Administrative Provisions
General Overview
New York Law Gives the Tax Commission Broad Collection and Enforcement Powers 1
Collection
Recordkeeping Duties for Sales and Use Tax Purposes 4
Collection of Child Support and Spousal Arrears by the New York State Department of Taxation and Finance, and Employer Reporting Responsibilities 7
Employers Can Withhold Part of the Cost of Disability Insurance Expense from Each Employee’s Payroll 9
Remedies & Rights
Taxpayer Bill of Rights Provides Rights and Remedies for Taxpayers Against Department of Taxation and Finance 11
Taxpayer’s Are Entitled to Civil Damages for Wrongful Disclosure of Tax Return Information 13
Settlements
Department of Taxation and Finance Has Authority to Compromise Tax Liabilities in Certain Situations 15
Special Rules Apply to Offers in Compromise with Respect to Joint Income Tax Liabilities 18
Bureau of Conciliation and Mediation Services Offers Potential for Informal Resolution of Disputed New York Taxes 20
Corporate Income & Franchise Taxes
Allocation & Apportionment
New York Distinction Between Business Income and Investment Income Can Generate Vastly Different Tax Liabilities 23
Considering Whether a Foreign Corporation Is Doing Business in New York State 26
Role of Investment Income in Computation of Corporation Franchise Tax Liability 29
Business Allocation Percentage Shifted to Single-Factor Receipts-Based Formula 32
New York City Distinction Between Business Income and Investment Income Can Generate Vastly Different Tax Liabilities 34
Corporate Income & Franchise Taxes (continued)
Considering Whether a Foreign Corporation Is “Doing Business” in New York City 37
Doing Business Standard for Determining if Subject to New York City General Corporation Tax 40
Computation of Tax
Alternative Banking Corporation Franchise Tax Base of Taxable Assets Is the Balance Sheet Value 43
New York Law Provides Limit on Amount of Tax Computed on Capital Base, with Lower Limits for Manufacturers 46
Determining a Taxpayer’s Corporate Franchise Tax Liability on Its Capital Base Is a Multistep Process 49
In Computing Tax Based on Capital Base, Lower Tax Limit Applies to Manufacturing Companies 52
Qualification as Small Business Taxpayer Can Result in Significant Tax Savings 55
Consolidated & Combined Reports & Returns
New York Explains Expanded Combined Reporting Provisions Based on Substantial Intercompany Transactions 57
Computing Apportioned Income on a Combined Basis 61
Exemptions
Corporations Doing Business in New York Must Pay Tax on Highest of Four Tax Bases 64
New York Law Exempts Few Entities from Corporation Franchise Tax, but Exemption Is Available Only if Specified in the Law 66
Failure to File & Pay Tax ,br>
Taxpayers Who Fail to Satisfy Their Tax Obligations Are Subject to Sanctions, Including Certain Penalties 68
Imposition of Tax
Standards for Determining When Foreign Corporations Are Subject to Tax if Doing Business in New York 71
Franchise Tax Is Imposed on Most Business Corporations Doing Business in New York 75
When Maintaining an Office in New York Will Subject a Foreign Corporation to Tax 78
Foreign Corporations: What Constitutes Employing Capital, or Owning or Leasing Property in New York 81
A Corporation Is Not Subject to Tax Solely Due to Officer or Director Maintaining Office in State 84
Alternative Tax Base of Entire Net Income Plus Certain Compensation 87
Income
Implementing FIN48: Uncertain Filing Positions and Related Party Transactions in
Expense Add-Back States 89
Disallowance of Deduction for Interest Directly or Indirectly Attributable to Investments in Subsidiary Capital 92
Limitation on New York Net Operating Loss Carryforward Based on Federal Net
Operating Loss Carry forward Deduction 95
Prohibition Against Deduction of Net Operating Losses Generated in Years When Not an Article 9-ATaxpayer 97
Use of Net Operating Loss Carrybacks Is Limited to $10,000 100
New York State Tax Law Requires Adjustment to Federal Income for Limitation on Net Operating Loss Carrybacks 103
