PwC alternatives alert, July 29, 2009

On July 11, 2009, Governor Patterson signed into law legislation that would conform many New York City tax provisions to New York State. Since most of the conforming provisions relate to the New York City apportionment factors, all alternative fund managers conducting business in the City will be impacted. Here are a few of the key bill provisions:

Phase in of single factor sales formula for general corporation tax ("GCT") and unincorporated business Tax ("UBT").

Presently, New York City requires an equally-weighted three-factor apportionment formula, based on property, sales, and payroll, for purposes of the general corporation tax and unincorporated business tax. Starting with tax years beginning in 2009, the legislation would gradually phase in a single sales factor formula, which would be completed for tax years beginning after 2017. Below is a break-down of the phase in.



Conformity to New York State's broker-dealer sourcing rules

New York City will conform to the New York State sourcing rules (i.e., location of customer) for broker-dealers under the GCT and UBT. The legislation would provide new sourcing rules (generally referring to mailing addresses or other city locations) for: brokerage commissions; margin interest; fees related to underwriting of securities; income from the purchase or sale of stocks, bonds, foreign exchange or other securities; loans and advances to affiliates (based on the location of the affiliates); account maintenance fees; and management and advisory services, including services related to mergers and acquisitions.

Conformity to New York State's captive REIT and captive RIC rules

New York City will conform to the New York State Captive REIT and Captive RIC rules for the GCT. Under Article 9-A NYS rules, a captive REIT or RIC must be included in a combined report with the corporation that directly owns or controls over 50% of the voting stock of the REIT/RIC, if that corporation is subject to tax or required to be included in a combined report under Article 9-A. If over 50% of the voting stock is not directly owned or controlled by such a corporation, then the REIT/RIC must be included in a combined return or report with the corporation that is the "closest controlling stockholder" of the RIC. This will be effective for tax years beginning on or after January 1, 2009.

Conformity to New York State's fixed dollar minimum tax

Currently, New York City imposes a flat $300 fixed dollar minimum tax on corporations under the GCT. The legislation would replace the flat $300 fixed dollar minimum tax with a tax based on New York City receipts that would range from $25 to $5,000 as follows:



For additional information, please contact your PwC engagement team or any of the partners in our practice.