Published

MFA Submits Comments to the New York Department of Taxation and Finance on Corporate Sourcing Regulations

On August 26, 2022, MFA submitted comments to the New York Department of Taxation and Finance on the text of draft rules under Part 4 of the Article 9-A Business Corporation Franchise Tax Regulations, regarding apportionment, including, in particular, rules relating to “passive investment customers”.

MFA is concerned that, at a minimum, the draft Regulations disincentivize New York-based investment managers from locating or expanding operations in New York. More likely, the draft Regulations incentivize New York-based investment managers to relocate to avoid the risk of double taxation present in the draft Regulations. In such case, New York would not only be deprived of significant corporate tax revenues but also other revenues from the migration of highly qualified, highly compensated jobs to less punitive taxing jurisdictions. Indeed, in response to increasing tax pressures, many in the alternative investment industry have either exited or may consider exiting New York for low-tax states.

MFA recommends:

  • Proposing a rule which provides that, in the case of a passive investment customer, the benefit of the service or other business activity is presumed to be received at the billing address or commercial domicile of the ultimate investors in the passive investment customer; and
  • In the interest of administrability, providing in the rule a hierarchy under which, if the taxpayer does not know the billing address or commercial domicile of the ultimate investors in the passive investment customer, the benefit of the service or other business activity is presumed to be received at the location where the investment in the passive investment customer is managed by the investor.