Federal Bonus Depreciation and Sec. 179 Expensing Deduction for SUVs Must Be
Added Back 105
Entire Net Income Base: Worldwide Net Income 108
Implementing FIN 48: Uncertain Tax Positions and Related Party Expense Add-Back
Provisions 111
Nexus
Implementing FIN 48: Nexus and Third Party Independent Contractors 114
Nexus Not Created Solely by Using Fulfillment Services Performed by an Unaffiliated Person in New York 117
Despite Statutory Considerations, Doing Business in New York Is a Largely Fact-Based
Determination 120
Public Law 86-272 Applies to All New York Tax Bases Under Article 9-a 123
Foreign Corporations: What Constitutes Employing Capital, or Owning or Leasing
Property 125
Economic Nexus Is Jurisdictional Standard for Income Tax Imposition in Many States 128
Nontaxable & Taxable Entities
Definition of a Banking Corporation Subject to Tax 132
CorporationsGrandfatheredUnderArticle9-aTax 135
Adjustments to Deductions Related to Subsidiary Capital 138
Apportionment Rules Applicable to Banking Corporations 140
Tax Is Greater of Entire Net Income Tax Base or Any of the Alternative Bases 142
Pass Through Entities
“Hybrid” Corporations Provide a Useful Planning Tool 144
Qualified Subchapter S Subsidiary Treatment 147
S Corporations Are Subject to an Entity Level Tax, Notwithstanding the S Election 149
New York Tax Law Parallels Internal Revenue Code Treatment of Partnership Income 151
Shareholders of S Corporations Are Required to Make Certain Modifications to Federal Adjusted Gross Income for State Tax Purposes 155
New York Revises Law on Election by Shareholders of S Corporations 158
Returns
For Reporting Purposes, the Subsidiary Label Carries a Lot of Baggage 161
New York City Provides Guidance to Business Taxpayers on Reporting Federal or State Changes or Corrections 163
Tax Credits
New York Taxpayers Should Consider EZ Benefits Offered by Other States 165
EnterpriseZoneTaxBenefitsforNewYorkTaxpayers 168
Federal Empowerment Zone Tax Benefits for New York Taxpayers 170
In New York, IRC Section 338(h)(10) Election Triggers Investment Tax Credit Recapture 172
Personal Income Taxes
Allocation & Apportionment
Personal Service Corporations and S Corporations Formed to Avoid or Evade State IncomeTax 175
Computation of Income
Certain Subtractions Are Required to Federal Adjusted Gross Income Used to Determine New York Adjusted Gross Income 178
Overview of New York Modifications to Federal Adjusted Gross Income 181
Taxpayers Are Required to Make Certain Modifications to Federal Adjusted Gross Income for State Tax Purposes 183
Taxpayers Whose Income Exceeds Certain Amounts Are Required to Reduce Their Itemized Deductions When Calculating State Tax Liability 185
Deductions
“Section 529” College Savings Plan Contributions Are Deductible in New York 188
Domicile & Residency
Residency and Domicile Are Closely Intertwined in Determining New York Personal Income Tax 190
New York’s Statutory Residence Scheme Can Result in Multiple Taxation 193
Statutory Residency Tests: Significance and Measure of Days Spent in New York 196
Special Rules for Presence in a Foreign Country 199
Impact Of Charitable Contributions On Domicile Determinations 201
Special Rules for Accrual of Income With Changes in Residency Status 205
Determining the Taxation of Part-Year Resident Partners and S Corporation Shareholders 208
Income Items & Deductions
Pension and Retirement Income from Individual Retirement Accounts and 401(k) Plans Are Not Taxable in New York 211
Federal Election Triggers Separate New York Tax Imposed on Lump Sum Distributions 214
Net Operating Loss Deductions: Different Calculations Required for Resident and Nonresident Individuals 217
Payments
New York Law Makes Compliance Burden Easier for Partnerships and S Corporations With Respect to Estimated Tax Payments on Behalf of Nonresident Individual and C Corporation Partners ,Members and Shareholders 220
Penalty for Failure to Make Estimated Income Tax Payments 223
