§ 12. City adjusted gross income of a resident individual.--(a)
General.--The city adjusted gross income of a resident individual means
his federal adjusted gross income as defined in the laws of the United
States for the taxable year, with the modifications specified in this
section.

(b) Modifications increasing federal adjusted gross income.--There
shall be added to federal adjusted gross income:

(1) Interest income on obligations of any state other than this state
or of a political subdivision of any such other state unless created by
compact or agreement to which this state is a party;

(2) Interest or dividend income on obligations or securities of any
authority, commission, or instrumentality of the United States, which
the laws of the United States exempt from federal income tax but not
from state or local income taxes;

(3) Income taxes imposed by the city, this state or any other taxing
jurisdiction, to the extent deductible in determining federal adjusted
gross income and not credited against federal income tax;

(4) Interest on indebtedness incurred or continued to purchase or
carry obligations or securities the income from which is exempt from tax
under this local law, to the extent deductible in determining federal
adjusted gross income;

(5) Expenses paid or incurred during the taxable year for (A) the
production or collection of income which is exempt from tax under this
local law, or (B) the management, conservation or maintenance of
property held for the production of such income, and the amortizable
bond premium for the taxable year on any bond the interest on which is
exempt from tax under this local law, to the extent that such expenses
and premiums are deductible in determining federal adjusted gross
income; and

(6) In the case of a taxpayer who has exercised the election permitted
by subdivisions (g) or (h) of this section, the amount or amounts
required by said subdivisions to be added to federal adjusted gross
income.

(c) Modifications reducing federal adjusted gross income.--There shall
be subtracted from federal adjusted gross income:

(1) Interest income on obligations of the United States and its
possessions to the extent includible in gross income for federal income
tax purposes;

(2) Interest or dividend income on obligations or securities of any
authority, commission or instrumentality of the United States to the
extent includible in gross income for federal income tax purposes but
exempt from state or local income taxes under the laws of the United
States;

(3) Pensions to officers and employees of this state, its subdivisions
and agencies, to the extent includible in gross income for federal
income tax purposes;

(4) Interest or dividend income on obligations or securities to the
extent exempt from income tax under the laws of this state authorizing
the issuance of such obligations or securities but includible in gross
income for federal income tax purposes;

(5) The amount of any refund or credit for overpayment of income taxes
imposed by the city, the state, or any other taxing jurisdiction, to the
extent properly included in gross income for federal income tax
purposes;

(6) Interest on indebtedness incurred or continued to purchase or
carry obligations or securities the income from which is subject to tax
under this local law but exempt from federal income tax, to the extent
that such interest is not deductible in determining federal adjusted
gross income and is attributable to a trade or business carried on by
the taxpayer;

(7) Ordinary and necessary expenses paid or incurred during the
taxable year for (A) the production or collection of income which is
subject to tax under this local law but exempt from federal income tax,
or (B) the management, conservation or maintenance of property held for
the production of such income, and the amortizable bond premium for the
taxable year on any bond the interest on which is subject to tax under
this local law but exempt from federal income tax, to the extent that
such expenses and premiums are not deductible in determining federal
adjusted gross income and are attributable to a trade or business
carried on by the taxpayer;

(8) In the case of a taxpayer who has exercised the election permitted
by subdivisions (g) or (h) of this section, the amount or amounts
required by said subdivisions to be subtracted from federal adjusted
gross income;

(9) With respect to gain derived from the sale or other disposition of
any property acquired prior to July first, nineteen hundred sixty-six,
except property described in subsections one and four of section twelve
hundred twenty-one of the internal revenue code, the difference
between--

(a) the amount of the taxpayer's federal adjusted gross income or, in
the case of an estate or trust, the taxpayer's taxable income, and

(b) the amount of the taxpayer's federal adjusted gross income or, in
the case of an estate or trust, the taxpayer's taxable income (if
smaller than the amount described in (a)) computed as if the federal
adjusted basis of such property (on the sale or other disposition of
which gain was derived) on the date of the sale or other disposition had
been equal to either (i) its fair market value on July first, nineteen
hundred sixty-six or the date of its sale or other disposition prior to
July first, nineteen hundred sixty-six, plus or minus all adjustments to
basis made with respect to such property for federal income tax purposes
for periods on and after July first, nineteen hundred sixty-six or (ii)
the amount realized from its sale or disposition, whichever is lower;
provided, however, that the total modification provided by this
subparagraph shall not exceed the amount described in (i), (ii) or
(iii)--

(i) if the taxpayer's federal adjusted gross income reflects a net
gain from the sale or other disposition of property, except property
described in subsections one and four of section twelve hundred
twenty-one of the internal revenue code, the amount of such gain plus
one thousand dollars,

(ii) if the taxpayer's federal adjusted gross income reflects a net
loss from the sale or other disposition of property, except property
described in subsections one and four of section twelve hundred
twenty-one of the internal revenue code, the amount by which one
thousand dollars exceeds such loss,

(iii) if the taxpayer's federal adjusted gross income reflects neither
a net gain nor a net loss from the sale or other disposition of
property, other than property described in subsections one and four of
section twelve hundred twenty-one of the internal revenue code, one
thousand dollars.

