Section 292. Unrelated business taxable income

(a) The unrelated business
  taxable income of a taxpayer subject to the tax imposed by  section  two
  hundred  ninety  shall  be  such  taxpayer's  federal unrelated business
  taxable income, as defined in the laws of  the  United  States  for  the
  taxable year, with the following modifications:
    (1)  There shall be added to federal unrelated business taxable income
  the amount of any tax imposed under this article.
    (2) There shall be subtracted from federal unrelated business  taxable
  income  the  amount  of  any  refund  or credit for overpayment of a tax
  imposed under this article or article twenty-three of this chapter.
    (3) The net operating loss deduction which shall be allowed  shall  be
  the same as the net operating loss deduction allowed under paragraph six
  of subsection (b) of section five hundred twelve of the internal revenue
  code of nineteen hundred fifty-four, except that
    (A)  any  net  operating  loss  included in determining such deduction
  shall be adjusted to reflect the addition and subtraction from unrelated
  business taxable income required by  paragraphs  one  and  two  of  this
  subdivision,
    (B)  such deduction shall not include any net operating loss sustained
  during any taxable year  beginning  prior  to  January  first,  nineteen
  hundred  seventy,  or  during any taxable year in which the taxpayer was
  not subject to the tax imposed by this article, and
    (C) such deduction shall not exceed the deduction for the taxable year
  allowable under paragraph six of subsection (b) of section five  hundred
  twelve of the internal revenue code of nineteen hundred fifty-four.
    (4)  There shall be subtracted from federal unrelated business taxable
  income any amount which is included therein  solely  by  reason  of  the
  application of section 501(m)(2)(A) of the internal revenue code.
    (5)  Shareholders  of S corporations. (A) In the case of a shareholder
  of an S corporation,
    (i) where the election provided for in subsection (a) of  section  six
  hundred  sixty  of  this  chapter  is  in  effect  with  respect to such
  corporation, there shall be added to federal unrelated business  taxable
  income  an  amount  equal  to  the  shareholder's  pro rata share of the
  corporation's reductions for taxes described in paragraphs two and three
  of subsection (f) of section thirteen hundred sixty-six of the  internal
  revenue code, and
    (ii)  where  such  election  has  not  been  made with respect to such
  corporation, there shall be subtracted from federal  unrelated  business
  taxable  income any items of income of the corporation included therein,
  and there shall be added to federal unrelated  business  taxable  income
  any items of loss or deduction included therein, and
    (iii)  in the case of a New York S termination year, the amount of any
  such items of S corporation income, loss, deduction and  reductions  for
  taxes shall be adjusted in the manner provided in paragraph two or three
  of subsection (s) of section six hundred twelve of this chapter.
    (B)  In  the case of a shareholder of a corporation which was, for any
  of its taxable years beginning after nineteen  hundred  ninety-seven,  a
  federal S corporation but a New York C corporation:
    (i)  There shall be added to federal unrelated business taxable income
  S corporation distributions to the extent not included  therein  because
  of the application of section thirteen hundred sixty-eight or subsection
  (e)  of  section  thirteen  hundred  seventy-one of the internal revenue
  code, which represent income not previously subject to  tax  under  this
  article  because  the election provided for in subsection (a) of section
  six  hundred  sixty  of  this  chapter  had  not  been  made.  Any  such
  distribution  treated  in  the  manner  described  in  paragraph  two of