Persons Subject to Tax
Shareholders of S Corporations Are Required to Make Certain Adjustments to Their Federal Adjusted Gross Income Used to Determine New York Adjusted Gross Income 226
A Multi-Step Process Applies When Calculating the New York Income Tax Liability of Nonresidents 229
Domicile Determines New York Taxation of Resident Estates and Trusts 231
Determination of Residency for Personal Income Taxation of Estates and Trusts 234
Shareholders of New York S Corporations May Be Able to Use the Corporation’s Credits on Their Own Returns 237
Treatment of Federal S Corporation Shareholders Where the Corporation Is a New York
CCorporation 239
Federal S Corporations That Fail to Elect S Treatment Under State Law Will Be Treated As C Corporations 241
Partnership, LLC, Sole Proprietorship Use of Formulary Apportionment to Determine
Amount of New York Source Income from Trade or Business 244
Income Tax Treatment of Income of Entertainers and Artists: Royalties v. Income for Services 247
S Election by Shareholders of Small Corporations 250
Innocent Spouse Provisions
New York Law Authorizes Spousal Relief from Joint Liability in Certain Circumstances 254
Source of Income
“Convenience-of-the-Employer” Test in Determining New York Source Income of a Nonresident Employee 257
Security and Commodity Brokers: Determination of New York Source Income for Nonresident Individual Brokers 260
Ambiguities Exist With Respect to Covenants Not to Compete When Determining Taxable New York Source Income for Nonresident Individuals 263
Complex Rules Apply for the Sourcing of Stock Option Income for Nonresident Individuals in New York 267
Certain Nonresident Salespeople Can Use a Special Allocation Method for Determining New York Source Income 270
New York State Telecommuters Face Tough Home Office “Convenience of Employer” Test 274
Practitioners Must Make Estimated Tax Payments for Nonresident Clients Who Sell Or Otherwise Dispose of Stock in Cooperative Housing Corporations 278
Tax Withholding
Employer’s “Safe Harbor” Against Withholding for Nonresident Employees Present Within New York for 14 Days or Less 281
Wage Withholding for Employers Maintaining an Office or Transacting Business in New York 285
Employers Are Liable for Failure to Withhold Personal Income Tax, Notwithstanding Employee’s Payment of Tax to State 288
Property Taxes
Personal Property Taxes
New York Property Taxes Valuation of Special Franchises 290
Real Property Tax
New York Real Property Tax: Defining “Real Property” and “Assessed Value” 292
New York Provides Real Property Assessment Procedure 296
Real Property Transfer & Recordation Taxes
New York Transfer Tax Applies to Wide Variety of Transactions 301
Transfer of Controlling Interest Can Generate Both State and City Transfer Tax Liability 305
Mortgage Recording Tax Is Imposed Upon the Privilege of Obtaining a Mortgage 308
Where Grantor is Exempt from New York City Real Property Transfer Tax, Grantee May
Still Be Liable for Tax 310
Sales & Use Taxes
General Overview
Sales Tax on Storage of Tangible Personal Property 313
Taxpayers Must Keep Complete and Accurate Sales Tax Records to Avoid Audit Issues 315
Recordkeeping Duties for Sales and Use Tax 318
Specific Notice and Limitations Provisions Apply for Sales Tax Purposes 321
Sales & Use Taxes (continued)
Definitions
New York Provides a Sales Tax Exemption for Purchases Intended for Resale 324
New York’s Sales Tax Exclusion for Contributions of Tangible Personal Property to Corporations Is Very Narrow 326
New York Provides a Limited Sales Tax Exclusion for Corporate Mergers and Consolidations 329
Exemption from Sales Tax on Proprietary Computer Software 332
New York Provides a Sales and Use Tax Exemption for Qualified Empire Zone Property 334
Exemptions
Receipts for Coin-Operated Car Wash Services Are Designated as Exempt from Sales and Use Taxes 337
New York Exempts Materials That Are an Integral Part of Exempt Organization Realty from Sales Tax 339
