S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   3554
 
                        2017-2018 Regular Sessions
 
                           I N  A S S E M B L Y
 
                             January 27, 2017
                                ___________
 
 Introduced  by M. of A. AUBRY, BICHOTTE, BRINDISI, FARRELL, RYAN, ORTIZ,
   STIRPE, PICHARDO, M. G. MILLER, MOSLEY, LIFTON, COOK, BLAKE, ABINANTI,
   JAFFEE, HYNDMAN, CAHILL, GOTTFRIED,  HOOPER,  JOYNER,  PEOPLES-STOKES,
   JEAN-PIERRE,  SEPULVEDA,  STECK, ROSENTHAL, FAHY -- Multi-Sponsored by
   -- M. of A.   BARRON, CYMBROWITZ,  DINOWITZ,  GLICK,  HEVESI,  KEARNS,
   LENTOL,  MAGEE,  RAMOS,  SIMON,  SKARTADOS,  THIELE  --  read once and
   referred to the Committee on Ways and Means
 
 AN ACT to amend the  tax  law,  in  relation  to  investment  management
   services to a partnership or other entity
 
   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. Paragraph (a) of subdivision 6 of section 208  of  the  tax
 law,  as  amended  by  section  5 of part T of chapter 59 of the laws of
 2015, is amended to read as follows:
   (a) (i) The term "investment income" means income,  including  capital
 gains  in  excess  of  capital  losses,  from investment capital, to the
 extent included in  computing  entire  net  income,  less,  (A)  in  the
 discretion  of  the  commissioner,  any interest deductions allowable in
 computing entire net income which are directly or  indirectly  attribut-
 able to investment capital or investment income, (B) ANY OF CAPITAL GAIN
 INCLUDED  IN  FEDERAL  TAXABLE  INCOME THAT HAS TO BE RECHARACTERIZED AS
 BUSINESS INCOME PURSUANT TO PARAGRAPH (U) OF SUBDIVISION  NINE  OF  THIS
 SECTION;  provided,  however,  that  in  no case shall investment income
 exceed entire net income. (ii) If  the  amount  of  interest  deductions
 subtracted  under  subparagraph (i) of this paragraph exceeds investment
 income, the excess of such amount over investment income must  be  added
 back  to  entire  net  income. (iii) If the taxpayer's investment income
 determined without regard to the interest  deductions  subtracted  under
 subparagraph  (i) of this paragraph comprises more than eight percent of
 the taxpayer's entire net income, investment income  determined  without
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
                                                            LBD07791-01-7
              

