The New York Department of Taxation and Finance has issued a memorandum discussing how the state’s corporate tax reform legislation affects the apportionment factor computation for a New York S corporation, as well as the determination of New York source income for nonresident and part-year resident shareholders of New York S corporations. For tax years beginning on or after January 1, 2015, the business apportionment factor reflects a corporation’s New York market-based receipts. To calculate amounts derived from New York sources, nonresident shareholders apply the S corporation’s business apportionment factor to all New York S corporation items of income, gain, loss, and deduction (and any related Tax Law §612 modifications) that are included in New York adjusted gross income. For part-year resident shareholders, the allocation applies only to the New York S corporation items received during the nonresident period (and any related §612 modifications).
The memorandum emphasizes that, for tax years beginning on or after January 1, 2015, all New York S corporation items entering into a nonresident shareholder’s federal adjusted gross income must be allocated to New York using the business apportionment factor, even if there are amounts that would have qualified as exempt investment income or other exempt income for a New York C corporation filer under Article 9-A. There is no statutory provision in Article 22 to exempt those amounts from personal income tax, or to modify federal adjusted gross income to remove those amounts. The memorandum provides an example to illustrate the application of these provisions.
TSB-M-15(7)C, (6)I, New York Department of Taxation and Finance, December 1, 2015