Sales Taxes Imposed on Commercial Aircraft 342
Sales and Use Tax Exemption for Clothing and Footwear Costing Less Than $110 345
New York Provides a Sales and Use Tax Exemption for Newspapers 347
Sales and Use Tax Exemption for Machinery and Equipment Used in a Marine Terminal Facility Located in New York City 350
New York Has a Limited Exemption Provision for Transfers of Donated Property 352
Industrial Development Agencies Exemption 355
Governmental Organizations Are Exempt from Sales Taxes 358
Good Faith Standard Governs Acceptance of Exemption Certificate 361
Credit Unions Designated As Exempt for Sales and Use Taxes 364
Failure to Pay Tax
Regulations and Facts Determine Responsible Persons Who Are Personally Liable for Sales Tax 366
Avoiding Personal Liability for a Vendor’s Unpaid Sales and Use Taxes 369
Penalties and Interest Are Imposed for Failure to File or Pay Sales Tax 372
Computation of Tax
Shipping Charge Is Part of Receipts for Sales Tax Purposes 375
New York Law Defines Receipts for Computing Sales and Compensating Use Taxes 378
Coupons and Discounts Have an Impact on Taxable Receipts 381
Sales and Compensating Use Taxes for the Metropolitan Commuter Transportation District 383
Tax on Storage of Tangible Personal Property 385
Liability for Sales Tax Collection and Payment Is Premised on Status As Person Required to Collect 387
Sales Tax Law Permits Department to Make Estimated Sales Tax Assessments 389
Items Subject to Tax
Sales Tax and Use Surcharge Tax on Protective Services 392
New York Imposes Sales Tax on Pre-written Computer Software 395
New York’s Temporary Sales and Use Tax Exemption for Clothing Becomes Year-Round, but Has Some Limitations . 398
State’s Concerns for Competitiveness of New York Vendors Spurs Tax Treatment of Promotional Materials 401
Treatment of Contractors 403
Definitional Provisions Are Important for Understanding Sales Tax Exemption for Certain Alternative Fuels 406
Sales Tax Exemption Is Allowed for Certain Alternative Fuels 409
Prepayment of Sales Taxes on Cigarettes 412
Tangible Personal Property Is Subject to Sales Tax Unless Specifically Exempted 415
Sales and Use Taxes Imposed on Utility Services 418
Services Are Generally Not Taxable Unless the Law Specifically Provides for Tax 420
Sales Taxes on Information Services 423
New York Imposes Tax on Information Services, But Careful Identification of Certain Services May Reduce or Eliminate Tax 425
An Exemption Is Provided Under New York Law for Advertising Agency Services 428
Complex Rules Apply to the Tax to Be Collected on Printed Materials Intended for Mailing 430
Sales Tax Is Imposed on Storage of Tangible Personal Property 432
Treatment of Capital Improvements to Real Property for Sales Tax Purposes 434
Interior Cleaning Services May Be Subject to New York Sales Tax 436
Waste Material Removal Services Are Exempt from Sales and Use Taxes 438
Tax Is Imposed on Interior Decorating and Design Services, but Not on Architecture or Engineering 440
Interior Decorating and Design Services Are Subject to Sales and Use Tax 443
New York Law Contains a Broad Definition of Protective and Detective Services for Sales and Use Tax Purposes 445
Sales and Use Taxes on Rent from Hotel Occupancy 447
New York Department of Taxation and Finance Provides Guidance on Sales Tax Imposition on Qualified Motor Fuel and Diesel Motor Fuel 450
New York Imposes Sales Tax Exemption for Certain Alternative Fuels 453
New York Exempts Milk Crates from Sales and Use Tax 456
New York Provides an Exemption from Sales Taxes for Certain Transfers of Custom Computer Software 458
Certain Drugs or Medicines Are Exempt for Sales and Use Taxes 460
New York Law Provides Sales Tax Exemption for Broadcasting Equipment 462
Prosthetic Dental Devices Exempt for Sales and Use Taxes 465
Exemption As a Newspaper or Periodical Can Be Confusing, Especially for Electronic Publications 467
New York Provides a Sales and Use Tax Exemption for Utilities and Utility Services from Cogeneration Facilities Operated by Co-ops 470