 A. 3554                             2
 
 regard  to  such  interest deductions cannot exceed eight percent of the
 taxpayer's entire net income.
   §  2.  Subparagraph  (ix) of paragraph (a) of subdivision 1 of section
 210 of the tax law is amended by adding  a  new  clause  8  to  read  as
 follows:
   (8) THE NET OPERATING LOSS DEDUCTION ALLOWED UNDER SECTION ONE HUNDRED
 SEVENTY-TWO  OF  THE  INTERNAL  REVENUE  CODE SHALL FOR PURPOSES OF THIS
 PARAGRAPH BE DETERMINED TAKING INTO CONSIDERATION  THE  RE-CHARACTERIZA-
 TION  OF INCOME PURSUANT TO PARAGRAPH (U) OF SUBDIVISION NINE OF SECTION
 TWO HUNDRED EIGHT OF THIS ARTICLE.
   § 3. Subdivision 9 of section 208 of the tax law is amended by  adding
 a new paragraph (u) to read as follows:
   (U)  SPECIAL RULE FOR CORPORATE PARTNERS PERFORMING INVESTMENT MANAGE-
 MENT SERVICES. IN THE CASE OF A TAXPAYER THAT IS A PARTNER WHO  PERFORMS
 INVESTMENT  MANAGEMENT SERVICES (AS DEFINED IN SUBSECTION (H) OF SECTION
 SIX HUNDRED THIRTY-ONE OF THIS CHAPTER) FOR THE PARTNERSHIP, THE TAXPAY-
 ER WILL NOT BE TREATED AS A PARTNER FOR PURPOSES OF  THIS  ARTICLE  WITH
 RESPECT  TO  THE  AMOUNT  OF THE PARTNER'S DISTRIBUTIVE SHARE OF INCOME,
 GAIN, LOSS AND DEDUCTION (INCLUDING ANY GUARANTEED PAYMENTS) WHICH IS IN
 EXCESS OF THE AMOUNT THAT SUCH DISTRIBUTIVE SHARE WOULD HAVE BEEN IF THE
 PARTNER HAD PERFORMED NO INVESTMENT MANAGEMENT SERVICES.  INSTEAD,  SUCH
 EXCESS  AMOUNT  SHALL  BE  TREATED AS AN AMOUNT RECEIVED FROM A TRADE OR
 BUSINESS CARRIED ON BY THE TAXPAYER, AND NOTWITHSTANDING  ANY  STATE  OR
 FEDERAL  LAW  TO THE CONTRARY, SUCH EXCESS AMOUNT SHALL BE CHARACTERIZED
 AS A PAYMENT FOR SERVICES RENDERED. FOR PURPOSES OF THIS PARAGRAPH,  THE
 AMOUNT  OF THE DISTRIBUTIVE SHARE THAT WOULD HAVE BEEN DETERMINED IF THE
 PARTNER PERFORMED NO SERVICES, SHALL NOT BE LESS THAN ZERO.
   § 4. Section 210 of the tax law is amended by adding a new subdivision
 4 to read as follows:
   4. RULE FOR INVESTMENT MANAGEMENT SERVICES TO A PARTNERSHIP  OR  OTHER
 ENTITY. FOR PURPOSES OF SUBDIVISION THREE OF THIS SECTION, THE AMOUNT OF
 DISTRIBUTIVE  SHARE  OF  PARTNERSHIP  INCOME,  GAIN,  LOSS  OR DEDUCTION
 (INCLUDING ANY GUARANTEED PAYMENTS) RECEIVED AS A PARTNER  BY  A  CORPO-
 RATION  WHICH RENDERS INVESTMENT MANAGEMENT SERVICES TO A PARTNERSHIP OR
 OTHER ENTITY, AS DEFINED IN SUBSECTION (H) OF SECTION SIX HUNDRED  THIR-
 TY-ONE  OF  THIS  CHAPTER,  WHICH  IS  IN EXCESS OF THE AMOUNT THAT SUCH
 DISTRIBUTIVE SHARE WOULD HAVE BEEN  IF  THE  PARTNER  HAD  PERFORMED  NO
 INVESTMENT  MANAGEMENT  SERVICES, SHALL BE TREATED AS A BUSINESS RECEIPT
 THAT ARISES FROM THE PERFORMANCE  OF  SERVICES.  FOR  PURPOSES  OF  THIS
 SUBDIVISION,  THE  AMOUNT OF THE DISTRIBUTIVE SHARE THAT WOULD HAVE BEEN
 DETERMINED IF THE PARTNER PERFORMED NO SERVICES, SHALL NOT BE LESS  THAN
 ZERO.
   § 5. Subsection (b) of section 617 of the tax law, as amended by chap-
 ter 606 of the laws of 1984, is amended to read as follows:
   (b)  Character  of  items.  Each item of partnership and S corporation
 income, gain, loss, or deduction shall have the  same  character  for  a
 partner  or  shareholder  under  this  article as for federal income tax
 purposes. Where an item is not  characterized  for  federal  income  tax
 purposes,  it shall have the same character for a partner or shareholder
 as if realized directly from the source from which realized by the part-
 nership or S corporation or incurred in the same manner as  incurred  by
 the  partnership  or  S  corporation.    SEE  SUBSECTIONS (F) AND (G) OF
 SECTION SIX HUNDRED THIRTY-TWO OF THIS ARTICLE  FOR  SPECIAL  RULES  FOR
 PARTNERS AND SHAREHOLDERS PERFORMING INVESTMENT MANAGEMENT SERVICES.
   § 6. Subsection (d) of section 631 of the tax law, as amended by chap-
 ter 28 of the laws of 1987, is amended to read as follows:

 A. 3554                             3
 
   (d) Purchase and sale for own account.-- (1) A nonresident, other than
 a  dealer  holding property primarily for sale to customers in the ordi-
 nary course of his OR HER trade or business,  shall  not  be  deemed  to
 carry on a business, trade, profession or occupation in this state sole-
 ly  by reason of the purchase and sale of property or the purchase, sale
 or writing of stock option contracts,  or  both,  for  his  OR  HER  own
 account.
   (2)  THIS  SUBSECTION  SHALL  NOT  APPLY  TO  A PARTNER OR SHAREHOLDER
 PERFORMING INVESTMENT MANAGEMENT SERVICES AS DESCRIBED UNDER  SUBSECTION
 (H) OF THIS SECTION.
   §  7. Section 631 of the tax law is amended by adding a new subsection
 (h) to read as follows:
   (H) INVESTMENT MANAGEMENT SERVICES. (1) FOR PURPOSES OF THIS  SECTION,
 THE  TERM  "INVESTMENT  MANAGEMENT  SERVICES" TO A PARTNERSHIP, S CORPO-
 RATION OR OTHER ENTITY MEANS PROVIDING A SUBSTANTIAL QUANTITY OF ANY  OF
 THE  FOLLOWING SERVICES TO THE PARTNERSHIP, S CORPORATION OR OTHER ENTI-
 TY:
   (I) ADVISING THE PARTNERSHIP, S  CORPORATION,  OR  ENTITY  AS  TO  THE
 ADVISABILITY  OF  INVESTING  IN,  PURCHASING,  OR  SELLING ANY SPECIFIED
 ASSET, OR
   (II) MANAGING, ACQUIRING, OR DISPOSING OF ANY SPECIFIED ASSET, OR
   (III) ARRANGING FINANCING WITH RESPECT TO ACQUIRING SPECIFIED  ASSETS,
 OR
   (IV) ANY ACTIVITY IN SUPPORT OF ANY SERVICE DESCRIBED IN SUBPARAGRAPHS
 (I) THROUGH (III) OF THIS PARAGRAPH.
   (2)  FOR PURPOSES OF THIS SUBSECTION, THE TERM "SPECIFIED ASSET" MEANS
 SECURITIES (AS DEFINED IN SECTION FOUR HUNDRED  SEVENTY-FIVE  (C)(2)  OF
 THE  INTERNAL REVENUE CODE WITHOUT REGARD TO THE LAST SENTENCE THEREOF),
 REAL ESTATE HELD FOR RENTAL OR INVESTMENT,  INTERESTS  IN  PARTNERSHIPS,
 COMMODITIES  (AS  DEFINED IN SECTION FOUR HUNDRED SEVENTY-FIVE (E)(2) OF
 THE INTERNAL REVENUE CODE), OR  OPTIONS  OR  DERIVATIVE  CONTRACTS  WITH
 RESPECT TO ANY OF THE FOREGOING.
   (3)  A  PARTNER  OR  SHAREHOLDER  WILL  NOT  BE DEEMED TO BE PROVIDING
 INVESTMENT MANAGEMENT SERVICES UNDER THIS SUBSECTION IF AT LEAST  EIGHTY
 PERCENT  OF THE AVERAGE FAIR MARKET VALUE OF THE SPECIFIED ASSETS OF THE
 PARTNERSHIP, S CORPORATION OR  OTHER  ENTITY  DURING  THE  TAXABLE  YEAR
 CONSIST OF REAL ESTATE.
   §  8.  Section  632  of  the  tax  law  is  amended  by adding two new
 subsections (f) and (g) to read as follows:
   (F)  SPECIAL  RULE  FOR  PARTNERS  PERFORMING  INVESTMENT   MANAGEMENT
 SERVICES.  IN  THE  CASE OF A PARTNER WHO PERFORMS INVESTMENT MANAGEMENT
 SERVICES FOR THE PARTNERSHIP, THE PARTNER WILL NOT BE TREATED AS A PART-
 NER FOR PURPOSES OF THIS ARTICLE WITH RESPECT TO THE AMOUNT OF THE PART-
 NER'S DISTRIBUTIVE SHARE OF INCOME, GAIN, LOSS AND DEDUCTION  (INCLUDING
 ANY GUARANTEED PAYMENTS) WHICH IS IN EXCESS OF THE AMOUNT SUCH DISTRIBU-
 TIVE  SHARE  WOULD  HAVE BEEN IF THE PARTNER HAD PERFORMED NO INVESTMENT
 MANAGEMENT SERVICES. INSTEAD, SUCH EXCESS AMOUNT SHALL BE TREATED AS  AN
 AMOUNT RECEIVED FROM A TRADE, BUSINESS, PROFESSION OR OCCUPATION CARRIED
 ON  IN THE PARTNER'S OWN CAPACITY FOR PURPOSES OF THIS ARTICLE. NOTWITH-
 STANDING ANY STATE OR FEDERAL LAW TO THE CONTRARY,  SUCH  EXCESS  AMOUNT
 SHALL  BE  CHARACTERIZED AS A PAYMENT FOR SERVICES RENDERED FOR PURPOSES
 OF THIS ARTICLE, AND FOR PURPOSES OF SECTION SIX HUNDRED  THIRTY-ONE  OF
 THIS  ARTICLE  SHALL BE ALLOCATED IN ACCORDANCE WITH THE RULES AND REGU-
 LATIONS APPLICABLE TO:
   (1) INDIVIDUALS RENDERING PERSONAL SERVICES IN THE CASE OF AN INDIVID-
 UAL PARTNER, OR

