STATE OF NEW YORK
________________________________________________________________________
9459--A
IN ASSEMBLY
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:
1 Section 1. Paragraph (a) of subdivision 6 of section 208 of the tax
2 law, as amended by section 5 of part T of chapter 59 of the laws of
3 2015, is amended to read as follows:
4 (a) (i) The term "investment income" means income, including capital
5 gains in excess of capital losses, from investment capital, to the
6 extent included in computing entire net income, less, (A) in the
7 discretion of the commissioner, any interest deductions allowable in
8 computing entire net income which are directly or indirectly attribut-
9 able to investment capital or investment income, (B) any of capital gain
10 included in federal taxable income that has to be recharacterized as
11 business income pursuant to paragraph (u) of subdivision nine of this
12 section; provided, however, that in no case shall investment income
13 exceed entire net income. (ii) If the amount of interest deductions
14 subtracted under subparagraph (i) of this paragraph exceeds investment
15 income, the excess of such amount over investment income must be added
16 back to entire net income. (iii) If the taxpayer's investment income
17 determined without regard to the interest deductions subtracted under
18 subparagraph (i) of this paragraph comprises more than eight percent of
19 the taxpayer's entire net income, investment income determined without
20 regard to such interest deductions cannot exceed eight percent of the
21 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
1 § 2. Subparagraph (ix) of paragraph (a) of subdivision 1 of section
2 210 of the tax law is amended by adding a new clause 8 to read as
3 follows:
4 (8) the net operating loss deduction allowed under section one hundred
5 seventy-two of the internal revenue code shall for purposes of this
6 paragraph be determined taking into consideration the re-characteriza-
7 tion of income pursuant to paragraph (u) of subdivision nine of section
8 two hundred eight of this article.
9 § 3. Subdivision 9 of section 208 of the tax law is amended by adding
10 a new paragraph (u) to read as follows:
11 (u) Special rule for corporate partners performing investment manage-
12 ment services. In the case of a taxpayer that is a partner who performs
13 investment management services (as defined in subsection (h) of section
14 six hundred thirty-one of this chapter) for the partnership, the taxpay-
15 er will not be treated as a partner for purposes of this article with
16 respect to the amount of the partner's distributive share of income,
17 gain, loss and deduction (including any guaranteed payments) which is in
18 excess of the amount that such distributive share would have been if the
19 partner had performed no investment management services. Instead, such
20 excess amount shall be treated as an amount received from a trade or
21 business carried on by the taxpayer, and notwithstanding any state or
22 federal law to the contrary, such excess amount shall be characterized
23 as a payment for services rendered. For purposes of this paragraph, the
24 amount of the distributive share that would have been determined if the
25 partner performed no services, shall not be less than zero.
26 § 4. Section 210 of the tax law is amended by adding a new subdivision
27 4 to read as follows:
28 4. Rule for investment management services to a partnership or other
29 entity. For purposes of subdivision three of this section, the amount of
30 distributive share of partnership income, gain, loss or deduction
31 (including any guaranteed payments) received as a partner by a corpo-
32 ration which renders investment management services to a partnership or
33 other entity, as defined in subsection (h) of section six hundred thir-
34 ty-one of this chapter, which is in excess of the amount that such
35 distributive share would have been if the partner had performed no
36 investment management services, shall be treated as a business receipt
37 that arises from the performance of services. For purposes of this
38 subdivision, the amount of the distributive share that would have been
39 determined if the partner performed no services, shall not be less than
40 zero.
41 § 5. Subsection (b) of section 617 of the tax law, as amended by chap-
42 ter 606 of the laws of 1984, is amended to read as follows:
43 (b) Character of items. Each item of partnership and S corporation
44 income, gain, loss, or deduction shall have the same character for a
45 partner or shareholder under this article as for federal income tax
46 purposes. Where an item is not characterized for federal income tax
47 purposes, it shall have the same character for a partner or shareholder
48 as if realized directly from the source from which realized by the part-
49 nership or S corporation or incurred in the same manner as incurred by
50 the partnership or S corporation. See subsections (f) and (g) of
51 section six hundred thirty-two of this article for special rules for
52 partners and shareholders performing investment management services.
53 § 6. Subsection (d) of section 631 of the tax law, as amended by chap-
54 ter 28 of the laws of 1987, is amended to read as follows:
55 (d) Purchase and sale for own account.-- (1) A nonresident, other than
56 a dealer holding property primarily for sale to customers in the ordi-
A. 9459--A 3
1 nary course of his or her trade or business, shall not be deemed to
2 carry on a business, trade, profession or occupation in this state sole-
3 ly by reason of the purchase and sale of property or the purchase, sale
4 or writing of stock option contracts, or both, for his or her own
5 account.
6 (2) This subsection shall not apply to a partner or shareholder
7 performing investment management services as described under subsection
8 (h) of this section.
9 § 7. Section 631 of the tax law is amended by adding a new subsection
10 (h) to read as follows:
11 (h) Investment management services. (1) For purposes of this section,
12 the term "investment management services" to a partnership, S corpo-
13 ration or other entity means providing a substantial quantity of any of
14 the following services to the partnership, S corporation or other enti-
15 ty:
16 (i) advising the partnership, S corporation, or entity as to the
17 advisability of investing in, purchasing, or selling any specified
18 asset, or
19 (ii) managing, acquiring, or disposing of any specified asset, or
20 (iii) arranging financing with respect to acquiring specified assets,
21 or
22 (iv) any activity in support of any service described in subparagraphs
23 (i) through (iii) of this paragraph.