Sales and Use Tax Exemption for Residential Solar Energy Installations 472
Purchases of Mailing Lists Are Taxable Unless Qualified for Promotional Materials Exemption 474
New York Provides Limited Exemption and Alternative Computation Method for Sales Tax on Promotional Materials 476
Sales and Use Tax Exemption for Certain Sales of Motor Vehicles and Vessels . . . 479
Place of Amusement Must Meet All Criteria to Qualify for Admission Charge Exemption 481
New York Law Exempts Admission Charges for Dramatic Performance from Sales Tax 483
New York Law Authorizes Registered Agents to Collect Sales Tax on Motor Vehicles 485
Sales Tax Is Imposed on Social and Athletic Club Dues 488
Sales Tax Is Imposed on Beauty Services in New York City 491
Nexus
New York Holds Back When Imposing Nexus Over Out-of-State Vendors with Limited Contacts to the State 493
Nexus Over Out-of-State Vendors 495
“Bulk Sales” Provisions Can Provide Trap for the Unwary 498
Transactions Subject to Tax
New York’s Sales Tax Exclusion for Sales for Resale (Physical Component Part) 502
New York’s Sales Tax Exclusion for Sales for Resale (Actually Transferred) 505
New York’s Sales Tax Exclusion for Sales for Resale 508
Regulatory and Judicial Materials Offer Guidance on Qualification for Resale Exemption 511
Corporate and Partnership Transfer Exclusions from Sales Taxes 514
New York Imposes Sales Tax on Lease Transactions 516
New York Sales Tax Contains an Exemption for Fulfillment Services 518
Taxation of Prepaid Telecommunications Services 520
New York Law Contains an Exemption for Tangible Personalty Used in Telecommunications 523
New York’s Casual Sale Exemption Is Very Limited 526
Sales Taxes Exemption for Internet Data Center Operator 528
Internet Access Exemption from Sales Tax 531
New Jersey and New York Cooperative Interstate Agreement Sets Parameters for Taxation for Cross-Border Vendors 533
Bulk Transfers: the Procedural Steps Required to Comply with New York’s Mandatory Reporting and Withholding Requirement 536
New York Law Includes Provisions on Recovering Sales Tax on Bulk Sales 540
New York Law Governs Taxability of Sales of Telecommunication Services, But Definitions in Federal Law Affect the Application of State Law 543
Use Tax
New York Tax Law Defines “Resident” More Broadly for Sales Tax Than Personal Income Tax Purposes 546
Sales & Use Taxes (continued)
Compensating Use Tax on Tangible Services 549
Compensating Use Tax Is Imposed on Items for Which Sales Tax Was Not Charged 552
Compensating Use Tax Acts As a Complement to State Sales Tax 554
Use of Direct Payment Permit Is Subject to State Authorization 557
Returns
Department Can Make Estimated Assessments for Sales Tax Where No Valid Return Is Filed 560
Neighboring State Reciprocal Administration 563
Refunds & Credits
Refund for Uncollectible Receipts 565
New York Law Offers a Modest Sales Tax Vendor Credit for Collection and Payment 567
Refunds or Credits Based on Certain Uses in Economic Development Areas 569
Miscellaneous Taxes
Insurance Companies Tax
New York Retaliatory Tax Is Imposed on Foreign Insurers to Equalize Tax Burden with New York Insurers in Other States 571
Public Utilities Tax
Taxpayers May Be Able to Control Classification of an Entity for New York Utility Tax Purposes 574
Products and Services Sold by an Entity Related to a Utility Vendor May Not Be Subject to New York State and City Utility Taxes 577
Classification of an Entity for New York State and City Utility Tax Purposes 580
Special Local Taxes
Various Entities / Individuals Are Subject to NYC Unincorporated Business Tax 583
Unemployment Tax
Employers Are Required to Determine Whether Their Workers Are Employees or Independent Contractors 585
Worker Classification for New York State Unemployment Insurance Tax Purposes 587
Unemployment Insurance Tax and Experience Rating: Claimant History Determines Employer Percentage 593
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