§ 28-07 Allocation to New York City.
RCNY § 28-07
(a)General. (Administrative Code § 11-508(a)). If an unincorporated business is carried on both within and without New York City, for taxable years beginning before July 1, 1994 there shall be allocated to the City a fair and equitable portion of the excess of its unincorporated business gross income as determined under 19 RCNY § 28-05 over its unincorporated business deductions subject to allocation as determined under 19 RCNY § 28-06, and, for taxable years beginning after June 30, 1994, there shall be allocated to the City a fair and equitable portion of the taxpayer's business income. If, for taxable years beginning before July 1, 1996, the unincorporated business has no regular place of business outside the City, all of such amounts shall be allocated to the City. The deductions under 19 RCNY § 28-08 and the unincorporated business exemptions allowable under 19 RCNY § 28-09 are not subject to allocation.
(b)Regular place of business.
(1)A regular place of business is any bona fide office, factory, warehouse or other place which is systematically and regularly used by the unincorporated business entity in carrying on its business. Where, as a regular course of business, property of an unincorporated business is stored by it in a public warehouse until it is shipped to customers, such warehouse is considered a regular place of business, and where, as a regular course of business, raw material or partially finished goods are delivered to an independent contractor to be converted, finished or improved, and the finished goods remain in the possession of the independent contractor until shipped to customers, the plant of such independent contractor is considered a regular place of business of the unincorporated business entity. However, a taxpayer does not have a regular place of business outside the City solely by consigning goods to an independent factor outside the City for sale at the consignee's discretion.
(2)If, for taxable years beginning before July 1, 1996, the unincorporated business has no regular place of business outside New York City, all of the excess of its unincorporated business gross income over its allocable unincorporated business deductions shall be allocated to the City. An unincorporated business does not have a regular place of business outside the City merely because sales may be made to, or services performed for or on behalf of, persons or corporations located without the City, or because such sales or services are made by or performed by an independent factor, agent or contractor having a regular place of business without New York City. Example 1: An accountant whose only office is in New York City cannot allocate his income for unincorporated business tax purposes because some of his services are performed at his clients' places of business outside the City. Similarly, the accountant's residence outside the City will not be considered a regular place of business for allocation purposes, even though the accountant has for his own convenience set aside some space in his home to maintain business records, prepare reports or perform incidental business activities. Example 2: A broker, all of whose income is derived from commissions on orders executed on the floor of the New York Stock Exchange, may not allocate any part of that income outside the City, despite the fact that he maintains his business records and performs other incidental business activities at his home outside the City. Example 3: A freelance journalist whose only office is in the City, may not allocate his income for unincorporated business tax purposes, despite the fact that part of his working time is spent traveling to gather material for his articles.
(3)The foregoing provisions of this subdivision (b) are not exclusive in determining whether an unincorporated business has a regular place of business outside New York City or in determining whether the business is carried on both within and without New York City. Where any question on these points exists, consideration should be given to all of the facts pertaining to the conduct and operation of the business, including (i) the nature of the business, (ii) the type and location of each place of business used in the activity, (iii) the nature of the activity engaged in at each place of business, and (iv) the regularity, continuity and permanency of the activity at each location.
(c)Allocation by taxpayer's books. (Administrative Code § 11-508(b)).
(d)Allocation by formula. (Administrative Code § 11-508(c)).