24 (2) For purposes of this subsection, the term "specified asset" means
25 securities (as defined in section four hundred seventy-five (c)(2) of
26 the internal revenue code without regard to the last sentence thereof),
27 real estate held for rental or investment, interests in partnerships,
28 commodities (as defined in section four hundred seventy-five (e)(2) of
29 the internal revenue code), or options or derivative contracts with
30 respect to any of the foregoing.
31 (3) A partner or shareholder will not be deemed to be providing
32 investment management services under this subsection if at least eighty
33 percent of the average fair market value of the specified assets of the
34 partnership, S corporation or other entity during the taxable year
35 consist of real estate.
36 § 8. Section 632 of the tax law is amended by adding two new
37 subsections (f) and (g) to read as follows:
38 (f) Special rule for partners performing investment management
39 services. In the case of a partner who performs investment management
40 services for the partnership, the partner will not be treated as a part-
41 ner for purposes of this article with respect to the amount of the part-
42 ner's distributive share of income, gain, loss and deduction (including
43 any guaranteed payments) which is in excess of the amount such distribu-
44 tive share would have been if the partner had performed no investment
45 management services. Instead, such excess amount shall be treated as an
46 amount received from a trade, business, profession or occupation carried
47 on in the partner's own capacity for purposes of this article. Notwith-
48 standing any state or federal law to the contrary, such excess amount
49 shall be characterized as a payment for services rendered for purposes
50 of this article, and for purposes of section six hundred thirty-one of
51 this article shall be allocated in accordance with the rules and regu-
52 lations applicable to:
53 (1) individuals rendering personal services in the case of an individ-
54 ual partner, or
55 (2) a business carried on in New York in the case of a partner that is
56 a partnership, estate or trust, or
A. 9459--A 4
1 (3) a corporation under article nine-A of this chapter in the case of
2 a partner that is an S corporation.
3 For purposes of this subsection, the amount of the distributive share
4 that would have been determined if the partner performed no services,
5 shall not be less than zero.
6 (g) Special rule for shareholders performing investment management
7 services. In the case of a shareholder who performs investment manage-
8 ment services for the S corporation, the shareholder will not be treated
9 as a shareholder for purposes of this article with respect to the amount
10 of the shareholder's pro rata share of income, gain, loss and deduction
11 which is in excess of the amount such pro rata share would have been if
12 the shareholder had performed no investment management services.
13 Instead, such excess amount shall be treated as an amount received from
14 a trade, business, profession or occupation carried on in the sharehold-
15 er's own capacity for purposes of this article. Notwithstanding any
16 state or federal law to the contrary, such excess amount shall be char-
17 acterized as a payment for services rendered for purposes of this arti-
18 cle, and for purposes of section six hundred thirty-one of this article
19 shall be allocated in accordance with the rules and regulations applica-
20 ble to:
21 (1) individuals rendering personal services in the case of an individ-
22 ual shareholder, or
23 (2) a business carried on in New York in the case of a shareholder
24 that is an estate or trust.
25 For purposes of this subsection, the amount of the pro rata share that
26 would have been determined if the shareholder performed no services,
27 shall not be less than zero.
28 § 9. For taxable years beginning on or after January 1, 2016 and
29 before January 1, 2017, (i) no addition to tax under subsection (c) of
30 section 685 or subsection (c) of section 1085 of the tax law shall be
31 imposed with respect to any underpayment attributable to the amendments
32 made by this act of any estimated taxes that are required to be paid
33 prior to the effective date of this act, provided that the taxpayer
34 timely made those payments; and (ii) the required installment of esti-
35 mated tax described in clause (ii) of subparagraph (B) of paragraph 3 of
36 subsection (c) of section 685 of the tax law, and the exception to addi-
37 tion for underpayment of estimated tax described in paragraph 1 or 2 of
38 subsection (d) of section 1085 of the tax law, in relation to the
39 preceding year's return, shall be calculated as if the amendments made
40 by this act had been in effect for that entire preceding year.
41 § 10. Income from investment management services as defined in
42 subsection (h) of section 631 of the tax law shall be subject to a 19%
43 "carried interest fairness fee" payable to the state of New York until
44 such time as the commissioner of taxation and finance has notified the
45 legislative bill drafting commission that the United States Congress has
46 passed and the President of the United States has signed legislation
47 having an identical effect with this act applicable to such income
48 earned in all of the states and territories.
49 § 11. This act shall take effect upon enactment into law by the states
50 of Connecticut, New Jersey and Massachusetts of legislation having an
51 identical effect with this act, but if the states of Connecticut, New
52 Jersey and Massachusetts shall have already enacted such legislation,
53 this act shall take effect immediately; provided that the commissioner
54 of taxation and finance shall notify the legislative bill drafting
55 commission upon the enactment of such legislation by the states of
56 Connecticut, New Jersey and Massachusetts in order that such commission
A. 9459--A 5
1 may maintain an accurate and timely effective data base of the official
2 text of the laws of the state of New York in furtherance of effectuating
3 the provisions of section 44 of the legislative law and section 70-b of
4 the public officers law.