CLIENT ALERT

July 6, 2005

STATE OF NEW YORK CORPORATE LEGISLATION

New York has recently enacted legislation that changes the business allocation percentage for corporations that apportion their income for purposes of computing their entire net income (ENI) base under the corporation franchise tax by phasing in a single sales factor over a three-year period. To accomplish the phase-in, the sales factor will increase from 50 percent to 100 percent of the business allocation percentage over three years as follows:

• 60 percent, for tax years beginning on or after January 1, 2006
• 80 percent, for tax years beginning on or after January 1, 2007
• 100 percent, for tax years beginning on or after January 1, 2008

Currently, for taxable years beginning before 2006, New York law provides for a formula including a property factor, a payroll factor, and a double-weighted sales factor. As the single sales factor is phased in, the property and payroll factors will each be reduced from 25 percent of the business allocation percentage to 20 percent for tax years beginning on or after January 1, 2006; 10 percent for tax years beginning on or after January 1, 2007; and 0 percent for tax years beginning on or after January 1, 2008.