Bill Text: NY S00303 | 2019-2020 | General Assembly | Introduced


Bill Title: Relates to investment management services to a partnership or other entity.

Spectrum: Partisan Bill (Democrat 5-0)

Status: (Introduced - Dead) 2020-01-08 - REFERRED TO INVESTIGATIONS AND GOVERNMENT OPERATIONS [S00303 Detail]

Download: New_York-2019-S00303-Introduced.html


                STATE OF NEW YORK
        ________________________________________________________________________
                                           303
                               2019-2020 Regular Sessions
                    IN SENATE
                                       (Prefiled)
                                     January 9, 2019
                                       ___________
        Introduced  by  Sen. HOYLMAN -- read twice and ordered printed, and when
          printed to be committed to the Committee on Investigations and Govern-
          ment Operations
        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 re-characterized 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.
                                                                   LBD05825-01-9

        S. 303                              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-

        S. 303                              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

        S. 303                              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,  2019  and
    29  before  January  1, 2020, (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

        S. 303                              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.
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