§ 11-63 Business Allocation Percentage.
RCNY § 11-63
(§ 11-604(3)(a), Administrative Code.) (a) Use of business allocation percentage. (§ 11-604(3)(a).) (1) There are many taxpayers which need to determine only a business allocation percentage, and need not be concerned with a subsidiary allocation percentage or an investment allocation percentage. Thus, a taxpayer which has only business income and capital allocates its entire net income and capital by the business allocation percentage.
(2)If the business income (before allowance of any net operating loss deduction) of a taxpayer, not reporting on a combined basis, is more than 75 percent of its entire net income (before allowance of any net operating loss deduction) and its business capital is more than 75 per cent of its total business and investment capital, it may elect to allocate its entire net income and total business and investment capital by the business allocation percentage.
(3)In other cases, a taxpayer which has both business and investment capital, but has only business income or has business income and an investment loss, allocates its entire net income and its business capital by the business allocation percentage. Its investment capital is allocated by the investment allocation percentage (19 RCNY § 11-68(a) and (b), infra).
(b)Regular place of business.
(1)If the taxpayer did not have a regular place of business outside New York City during the period covered by the report, its business allocation percentage is 100 percent; in other words, the taxpayer may not allocate any of its business income or capital outside New York City.
(c)Completion of business allocation percentage.
(ii)business receipts within and without New York City (19 RCNY § 11-65(a), infra), and (iii) payrolls within and without New York City (19 RCNY § 11-66(a), infra).
(iv)Example: For the tax year 2009, a taxpayer has no employees either within or without the City. The property factor percentage determined under (c)(1)(i) of this section is 10%, and the business receipts factor percentage determined under (c)(1)(ii) of this section is 25%. As the payroll factor is missing, the allocation percentage may be computed by taking the sum of (A) the product of 30% and 10%, and (B) the product of 40% and 25%, which is .03 + .1 = .13, then dividing that sum by the sum of the weight factors for property and business receipts, which are .30 and .40, respectively: .13 .30 +.40= .13 .70 = .18571, rounded to four decimal places = .1857 (3) If it appears that the business allocation percentage computed on the basis of all or any of the property-receipts-payroll factors does not properly reflect the activity, business, capital or income of the taxpayer in New York City, the Commissioner of Finance may adjust the business allocation percentage, as set forth in 19 RCNY § 11-67, infra.
(4)Double-weighted receipts factor for manufacturing businesses.
(i)For taxable years beginning on or after July 1, 1996, a corporation that is a manufacturing corporation as defined in subparagraph (ii) may elect to determine its business allocation percentage by adding together the percentages determined under 19 RCNY §§ 11-64 and 11-66 and adding to that sum two times the percentage determined in 19 RCNY § 11-65 and dividing the total by the number of percentages. See paragraph (2) of this subdivision (c) for the determination of the business allocation percentage where one or more factors is missing.
(5)Manufacturing does not include furnishing information services subject to the tax imposed by § 1105(c)(1) of the tax law regardless of whether the information is provided in tangible form.
(6)Manufacturing includes the design and development of pre-written computer software as defined in § 1101(b)(14) of the tax law to the extent that such pre-written computer software constitutes tangible personal property under § 1101(b)(6) of the tax law.
(7)A corporation that performs services for a customer, including manufacturing services, on property or raw materials belonging to the customer will not be considered a manufacturing corporation.
(8)A business that engages in pre-production activities, but not in the creation of the final product, will be considered to be engaged in manufacturing only if the pre-production activities are extensive and constitute an integral part of the manufacturing process. (B) To qualify as a manufacturing corporation, a corporation must be engaged in both the manufacture of tangible personal property and the sale of such property that it manufactures. Therefore, a corporation that manufactures tangible personal property but does not engage in the sale of such tangible personal property will not be considered a manufacturing corporation. Similarly, a corporation that sells tangible personal property but does not engage in the manufacture of tangible personal property will not be considered a manufacturing corporation. For purposes of this paragraph, the lease of tangible personal property will be considered a sale of tangible personal property. (C) For purposes of this paragraph, a corporation engaged in the manufacture and sale of tangible personal property will be considered to be primarily engaged in that activity if more than 50 percent of its gross receipts for the taxable year are derived from the sale of tangible personal property manufactured by the taxpayer.
(iii)If a group of corporations is permitted or required to file a combined report and the group, including all corporations in the group whether or not taxpayers, would qualify as a manufacturing corporation if it were a single corporation, excluding all intercompany transactions, the combined group may make an election under this paragraph. If a combined group would not qualify as a manufacturing corporation if it were a single corporation, neither the group nor any of its members may make the election under this paragraph even if one or more member corporations would qualify as manufacturing corporations if they were not included in the combined group. In order for the combined group to qualify as a manufacturing corporation it is not necessary that there be any individual member of the group that would qualify if it were not included in the combined group. See examples 7 and 8.
