Sec. 19-2.3. IBF entire net income allocation rules

Tax Law, § 1454

(a) A taxpayer which has established an IBF, as defined in section 16-2.16 of this Title, is entitled, pursuant to Subpart 18-3 of this Title, to modify its entire net income by deducting therefrom the adjusted eligible net income of the IBF. (In the case of a loss, such loss must be added to entire net income.) Where the taxpayer makes that modification and the taxpayer is entitled to allocate its entire net income by the entire net income allocation percentage pursuant to paragraph (a)(1) of section 19-1.1 of this Part, such taxpayer must:

(1) exclude from both the numerator and denominator of the payroll and deposits factors, the wages, salaries and other personal service compensation and deposits the expenses of which are attributable, as provided in Subpart 18-3 of this Title, to the production of eligible gross income; and

(2) exclude from both the numerator and denominator of the receipts factor those receipts which are attributable as provided in Subpart 18-3 of this Title to the production of eligible gross income. Such method of treating the results of the IBF operations is referred to in this section as the “IBF modification.”

(b) When the taxpayer elects, pursuant to subdivision (c) of this section, to reflect the results of its IBF operations in its entire net income allocation percentage in lieu of the IBF modification, such allocation percentage is adjusted by:

(1) including, in the denominator of the payroll factor, wages, salaries and other personal service compensation of the taxpayer's employees, except general executive officers, but excluding from the numerator of the payroll factor wages, salaries and other personal service compensation of the taxpayer's employees the expenses of which are attributable, as provided in Subpart 18-3 of this Title, to the production of eligible gross income;

(2) including in the denominator but excluding from the numerator of the receipts factor those receipts which are attributable, as provided in Subpart 18-3 of this Title, to the production of eligible gross income; and

(3) including in the denominator but excluding from the numerator of the deposits factor, deposits the expenses of which are attributable, as provided in Subpart 18-3 of this Title, to the production of eligible gross income.

Such election is referred to in this section as the “IBF formula allocation method.”

(c) The election to use the IBF formula allocation method for a taxable year is made with the filing of the return for such taxable year. Such election may be made or changed with the filing of an amended return for such taxable year. When a combined return is filed, the IBF election is made by the parent corporation included in such combined return and is binding on all corporations included in such combined return. Where the parent corporation is not included in the combined return, the IBF election shall be made for the corporations included in the combined return by their common parent and such election is binding on all corporations included in such return.

(d) As used in this section, the term eligible gross income has the same meaning as is given to that term in section 18-3.4 of this Title, except that for purposes of subdivision (b) of this section, the term foreign person, as defined in section 18-3.2(g) of this Title, shall not include a foreign branch of the taxpayer, and no consideration shall be given to any transaction between the taxpayer's foreign branches and its IBF.