N.Y. Comp. Codes R. & Regs. tit. 20 § 41.6

Current through Register Vol. 46, No. 25, June 18, 2024

Section 41.6 - Rented real property and tangible personal property

(a) In computing the property factor, real property and tangible personal property rented to the taxpayer must be included. The average value of real property and tangible personal property, both within and without New York State, which is rented to the taxpayer is determined by multiplying gross rents payable during the period covered by the return by eight.

(b) The term gross rents as used in this section means the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use or possession of the property and includes:

(1) Any amount payable for the use or possession of real property or tangible personal property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits or otherwise.

Example 1:A taxpayer, pursuant to the terms of a lease, pays the lessor $1,000 per month and at the end of the year pays the lessor one percent of its gross sales at that location. Its gross sales were $400,000, resulting in a gross rent of $16,000.

(2) Any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs or any other amount required to be paid by the terms of a lease or other arrangement.

Example 2:A taxpayer, pursuant to the terms of a lease, pays its lessor $24,000 a year. It also pays real estate taxes of $4,000 and interest on a mortgage in the amount of $2,000. The taxpayer's gross rent is $30,000.

(3) A proportionate part of the cost of any improvement to real property or tangible personal property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination of a lease or other arrangement. The amount to be included in gross rents is based on the unexpired term of the lease commencing with the date the improvement is completed or the life of the improvement if its life expectancy is less than the unexpired term of the lease. However, where a building is erected on leased land by or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. The proportionate part of the cost of an improvement (other than a building on leased land) is generally equal to the amount of amortization allowed in accordance with its regular accounting practices, regardless of whether the lease contains an option for renewal.

Example 3:A taxpayer enters into a 21-year lease of certain premises at a rental of $20,000 per year. After the expiration of one year, it installs a new storefront at a cost of $10,000, which reverts to the owner upon the expiration of the lease. Its gross rent for the first year is $20,000. However, for subsequent years its gross rent is $20,500 ($20,000 annual rent plus 1/20th of $10,000, the cost of the improvement apportioned on the basis of the unexpired term of the lease).

Example 4:A taxpayer leases a parcel of vacant land for 40 years at an annual rental of $5,000, and erects a building on the land which costs $600,000. The value of the land is determined by multiplying the annual rent of $5,000 by eight. The value of the building is $600,000.

(c) The term gross rents does not include:

(1) amounts payable for storage, providing such amounts are payable for space not designated and not under the control of the taxpayer;

(2) amounts payable as separate charges for water and electric service furnished by the lessor; or

(3) that portion of any rental payment which is applicable to the space subleased from the taxpayer and not used by it.

Example 5:A taxpayer leases a building at an annual rental of $20,000. The taxpayer subleases 40 percent of such building to one or more subtenants. Since 40 percent of the rent paid by the taxpayer is applicable to the portion of the building subleased, 40 percent of the rent, or $8,000, is excluded in computing the taxpayer's gross rent for the building. Regardless of the amount of rent received by the taxpayer from the sublease, the amount to be excluded in computing the property factor is $8,000.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 41.6