(v)The provisions of this paragraph are illustrated by the following examples: Example 1: X Corporation is engaged in printing pamphlets, brochures, catalogues and business reports. Under an agreement with customer A, X Corporation receives graphic material and text from customer A that X uses to produce print plates, which are used to print multiple copies of a catalogue. X Corporation uses its own raw materials, including paper and ink, and its own equipment to produce the plates and the catalogue. X Corporation employees advise A with regard to the layout and typeface of the catalogue. In the course of performing the contract, X Corporation delivers a master print to A for its review and final approval. In addition, under the agreement with A, X Corporation prepares an electronic version of the catalogue for incorporation into a Web page maintained by A. X Corporation mails the print version of the catalogue to A's customers and delivers the electronic version of the catalogue to A on a disk. X Corporation receives $500x under the agreement with no breakdown of the price among the various services and products provided. Under an agreement with customer B, X Corporation receives the text of an annual financial statement required to be filed electronically with the SEC by B. B also requires print copies of the statement. X prints the report in hard copy, using its own ink and equipment but using paper belonging to the customer, delivers the hard copies to B and transmits the statement electronically to the SEC. X Corporation receives $200x under the agreement with B with no breakdown of the price among the various services and products provided. X Corporation's activities under the agreement with A are considered the manufacture and sale of tangible personal property. (Note: if X Corporation delivers the electronic version of the catalogue to A by means of the Internet the result would not change. The $500x received by X Corporation under the contract with A would be considered receipts from the manufacture and sale of tangible personal property provided that the provision of the electronic version is subordinate to the sale of the print version of the catalogue.) No part of X Corporation's activities under the agreement with B are considered the manufacture and sale of tangible personal property because under the agreement with B, X Corporation is merely performing services on property owned by B. (Note: if X Corporation used its own paper for the print copies, X Corporation's activities under the agreement with B would be considered the manufacture and sale of tangible personal property.) Of X Corporation's total business receipts of $700X, $500X are from the manufacture and sale of tangible personal property. Therefore, X Corporation is considered to be a manufacturing corporation. Example 2: Corporation X is engaged in compiling, printing and distributing a daily newspaper using material received from news services, its own reporters and editorial staff, its own paper and ink and printing equipment and its own technicians. Corporation X is considered engaged in manufacturing. Corporation X receives $100X in receipts from the sale of newspapers and $400X in receipts from the sale of advertising. Because less than 50 percent of Corporation X's receipts are from the manufacture and sale of tangible personal property, X is not considered a manufacturing corporation. Example 3: Corporation A is engaged in film processing whereby it receives undeveloped film from its customers and, using its own chemicals, paper and equipment, develops the film and makes print or slide copies for customers. Corporation A is engaged in manufacturing. If instead of using its own materials and equipment, Corporation A contracts with Corporation B to develop the film and make prints, Corporation A is not engaged in manufacturing. Example 4: Y Corporation contracts with A Corporation, an unrelated entity, to produce a line of art supplies, crayons, paper, markers, glue, etc. from raw materials purchased by Y. The finished goods are delivered to Y. Y packages two or more of those products together with paper purchased from another unrelated supplier into kits that Y sells to toy and art supply retailers. A Corporation's receipts under the contract with Y are not receipts from the manufacture and sale of tangible personal property because Y provides and owns the raw materials. Y's receipts from the sale of the kits are not receipts from the manufacture and sale of tangible personal property because Y does not manufacture the component parts itself and the packaged kits do not differ substantially in nature or form from the various component parts. Example 5: Corporation W washes, cuts, cooks, freezes and packages vegetables for wholesale and retail sale to customers. Corporation W is considered to be engaged in manufacturing. Example 6: Corporation M collects, sorts, shreds and compresses scrap metal into blocks that are convenient for handling, storage and shipping and sells the scrap metal blocks to companies that manufacture finished goods from them. Corporation M is considered to be engaged in manufacturing because the scrap metal sold differs substantially in nature from the components collected by M, which were not suitable for convenient handling, storage, shipping and sale in their original form. Example 7: Corporation C purchases fabric, cuts and sews clothing for sale to a wholesale distributor, Corporation E. Corporation C is engaged in the manufacture and sale of tangible personal property. Corporation E packages and labels the clothing for resale to its retail outlet customers. Corporation E is not considered to be engaged in manufacturing. If Corporation C cuts and sews fabric provided by Corporation D where Corporation D retains title to the fabric and D sells the finished clothing, neither Corporation C nor Corporation D would be considered to be engaged in the manufacture and sale of tangible personal property. Corporation C is providing manufacturing