  subsection (b) of such section thirteen  hundred  sixty-eight  shall  be
  treated as ordinary income for purposes of this article.
    (ii)  Where  gain  or  loss  is included in unrelated business taxable
  income  upon  the  disposition  of  stock  or   indebtedness   of   such
  corporation,
    (I)  there  shall  be  added  to unrelated business taxable income the
  amount of increase in basis of such stock or indebtedness  with  respect
  to  such  New York C years of the corporation, pursuant to subparagraphs
  (A) and (B) of paragraph one  of  subsection  (a)  of  section  thirteen
  hundred sixty-seven of such code, and
    (II)  there shall be subtracted from unrelated business taxable income
  the amount of decrease in such basis with respect to  such  New  York  C
  years  of  the  corporation,  pursuant  to  subparagraphs (B) and (C) of
  paragraph two  of  subsection  (a)  of  such  section  thirteen  hundred
  sixty-seven, and
    (III) there shall be subtracted from unrelated business taxable income
  the  amount  of  modifications to unrelated business taxable income with
  respect to such stock pursuant to clause (i) of subparagraph (B) of this
  paragraph.
    (C) Cross reference. For definitions relating to S  corporations,  see
  subdivision one-A of section two hundred eight of this chapter.
    (6) Related members expense add back and income exclusion.
    (A)  Definitions.  (i) Related member or members. For purposes of this
  paragraph,  the  term  related  member  or  members  means   a   person,
  corporation,  or  other entity, including an entity that is treated as a
  partnership or  other  pass-through  vehicle  for  purposes  of  federal
  taxation,  whether  such  person, corporation or entity is a taxpayer or
  not, where one such person, corporation, or entity, or  set  of  related
  persons,  corporations  or  entities,  directly  or  indirectly  owns or
  controls a controlling  interest  in  another  entity.  Such  entity  or
  entities may include all taxpayers under article nine, nine-A, thirteen,
  twenty-two, thirty-two, thirty-three or thirty-three-A of this chapter.
    (ii)  Controlling  interest.  A controlling interest shall mean (I) in
  the case of a corporation, either thirty percent or more  of  the  total
  combined  voting  power  of all classes of stock of such corporation, or
  thirty percent or more of the capital, profits or beneficial interest in
  such voting stock of such  corporation,  and  (II)  in  the  case  of  a
  partnership,  association, trust or other entity, thirty percent or more
  of the capital, profits or  beneficial  interest  in  such  partnership,
  association, trust or other entity.
    (iii)   Royalty  payments.  Royalty  payments  are  payments  directly
  connected to the acquisition, use, maintenance or management, ownership,
  sale, exchange,  or  any  other  disposition  of  licenses,  trademarks,
  copyrights,  trade  names, trade dress, service marks, mask works, trade
  secrets, patents and any other similar types  of  intangible  assets  as
  determined  by  the  commissioner,  and  includes  amounts  allowable as
  interest  deductions  under  section  one  hundred  sixty-three  of  the
  internal  revenue  code  to  the  extent  such  amounts  are directly or
  indirectly for, related to or in connection with the  acquisition,  use,
  maintenance  or  management, ownership, sale, exchange or disposition of
  such intangible assets.
    (iv) Valid business purpose. A valid business purpose is one  or  more
  business  purposes  other  than  the  avoidance or reduction of taxation
  which alone or in combination constitute the primary motivation for some
  business activity or transaction, which activity or transaction  changes
  in  a  meaningful  way, apart from tax effects, the economic position of
  the taxpayer. The economic position of the taxpayer includes an increase

  in the market share of the taxpayer, or the entry by the  taxpayer  into
  new business markets.
    (B)  Royalty  expense  add backs. (i) For the purpose of computing New
  York unrelated business taxable income, a taxpayer must add back royalty
  payments to a related member during  the  taxable  year  to  the  extent
  deductible in calculating federal unrelated business taxable income;
    (ii)  The add back of royalty payments shall not be required if and to
  the extent that such payments meet either of the following conditions:
    (I) the related member  during  the  same  taxable  year  directly  or
  indirectly paid or incurred the amount to a person or entity that is not
  a related member, and such transaction was done for a valid business and
  the payments are made at arm's length;
    (II)  the  royalty  payments  are paid or incurred to a related member
  organized under the laws of a country other than the United States,  are
  subject  to  a  comprehensive income tax treaty between such country and
  the United States, and are taxed in such country at a tax rate at  least
  equal to that imposed by this state.
    (C)  Royalty  income exclusions. For the purpose of computing New York
  unrelated business taxable income, a taxpayer shall be allowed to deduct
  royalty payments directly or indirectly received from a  related  member
  during the taxable year to the extent included in the taxpayer's federal
  taxable  income unless such royalty payments would not be required to be
  added back under subparagraph (B) of this  paragraph  or  other  similar
  provision in this chapter.
    (7)  The  amount  of  any  deduction  allowed  pursuant to section one
  hundred ninety-nine of the  internal  revenue  code  must  be  added  to
  federal unrelated business taxable income.
    (8)  There  must be added to federal unrelated business taxable income
  the amount of any federal deduction  for  taxes  imposed  under  article
  twenty-three of this chapter.
    (b) If the period covered by a return under this article is other than
  the  period  covered  by  the  return  to  the  United  States  treasury
  department, unrelated business taxable income  shall  be  determined  by
  multiplying  the  unrelated  business  taxable  income  reported to such
  department (as modified pursuant to the provisions of this  article)  by
  the  number  of  calendar  months  or major parts thereof covered by the
  return under this article and dividing by the number of calendar  months
  or  major  part  thereof covered by the return to such department. If it
  shall appear that such method of determining unrelated business  taxable
  income does not properly reflect the taxpayer's income during the period
  covered  by  the  return under this article, the tax commission shall be
  authorized, in its discretion, to determine such income  solely  on  the
  basis  of  the taxpayer's income during the period covered by its return
  under this article.