application or use
of alternative adjustments or computations. The commissioner may, in his
or her discretion, agree to the application or use of alternative
adjustments or computations when he or she concludes that in the absence
of such agreement the income of the taxpayer would not be properly
reflected.

(7) The amount of any deduction allowed pursuant to section one
hundred ninety-nine of the internal revenue code must be added to
federal unrelated business taxable income.

(8) There must be added to federal unrelated business taxable income
the amount of any federal deduction for taxes imposed under article
twenty-three of this chapter.

(b) If the period covered by a return under this article is other than
the period covered by the return to the United States treasury
department, unrelated business taxable income shall be determined by
multiplying the unrelated business taxable income reported to such
department (as modified pursuant to the provisions of this article) by
the number of calendar months or major parts thereof covered by the
return under this article and dividing by the number of calendar months
or major part thereof covered by the return to such department. If it
shall appear that such method of determining unrelated business taxable
income does not properly reflect the taxpayer's income during the period
covered by the return under this article, the tax commission shall be
authorized, in its discretion, to determine such income solely on the
basis of the taxpayer's income during the period covered by its return
under this article.