(ii)Payroll percentage. The percentage computed by dividing (A) the total wages, salaries and other personal service compensation paid or incurred during the taxable year to employees in connection with the unincorporated business carried on within New York City, by (B) the total of all wages, salaries and other personal service compensation paid or incurred during the taxable year to employees in connection with the unincorporated business carried on both within and without New York City. (C) For purposes of this subparagraph (ii), employees within New York City include all employees regularly connected with or working out of an office or place of business of the taxpayer within New York City, irrespective of where the services of such employees were performed. However, if the taxpayer establishes to the satisfaction of the Commissioner of Finance that, because of the fact that a substantial part of its payroll was paid to employees attached to a New York City office who performed a substantial part of their services outside New York City, the computation of the payroll factor according to the general rule stated above would not produce an equitable result, the Commissioner of Finance may, in his or her discretion, permit the payroll factor to be computed on the basis of the amount of compensation paid for services actually rendered within and without the City. Moreover, wherever it appears that, because a substantial part of the taxpayer's payroll was paid to employees attached to offices outside the City who performed a substantial part of their services within the City, the computation of the payroll factor according to the general rule would not properly reflect the amount of the taxpayer's business done within New York City by its employees, the Commissioner of Finance may require the payroll factor to be computed on the basis of the amount of compensation paid for services performed within and without the City. In any case, where the payroll factor is permitted or required to be computed on the basis of the amount of compensation paid for services performed within and without the City, the amount treated as compensation for services performed within the City will be deemed to be: (a) in the case of an employee whose compensation depended directly on the volume of business secured by him or her, such as a salesman on a commission basis, the amount received by him by her for the business attributable to his or her efforts within New York City; (b) in the case of an employee whose compensation depended on other results achieved, the proportion of the total compensation which the value of his or her services within New York City bears to the value of all his or her services; and (c) in the case of an employee compensated on a time basis, the proportion of the total amount received by him or her which the working time employed within New York City bears to the total working time.
(iii)Gross income percentage. (A) The percentage computed by dividing (1) the gross sales or charges for services performed by or through an agency located within New York City, by (2) the total of all gross sales or charges for services performed within and without New York City. The sales or charges to be allocated to New York City shall include all sales negotiated or consummated, and charges for services performed, by an employee, agent, agency or independent contractor chiefly situated at, connected by contract or otherwise with, or sent out from, offices of the unincorporated business, or other agencies, situated within New York City. For taxable years beginning on or after July 1, 1996, the foregoing sentence shall not apply to the allocation of gross income from sales of tangible personal property. For taxable years beginning on or after July 1, 1996, sales of tangible personal property to be allocated to New York City shall include only sales where shipment is made to points within New York City. (B) For taxable years beginning on or after January 1, 1996, in the case of a taxpayer engaged in publishing newspapers or periodicals, the sales or charges for services arising from sales of subscriptions to, and advertising contained in, such newspapers and periodicals will be allocated to New York City to the extent such newspapers or periodicals are delivered to points within the City. (C) For taxable years beginning on or after January 1, 1996, in the case of a taxpayer engaged in broadcasting radio or television programs, whether through the public airwaves, by cable, direct or indirect satellite transmission or other means of transmission, the sales and charges for services arising from the sale of subscriptions to such programs or from the broadcasting of such programs and of commercial messages in connection therewith, will be allocated to New York City according to the ratio of the number of listeners or viewers within the City to the total number of such listeners or viewers within and outside the City.
(i)For taxable years beginning on or after July 1, 1996, a taxpayer that is a manufacturing business as defined below may elect to determine its business allocation percentage by adding together the percentages determined under subparagraphs (i), (ii), and (iii) of paragraph (1) of this subdivision (d) and adding to that sum an additional percentage equal to the percentage determined in subparagraph (iii) of paragraph (1) and dividing the total by the number of percentages. See paragraph (5) of this subdivision (d) for the determination of the business allocation percentage where one or more factors is missing.
(4)Manufacturing includes printing in circumstances under which the taxpayer receives any combination of graphic or textual content from a customer, the taxpayer produces a tangible representation of that content, whether in print or other tangible form, through a series of processes using raw materials owned by the taxpayer and the taxpayer delivers that tangible product to the customer or one or more designees of the customer. Manufacturing also includes printing in circumstances under which the taxpayer uses any combination of graphic or textual content prepared by its own employees to produce a tangible representation of the content in print or other tangible form using raw materials owned by the taxpayer and the taxpayer delivers that tangible product to its customers or subscribers.
(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 taxpayer that performs services for a customer, including manufacturing services, on property or raw materials belonging to the customer will not be considered a manufacturing business.
(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 business, a taxpayer must be engaged in both the manufacture of tangible personal property and the sale of such property that it manufactures. Therefore, a taxpayer that manufactures tangible personal property but does not engage in the sale of such tangible personal property will not be considered a manufacturing business. Similarly, a taxpayer that sells tangible personal property but does not engage in the manufacture of tangible personal property will not be considered a manufacturing business. 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, an unincorporated business engaged in the manufacture and sale of tangible personal property shall be considered to be primarily engaged in manufacturing 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. If an unincorporated entity is engaged in more than one unincorporated business, all such businesses shall be treated as a single business for purposes of determining whether more than 50 percent of the gross receipts for the taxable year of that business are from manufacturing. See 19 RCNY § 28-02(a)(4)(ii).
