Income/Franchise:
New York High Court Affirms Inclusion of Royalty Payments from Foreign Affiliates in Tax Base
2024 NY Slip Op 02127 (No. 34 and No. 35), N.Y. (4/23/24). The New York Court of Appeals (Court) affirmed [see State Tax Matters, Issue 2022-43 and State Tax Matters, Issue 2023-11, for details on the 2022 and 2023 respective rulings issued by the New York Supreme Court, Appellate Division, in these two cases] that while certain payments received by two separate taxpayers from their respective foreign affiliates (as “related members” under the statute) constituted royalties, such intercompany royalty payments could not, under the facts, be excluded under a former statutory royalty exclusion in effect for the prior tax years at issue in computing their respective Article 9-A corporation franchise tax combined return “entire net income.” In doing so, the Court agreed that based on the overall statutory scheme of Tax Law former § 208 (9)(o), the royalty income exclusion provision of one related member is conditioned on the application of the royalty add back by another related member, and any resulting burden on interstate or foreign commerce created by this tax scheme does not violate the Commerce Clause – and the taxpayers failed to show otherwise. Please contact us with any questions.
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