The New York State Department of Taxation and Finance continues to provide guidance in the form of responses to frequently asked questions (“FAQs”) regarding the corporate tax reform legislative amendments that took effect for taxable years beginning on or after January 1, 2015 on its website at http:// www.tax.ny.gov/bus/ct/corp_tax_reform_faqs.htm. During the week of April 4, 2016, the Department published answers to three new FAQs relating to apportionment.
First, the Department addressed how interest income on funds deposited with the Federal Reserve (other than federal funds) is apportioned, and explained that such receipts are considered receipts from “other financial instruments,” and are apportioned to the payor’s location, which is the location of the Federal Reserve branch where the corporation made the deposit.
Second, it addressed how interest income on “deposits” is apportioned to New York, and explained that such receipts are also considered receipts from “other financial instruments,” and are sourced to the payor’s commercial domicile. It is not entirely clear from the FAQ what type of “deposits” the Department believes should be treated as “other financial instruments” under the Tax Law, although cash deposits with financial institutions would not appear to constitute “other financial instruments.”
Third, the Department addressed how interest income from a loan that is secured by property located inside and outside of New York is apportioned. A loan is considered a loan secured by real property if 50% or more of the fair market value of the collateral used to secure the loan consists of real property. The Department explained that where a loan is secured by real property located both inside and outside of New York State, the amount of interest income apportioned to New York is computed by multiplying the total interest income from the loan by a fraction, the numerator of which is the fair market value of real property located in New York used to secure the loan, and the denominator of which is the fair market value of all real property used to secure the loan. If the loan is not treated as a loan secured by real property because it does not meet the 50% threshold, the interest is apportioned to New York if the borrower is located in New York. The determination of the type of loan, fair market value of real property, and the borrower’s location is made at the time the loan is entered into, but if the loan is refinanced, the type of loan, the amount of income to apportion to New York, and the borrower’s location must be redetermined at the time of the refinancing.
The new FAQs address issues of customer sourcing for various types of interest income, issues that did not exist under the former tax regime. While the Department’s FAQs are useful as a source of general guidance on topics of interest to taxpayers, it is important to note that they are not binding on the Department and do not carry the force of law or even regulation. To reinforce this point, the Department itself states on its FAQ website that “taxpayers should be aware that subsequent changes in the Tax Law or its interpretation may affect the accuracy of an FAQ. The information provided in these FAQs does not cover every situation and is not intended to replace the law or change its meaning.”