(iv)The provisions of this paragraph are illustrated by the following examples: Example 1: Partnership X is engaged in printing pamphlets, brochures, catalogues and business reports. Under an agreement with customer A, X 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 uses its own raw materials, including paper and ink, and its own equipment to produce the plates and the catalogue. X employees advise A with regard to the layout and typeface of the catalogue. In the course of performing the contract, X delivers a master print to A for its review and final approval. In addition, under the agreement with A, X prepares an electronic version of the catalogue for incorporation into a Web page maintained by A. X 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 receives $500X under the agreement with no breakdown of the price among the various services and products provided. Under an agreement with customer B, Partnership X 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 receives $200X under the agreement with B with no breakdown of the price among the various services and products provided. X's activities under the agreement with A are considered the manufacture and sale of tangible personal property. (Note: if X delivers the electronic version of the catalogue to A by means of the Internet the result would not change. The $500X received by X 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's activities under the agreement with B are considered the manufacture and sale of tangible personal property because under the agreement with B, X is merely performing services on property owned by B. (Note: if X used its own paper for the print copies, X's activities under the agreement with B would be considered the manufacture and sale of tangible personal property.) Of X's total business receipts of $700X, $500X are from the manufacture and sale of tangible personal property. Therefore, X is considered to be a manufacturing business. Example 2: Partnership 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. Partnership X is considered engaged in manufacturing. Partnership 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 partnership X's receipts are from the manufacture and sale of tangible personal property, X is not considered a manufacturing business. Example 3: Partnership 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. Partnership A is engaged in manufacturing. If instead of using its own materials and equipment, Partnership A contracts with Corporation B to develop the film and make prints, Partnership A is not engaged in manufacturing. Example 4: Partnership Y contracts with A, 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'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: Partnership W washes, cuts, cooks, freezes and packages vegetables for wholesale and retail sale to customers. Partnership W is considered to be engaged in manufacturing. Example 6: Partnership 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. Partnership 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: Partnership C purchases fabric, cuts and sews clothing for sale to a wholesale distributor, Partnership E. Partnership C is engaged in the manufacture and sale of tangible personal property. Partnership E packages and labels the clothing for resale to its retail outlet customers. Partnership E is not considered to be engaged in manufacturing. If Partnership C cuts and sews fabric provided by Partnership D where Partnership D retains title to the fabric and D sells the finished clothing, neither Partnership C nor Partnership D would be considered to be engaged in the manufacture and sale of tangible personal property. Partnership C is providing manufacturing services and Partnership D is not conducting the manufacturing activities itself. Example 8: Partnership T purchases finished articles of clothing and using its own equipment and raw materials, imprints or embroiders its logo on each article. Partnership T sells the clothing under its own label. Partnership 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 9: Partnership 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. Partnership 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 10: Partnership CS 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 business. Example 11: Partnership X is engaged in the design, development and sale of computer software. X'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 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'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 is a manufacturing business. Example 12: Partnership X 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 Partnership X's detailed specifications, using raw materials including paper and ink supplied by Partnership X. The printer receives a fee for printing the magazine. The magazine is distributed by the printer to X's customers. Partnership X'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 Partnership X's receipts are from the subscription and newsstand sales of the magazine, X will be considered a manufacturing business. Example (14): Partnership X 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 Partnership X's receipts are from the sale of garments produced as described above, X will be considered a manufacturing business.
(e)Other allocation methods. (Administrative Code § 11-508(d)).
(f)Special rules for real estate. (Administrative Code § 11-508(e)).
(g)Allocation of net loss. The provisions of these regulations with respect to the allocation of the excess of the unincorporated business gross income over the allocable unincorporated business deductions shall apply in any case in which the unincorporated business deductions exceed the unincorporated business gross income of a business which is carried on both within and without New York City.
(h)Special rules for security and commodity brokers.
(v)Commission income from over-the-counter transactions must be allocated in the following manner: (A) If the order originates at or through a New York City place of business of the taxpayer, 100 percent of the commission income must be allocated to New York City. (B) If the order originates at or through a bona fide established office of the taxpayer located outside New York City, no portion of the commission income is allocable to New York City.
