N.Y. Comp. Codes R. & Regs. tit. 20 § 105.13
Tax Law, § 605(a)(4)(C)
Where a taxpayer has changed such taxpayer's method of accounting from an accrual to an installment method for Federal income tax purposes, any installment payments actually received in the year of change or in subsequent taxable years (such subsequent year or years being referred to as "adjustment years'), on account of sales or other disposition of property made in any taxable year prior to the year of the change, are required to be included in Federal adjusted gross income and consequently are included in New York adjusted gross income. Therefore, profits attributable to installment sales which were taxed in the year of sale, because the taxpayer was then on the accrual method of accounting, would also be taxed in the adjustment years (i.e., during the years the installments are actually received after the change to the installment method of accounting). To avoid such duplication of New York State personal income tax, any additional New York State personal income tax for the adjustment years attributable to the receipt of installment payments properly accrued in a prior year must be reduced by an amount equal to the portion of New York State personal income tax for any year or years preceding the year of change attributable to the prior accrual of income from installment sales included in New York gross income in the adjustment years.
Where previously reported installments received in an adjustment year include installments on sales made in more than one prior year, the reduction allowable with respect to the installments for each prior year must be computed separately. In such a case, the excess New York State personal income tax, calculated under paragraph (2) of this subdivision, computed with respect to the installments from all prior years, must be prorated over the several prior years in proportion to the amount of the duplicated installment sales profits attributable to each such prior year.
Example:
The determination of the reduction of New York State personal income tax, for a single individual, for adjustment years is illustrated by the following example:
| 1990 | 1991 | 1992 | |
| Year 1 | Year 2 | Year 3 | |
| (accrual basis) | (adjustment year) | (adjustment year) | |
| Gross profit from installment sales (receivable in five installments) | 50,000 | $10,000 (from year 1 sales) | $10,000 (from year 1 sales) |
| Other income | 50,000 | 20,000 | 17,000 |
| New York adjusted gross income | $100,000 | $ 30,000 | $ 27,000 |
| Allowable deductions | 25,000 | 10,000 | 15,000 |
| New York taxable income | $75,000 | $20,000 | $12,000 |
| New York State personal income tax on New York taxable income | $ 5,547.50 | $1,216.25 | $ 595.00 |
Computation of adjustment - year 2.
New York State personal income tax attributable to year 1 installment payments in year 2 (first adjustment year), the year in which the change was made from the accrual basis to the installment basis:
| New York State personal income tax on New York taxable income, including gross profit from year 1 sales | $1,216.25 |
| New York State personal income tax on New York taxable income, excluding such gross profit: New York taxable income as above | $20,000 |
| Less gross profit from year 1 sales accrued in prior year | 10,000 |
| Revised New York taxable income | $10,000 |
| New York State personal income tax on revised New York taxable income | 465.00 |
| Additional New York State personal income tax on New York taxable income attributable to prior year installment payments ($1,216.25 - $465.00) | $751.25 |
New York State personal income tax on New York taxable income attributable to prior inclusion in year 1:
| $10,000 gross profit from year 1 sales | / | $100,000 New York adjusted gross income | × | $5,547.50 New York State personal income tax on New York taxable income for year 1 | = $554.75 |
Therefore, the New York State personal income tax on New York taxable income for year 2 (first adjustment year) may be reduced by $554.75, the lesser of $751.25 or $554.75.
Computation of adjustment - year 3.
New York State personal income tax attributable to year 1 installment payments in year 3 (second adjustment year):
| New York State personal income tax on New York taxable income, including gross profit from year 1 sales | $595.00 |
| New York State personal income tax on New York taxable income, excluding such gross profit: | |
| New York taxable income, as above | $12,000 |
| Less gross profit from year 1 sales accrued in a prior year | 10,000 |
| Revised New York taxable income | $2,000 |
| New York State personal income tax on revised New York taxable income | 80.00 |
| Additional New York State personal income tax on New York taxable income attributable to prior year installment payments ($595.00 - $80.00) | $515.00 |
New York State personal income tax on New York taxable income attributable to prior inclusion in year 1:
| $10,000 gross profit from year 1 sales | / | $100,000 New York adjusted gross income | × | $5,547.50 New York State personal income tax on New York taxable income for year 1 | = $554.75 |
Therefore, the New York State personal income tax on New York taxable income for year 3 (second adjustment year) may be reduced by $515.00, the lesser of $515.00 or $554.75.
N.Y. Comp. Codes R. & Regs. Tit. 20 § 105.13