 A. 3554                             4
 
   (2) A BUSINESS CARRIED ON IN NEW YORK IN THE CASE OF A PARTNER THAT IS
 A PARTNERSHIP, ESTATE OR TRUST, OR
   (3)  A CORPORATION UNDER ARTICLE NINE-A OF THIS CHAPTER IN THE CASE OF
 A PARTNER THAT IS AN S CORPORATION.
 FOR PURPOSES OF THIS SUBSECTION, THE AMOUNT OF  THE  DISTRIBUTIVE  SHARE
 THAT  WOULD  HAVE  BEEN DETERMINED IF THE PARTNER PERFORMED NO SERVICES,
 SHALL NOT BE LESS THAN ZERO.
   (G) SPECIAL RULE FOR  SHAREHOLDERS  PERFORMING  INVESTMENT  MANAGEMENT
 SERVICES.  IN  THE CASE OF A SHAREHOLDER WHO PERFORMS INVESTMENT MANAGE-
 MENT SERVICES FOR THE S CORPORATION, THE SHAREHOLDER WILL NOT BE TREATED
 AS A SHAREHOLDER FOR PURPOSES OF THIS ARTICLE WITH RESPECT TO THE AMOUNT
 OF THE SHAREHOLDER'S PRO RATA SHARE OF INCOME, GAIN, LOSS AND  DEDUCTION
 WHICH  IS IN EXCESS OF THE AMOUNT SUCH PRO RATA SHARE WOULD HAVE BEEN IF
 THE  SHAREHOLDER  HAD  PERFORMED  NO  INVESTMENT  MANAGEMENT   SERVICES.
 INSTEAD,  SUCH EXCESS AMOUNT SHALL BE TREATED AS AN AMOUNT RECEIVED FROM
 A TRADE, BUSINESS, PROFESSION OR OCCUPATION CARRIED ON IN THE SHAREHOLD-
 ER'S OWN CAPACITY FOR PURPOSES  OF  THIS  ARTICLE.  NOTWITHSTANDING  ANY
 STATE  OR FEDERAL LAW TO THE CONTRARY, SUCH EXCESS AMOUNT SHALL BE CHAR-
 ACTERIZED AS A PAYMENT FOR SERVICES RENDERED FOR PURPOSES OF THIS  ARTI-
 CLE,  AND FOR PURPOSES OF SECTION SIX HUNDRED THIRTY-ONE OF THIS ARTICLE
 SHALL BE ALLOCATED IN ACCORDANCE WITH THE RULES AND REGULATIONS APPLICA-
 BLE TO:
   (1) INDIVIDUALS RENDERING PERSONAL SERVICES IN THE CASE OF AN INDIVID-
 UAL SHAREHOLDER, OR
   (2) A BUSINESS CARRIED ON IN NEW YORK IN THE  CASE  OF  A  SHAREHOLDER
 THAT IS AN ESTATE OR TRUST.
 FOR  PURPOSES  OF THIS SUBSECTION, THE AMOUNT OF THE PRO RATA SHARE THAT
 WOULD HAVE BEEN DETERMINED IF THE  SHAREHOLDER  PERFORMED  NO  SERVICES,
 SHALL NOT BE LESS THAN ZERO.
   §  9.  For  taxable  years  beginning  on or after January 1, 2017 and
 before January 1, 2018, (i) no addition to tax under subsection  (c)  of
 section  685  or  subsection (c) of section 1085 of the tax law shall be
 imposed with respect to any underpayment attributable to the  amendments
 made  by  this  act  of any estimated taxes that are required to be paid
 prior to the effective date of this  act,  provided  that  the  taxpayer
 timely  made  those payments; and (ii) the required installment of esti-
 mated tax described in clause (ii) of subparagraph (B) of paragraph 3 of
 subsection (c) of section 685 of the tax law, and the exception to addi-
 tion for underpayment of estimated tax described in paragraph 1 or 2  of
 subsection  (d)  of  section  1085  of  the  tax law, in relation to the
 preceding year's return, shall be calculated as if the  amendments  made
 by this act had been in effect for that entire preceding year.
   §  10.  Income  from  investment  management  services  as  defined in
 subsection (h) of section 631 of the tax law shall be subject to  a  19%
 "carried  interest  fairness fee" payable to the state of New York until
 such time as the commissioner of taxation and finance has  notified  the
 legislative bill drafting commission that the United States Congress has
 passed  and  the  President  of the United States has signed legislation
 having an identical effect with  this  act  applicable  to  such  income
 earned in all of the states and territories.
   § 11. This act shall take effect upon enactment into law by the states
 of  Connecticut,  New  Jersey and Massachusetts of legislation having an
 identical effect with this act, but if the states  of  Connecticut,  New
 Jersey  and  Massachusetts  shall have already enacted such legislation,
 this act shall take effect immediately; provided that  the  commissioner
 of  taxation  and  finance  shall notify the legislative bill   drafting

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 commission upon the enactment of  such  legislation  by  the  states  of
 Connecticut,  New Jersey and Massachusetts in order that such commission
 may maintain an accurate and timely effective data base of the  official
 text of the laws of the state of New York in furtherance of effectuating
 the  provisions of section 44 of the legislative law and section 70-b of
 the public officers law.