S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   1415
 
                        2023-2024 Regular Sessions
 
                           I N  A S S E M B L Y
 
                             January 17, 2023
                                ___________
 
 Introduced  by  M. of A. AUBRY, BRONSON, REYES, WALLACE -- 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 RE-CHARACTERIZED 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
 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-
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
              

                       [ ] is old law to be omitted.
                                                            LBD03812-01-3
 A. 1415                             2
 
 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:
   (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.
 A. 1415                             3
 
   (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
   (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.
 A. 1415                             4
 
   (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,  2023  and
 before  January  1, 2024, (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
 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.