N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-4.1

Current through Register Vol. 46, No. 39, September 25, 2024

Section 3-4.1 - Definition of investment capital

(Tax Law, section 208(4) and (5))

(a) The term "investment capital" means investments described in paragraphs (1), (2) or (3) of this subdivision, as further described in this Subpart.

(1) Stocks that satisfy the criteria in subparagraphs (i) through (v) of this paragraph shall be referred to as "actual investment capital".

(i) The stocks satisfy the definition of a capital asset under IRC section 1221 at all times during the taxable year in which the taxpayer owned the stocks.

(ii) The stocks are held for investment by the corporation for more than one year. For purposes of determining the length of the holding period, the principles of IRC section 1223 shall be followed under the circumstances described in that section.

(iii) The dispositions of the stocks are, or would be, treated by the corporation as generating long-term capital gains or losses under the IRC.

(iv) If the stocks are acquired on or after January 1, 2015, the stocks have never been held for sale to customers in the regular course of business at any time after the close of the day on which they were acquired.

(v) The stocks are clearly identified in the corporation's records as held for investment in the manner described in section 3-4.3 of this Subpart.

(2) Stocks acquired during the taxable year that meet the criteria in subparagraphs (i), (iii), (iv), and (v) of paragraph (1) of this subdivision that have been held as investment by the corporation for one year or less at the time the corporation files its original report for the taxable year and are still held at such time shall be referred to as "presumed investment capital".

(3) In the case of a corporation incorporated and commercially domiciled outside of New York State, stocks not described in paragraph (1) or (2) of this subdivision, debt obligations, and other securities shall be "constitutionally protected investment capital" if the income or gain from such stocks, debt obligations, and other securities cannot be apportioned to New York State as the result of United States constitutional principles. In the case of a combined report, commercial domicile shall be determined on an entity by entity basis.

(b) Stock in a corporation that is conducting a unitary business with the taxpayer or any corporation included in a combined report with the taxpayer, stock in a corporation included in a combined report with the taxpayer pursuant to the commonly owned group election, and stock issued by the taxpayer or any corporation included in a combined report with the taxpayer will not constitute investment capital. For purposes of this section, if one corporation owns or controls, directly or indirectly, less than 20% of the voting power of the stock of a second corporation, that second corporation will be presumed to not be conducting a unitary business with the first corporation.

(c) If a corporation is a partner in a partnership and the corporation is using the aggregate method to compute its tax, the corporation's proportional part of the stock owned by the partnership may qualify as investment capital if requirements for investment capital specified in subdivision (a) of this section are satisfied at the partnership level and the partnership and corporate partner are not unitary with the corporation that issued the stock.

(d) The amount of investment capital is determined as follows:

(1) ascertain the average value of each item of investment capital;

(2) ascertain the net value of each such item by subtracting from the average value of each such item the average liabilities that are directly or indirectly attributable to that item; and

(3) add the net values so arrived at.

(4) Provided, if the sum determined in paragraph (3) is less than zero, then the amount of investment capital is deemed to be zero.

(e) Investment capital does not include any investments in stock the income from which is excluded from entire net income pursuant to the provisions of section 208(9)(c-1). Investment capital will be computed without regard to liabilities directly or indirectly attributable to such investments, but only if air carriers organized in the United States and operating in the foreign country or countries in which the corporation has its major base of operations and in which it is organized, resident or headquartered (if not in the same country as its major base of operations) are not subject to any tax based on or measured by capital imposed by such foreign country or countries, or any political subdivision thereof, or, if taxed, are provided an exemption, equivalent to that provided for herein, from any tax based on or measured by capital imposed by such foreign country or countries and from any such tax imposed by any political subdivision thereof.

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-4.1

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023