(d) Modification for city fiduciary adjustment.--There shall be added
to or subtracted from federal adjusted gross income (as the case may be)
the taxpayer's share, as beneficiary of an estate or trust, of the city
fiduciary adjustment determined under section nineteen.

(e) Partners.--The amounts of modifications required to be made under
this section by a partner, which relate to items of income, gain, loss
or deduction of a partnership, shall be determined under section
seventeen.

(f) Husband and wife.--If husband and wife determine their federal
income tax on a joint return but determine their city income taxes
separately, they shall determine their city adjusted gross incomes
separately as if their federal adjusted gross incomes had been
determined separately.

(g) Optional modifications.--At the election of the taxpayer there
shall also be subtracted from federal adjusted gross income either or
both of the items set forth in paragraphs one and two of this
subdivision, except that only one of such items shall be subtracted with
respect to any one item of property.

(1) Depreciation with respect to any property such as described in
paragraph three of this subdivision, not exceeding twice the
depreciation allowed with respect to the same property for federal
income tax purposes. Such modification shall be allowed only upon
condition that any depreciation allowed with respect to the same
property in determining federal adjusted gross income shall be added to
federal adjusted gross income pursuant to paragraph six of subdivision
(b) of this section. The total of all deductions allowed pursuant to
this paragraph in any taxable year or years with respect to any property
shall not exceed its cost or other basis.

(2) Expenditures paid or incurred during the taxable year for the
construction, reconstruction, erection or acquisition of any property
such as described in paragraph three of this subdivision which is used
or to be used for purposes of research and development in the
experimental or laboratory sense. Such purposes shall not be deemed to
include the ordinary testing or inspection of materials or products for
quality control, efficiency surveys, management studies, consumer
surveys, advertising, promotions or research in connection with
literary, historical or similar projects. Such modification shall be
allowed only on condition that, for the taxable years, and all
succeeding years, any deductions allowed for federal income tax purposes
on account of such expenditures or on account of depreciation of the
same property, except to the extent that its basis may be attributable
to factors other than such expenditures, shall be added to federal
adjusted gross income pursuant to paragraph six of subdivision (b) of
this section, or in case a modification is allowable pursuant to this
paragraph for only a part of such expenditures, on condition that a
proportionate part of any such deductions allowed for federal income tax
purposes be added to federal adjusted gross income. With respect to
property which is used or to be used for research and development only
in part, or during only part of its useful life, the modification
allowable pursuant to this paragraph shall be limited to a proportionate
part of the expenditures relating thereto. If a modification shall have
been allowed pursuant to this paragraph for all or part of such
expenditures with respect to any property, and such property is used for
purposes other than research and development to a greater extent than
originally reported, the taxpayer shall report such use in his return
for the first taxable year during which it occurs, and the administrator
may recompute the tax for the year or years for which such deduction was
allowed, and may assess any additional tax resulting from such
recomputation within the time fixed by subdivision (c) of section
sixty-three of this local law.

(3) Such modifications shall be allowed only with respect to tangible
property which is depreciable pursuant to section one hundred
sixty-seven of the internal revenue code, having a situs in the city and
used in the taxpayer's trade or business, (A) the construction,
reconstruction or erection of which is completed after June thirtieth,
nineteen hundred sixty-six, and then only with respect to that portion
of the basis thereof or the expenditures relating thereto which is
properly attributable to such construction, reconstruction or erection
after June thirtieth, nineteen hundred sixty-six, or (B) acquired after
June thirtieth, nineteen hundred sixty-six by purchase as defined in
section one hundred seventy-nine (d) of the internal revenue code, if
the original use of such property commenced with the taxpayer, commenced
in the city and commenced after such date.

(4) If the modifications allowable for any taxable year pursuant to
this subdivision exceed the taxpayer's city adjusted gross income,
determined without the allowance of such modifications, the excess may
be carried over to the following taxable year or years and may be
subtracted from federal adjusted gross income for such year or years.