services and Corporation D is not conducting the manufacturing activities itself. Corporation C and Corporation D viewed as a single corporation would be considered to be engaged in manufacturing and sale of tangible personal property, and, if Corporation C and Corporation D are permitted or required to file a combined report and meet the other requirements of subparagraph (iii) of this paragraph, Corporation C and Corporation D may make the election under this paragraph. Example 8: Corporation X operates a chain of supermarkets. Corporation X sets up a subsidiary, Corporation S to produce, package and sell food products through Corporation X's markets and markets operated by third parties. Corporation X and Corporation S are required to file a combined return. Corporation S has receipts of $100X entirely from the manufacture and sale of tangible personal property. Corporation X has receipts of $900X from the supermarket business. The combined group may not make the election under this paragraph, because less than 50 percent of its total receipts are from the manufacture and sale of tangible personal property. Example 9: Corporation T purchases finished articles of clothing and using its own equipment and raw materials, imprints or embroiders its logo on each article. Corporation T sells the clothing under its own label. Corporation T is not considered engaged in manufacturing. While the presence of the logo on the clothing may increase its marketability, it does not substantially alter the nature or form of the clothing itself and the clothing is useable as such without the logo. Example 10: Corporation P purchases fabric from a mill and, using its own equipment, dyes, and other materials, puts a pattern on the fabric through a variety of processes and sells the fabric to clothing manufacturers. Corporation P is considered to be engaged in the manufacture and sale of tangible personal property because it substantially alters the nature of the material. Example 11: CS Corporation is exclusively engaged in the bottling and sale of soft drinks. CS maintains a factory where it mixes syrup then combines the syrup with carbonated water, places the mixture in bottles, labels the bottles and places them in cartons, then sells the cartons to retailers and wholesalers. CS is a manufacturing corporation. Example 12: X Corporation is engaged in the design, development and sale of computer software. X Corporation's employees use computers, programming languages and a library of "pre-written" functions and routines to develop software for use by financial institutions to manage accounts. X Corporation sells the same software to several customers although the software is enhanced or modified to meet the specific needs of each customer. Some customers receive the software on a disk, others receive it electronically over the Internet. More than 50% of X Corporation's gross receipts derive from both types of sales. The software is taxable as "pre-written computer software" under § 1101(b)(14) of the tax law. Sales of the software are treated as sales of tangible personal property for purposes of § 1101 of the tax law and, therefore, for purposes of subparagraph (ii)(C) of this paragraph. X Corporation is a manufacturing corporation. Example 13: X Corporation publishes and sells a magazine. X maintains a large staff of reporters, writers, editors, photographers, photo-editors, and graphic artists. This staff produces and assembles stories and photographs for the magazine using a variety of equipment including computers, photographic equipment, printers, scanners and file servers. Each week the staff culls through and edits a large number of stories and photographs and selects a number for inclusion in the magazine. The staff explores various layouts for the components of the magazine. As part of the process the layouts are examined in print form. The staff then finally produces a completed prototype of the magazine in electronic form. The prototype is delivered electronically to an unrelated printer who prints the magazine following X Corporation's detailed specifications, using raw materials including paper and ink supplied by X Corporation. The printer receives a fee for printing the magazine. The magazine is distributed by the printer to X's customers. X Corporation's extensive preprinting activities leading to the production of the final product are considered an integral part of the manufacturing process. As a result X is considered to be engaged in the manufacture and sale of tangible personal property. If more than 50% of X Corporation's receipts are from the subscription and newsstand sales of the magazine, X will be considered a manufacturing corporation. Example (14): X Corporation produces and sells apparel. X maintains a large staff including designers, graphic artists, pattern makers, computer operators, cutters, sewers and drapers. X's staff develops original ideas for garments, produces illustrations with the aid of computer systems, and selects certain of these ideas to be converted into finished samples. The creation of the samples involves selection of fabrics, cutting, sewing, testing of fabric quality and color and fitting the prototype garments. X then uses the computer systems to make style patterns, which it transfers electronically along with detailed instructions to third-party contractors to whom it also specifies or furnishes the fabrics and other raw materials used to produce the garments. The contractors, whose operations are overseen by X's employees, assemble the garments using the patterns and materials supplied by X. X then sells the garments to its wholesale customers. X's extensive pre-production activities are considered an integral part of the manufacturing process. As a result X is considered to be engaged in the manufacture and sale of tangible personal property. If more than 50% of X Corporation's receipts are from the sale of garments produced as described above, X will be considered a manufacturing corporation.
