New York Codes, Rules and Regulations
Title 20 - DEPARTMENT OF TAXATION AND FINANCE
Chapter I - Franchise and Certain Business Taxes
Subchapter A - Business Corporation Franchise Tax
Part 4 - APPORTIONMENT
Subpart 4-2 - SPECIFIC APPORTIONMENT RULES
Section 4-2.5 - Interest income and net gains from loans.

(a)

(b)

(c) The determinations of the type of loan, FMV of real property, and borrower's location are made at the time the loan is originated, and will be redetermined only if the loan is refinanced.

(d) For purposes of this section, the term carrying costs means the expenses associated with holding the loan.

(d) Examples.

Example 1: Corporation X has interest income from loans secured by real property of $5,000, broken down as follows:

* $2,500 from Loan N secured by real property located in New York;

* $1,500 from Loan O secured by real property located outside of New York; and

* $1,000 from Loan P secured by property located in New York and another state.

The $2,500 of interest income from Loan N is included in New York receipts because the property used to secure the loan is located within New York State. The $1,500 of interest income from Loan O is not included in New York receipts because the property used to secure the loan is not in New York State.

Because the property used to secure Loan P is located within and without New York State, Corporation X must determine the FMV of the properties at the time the loan was originated when determining the portion of such interest income to include in New York receipts.

At the time the loan was originated, the FMV of the New York property was $200,000 and the FMV of the property located outside of New York was $300,000. Therefore, Corporation X includes $400 ($200,000/$500,000 x $1,000) of the interest income from loan P in New York receipts.

Corporation X includes $2,900 of interest income from loans secured by real property in New York receipts and $5,000 interest income from loans secured by real property in everywhere receipts.

Example 2: Corporation Y's sale of Loans N and O, secured by real property within and without New York State, during the taxable year are broken down as follows:

* Loan N, secured only by real property in New York, was sold for $300,000. After deducting its carrying cost of the loan from the sale price, Corporation Y computes a loss of $1,000 from Loan N; and

* Loan O, secured by real property in New York and another state, was sold for $200,000. After deducting its carrying cost of the loan from the sale price, Corporation Y computes a gain of $1,500 from Loan O.

Corporation Y has net gains from loans secured by real property of $500, because the $1,000 loss from Loan N offsets the $1,500 gain from Loan O.

To determine the amount of net gains from loans secured by real property to include in New York receipts, Corporation Y must determine the gross proceeds from sales of loans secured by real property in New York and total gross proceeds from loans secured by real property within and without New York State.

As the property used to secure Loan O is located within and without New York State, Corporation Y first determines that the FMV at the time the loan was originated of the New York property was $200,000 and the property located outside of New York was $300,000. Therefore, the New York property is 40% ($200,000/$500,000) of the total FMV of all the properties used to secure Loan O.

The gross proceeds from loans secured by real property New York State of $380,000 is the sum of $300,000 from loan N and $80,000 from Loan O ($200,000 gross proceeds x 40 percent). The total gross proceeds of loans secured by real property located within and without New York State is $500,000. Corporation Y's gross proceeds fraction of $380,000/$500,000 (or 76 percent) is used to determine the portion of net gains from loans secured by real property in New York. Corporation Y includes $380 of net gains from loans secured by real property in New York receipts (76% x $500). $500 of net gains from loans secured by real property is included in everywhere receipts.

Example 3: Taxpayer D makes multiple loans not secured by real property to Corporation E, domiciled in State X. Each loan is executed by a separate division of Corporation E and the divisions are located in State Y, State Z, and New York State. The interest income earned by Taxpayer D on these loans is not included in New York receipts because Corporation E's commercial domicile is State X. All such interest income is included in everywhere receipts.

Example 4: Taxpayer E earns interest income from a loan not secured by real property that it made to Corporation F, domiciled in New York at the time the loan is originated. The interest income is included in New York receipts because Corporation F's commercial domicile is New York State. Five years after the loan is originated, the commercial domicile of Corporation F changes from New York State to State X. The interest income continues to be included in New York receipts because Corporation F's commercial domicile at the time the loan was originated was New York State. All such interest income is included in everywhere receipts.