(5) In any taxable year when property is sold or otherwise disposed
of, with respect to which a modification has been allowed pursuant to
paragraph one or two of this subdivision, the basis of such property
shall be adjusted to reflect the modifications so allowed, and if the
basis as so adjusted is lower than the adjusted basis of the same
property for federal income tax purposes, there shall be added to
federal adjusted gross income the amount of the difference between such
adjusted bases; but if such gain or loss is considered a long-term
capital gain or loss for federal income tax purposes, the amount to be
added shall be limited to fifty percent of the difference between such
adjusted bases.

(h) Optional modification for waste treatment facility
expenditures.--At the election of the taxpayer, there shall also be
subtracted from federal adjusted gross income expenditures paid or
incurred during the taxable year for the construction, reconstruction,
erection or improvement of industrial waste treatment facilities and air
pollution control facilities.

(1) (A) The term "industrial waste treatment facilities" shall mean
facilities for the treatment, neutralization, or stabilization of
industrial waste (as the term "industrial waste" is defined in section
twelve hundred two of the State public health law) from a point
immediately preceding the point of such treatment, neutralization or
stabilization to the point of disposal, including the necessary pumping
and transmitting facilities, but excluding such facilities installed for
the primary purpose of salvaging materials which are usable in the
manufacturing process or are marketable.

(B) The term "air pollution control facilities" shall mean facilities
which remove, reduce, or render less noxious air contaminants emitted
from an air contamination source (as the terms "air contaminant" and
"air contamination source" are defined in section twelve hundred
sixty-seven of the state public health law) from a point immediately
preceding the point of such removal, reduction or rendering the point of
discharge of air, meeting emission standards as established by the air
pollution control board, but excluding such facilities installed for the
primary purpose of salvaging materials which are usable in the
manufacturing process or are marketable and excluding those facilities
which rely for their efficacy on dilution, dispersion or assimilation of
air contaminants in the ambient air after emmission.

(2) Such modifications shall be allowed only

(A) with respect to tangible property which is depreciable, pursuant
to section one hundred sixty-seven of the internal revenue code, having
a situs in the city and used in the taxpayer's trade or business, the
construction, reconstruction, erection or improvement of which, in the
case of industrial waste treatment facilities, is initiated on or after
July first, nineteen hundred sixty-six, and only for expenditures paid
or incurred prior to January first, nineteen hundred seventy-two, or
which, in the case of air pollution control facilities, is initiated on
or after July first, nineteen hundred sixty-six, and

(B) on condition that such facilities have been certified by the state
commissioner of health or his designated representative, pursuant to the
state public health law, as complying with the provisions of the state
public health law, the state sanitary code and regulations, permits or
orders promulgated pursuant thereto, and

(C) on condition that for the taxable year and all succeeding taxable
years, any deductions allowed for federal income tax purposes for such
expenditures or for depreciation of the same property, except to the
extent that its basis may be attributable to factors other than such
expenditures, be added to federal adjusted gross income pursuant to
paragraph six of subdivision (b) of this section, or in case a
modification is allowable pursuant to this paragraph for only a part of
such expenditures, on condition that a proportionate amount of any such
deductions allowed for federal income tax purposes be added to federal
adjusted gross income, and

(D) where the election provided for in subdivision (g) of section
twelve has not been exercised in respect to the same property.

(3) (A) If expenditures in respect to an industrial waste treatment
facility or an air pollution control facility have been allowed as a
modification as provided herein and if within ten years from the end of
the taxable year in which such modification was allowed such property or
any part thereof is used for the primary purpose of salvaging materials
which are usable in the manufacturing process or are marketable, the
taxpayer shall report such change of use in its return for the first
taxable year during which it occurs, and the administrator may recompute
the tax for the year or years for which such modification was allowed,
and may assess any additional tax resulting from such recomputation
within the time fixed by paragraph eight of subdivision (c) of section
sixty-three.

(B) If a modification is allowed as herein provided for expenditures
paid or incurred during any taxable year on the basis of a temporary
certificate of compliance issued pursuant to the state public health
law, and if the taxpayer fails to obtain a permanent certificate of
compliance upon completion of the facilities with respect to which such
temporary certificate was issued, the taxpayer shall report such failure
in its report for the taxable year during which such facilities are
completed, and the administrator may recompute the tax for the year or
years for which such modification was allowed, and may assess any
additional tax resulting from such recomputation within the time fixed
by paragraph eight of subdivision (c) of section sixty-three.

(4) In any taxable year when property is sold or otherwise disposed
of, with respect to which a modification has been allowed pursuant to
this paragraph, such modification shall be disregarded in computing gain
or loss, and the gain or loss on the sale or other disposition of such
property shall be the gain or loss entering into the computation of
federal adjusted gross income for such taxable year.