5. Financial transactions. (a) Financial instruments. A financial instrument is a "qualified financial instrument" if it is marked to market under section 475 or section 1256 of the internal revenue code, provided that loans secured by real property shall not be qualified financial instruments. A financial instrument is a "nonqualified financial instrument" if it is not a qualified financial instrument.

1. (1) Fixed percentage method for qualified financial instruments. In determining the inclusion of receipts and net gains from qualified financial instruments in the apportionment fraction, taxpayers may elect to use the fixed percentage method described in this subparagraph for qualified financial instruments. The election is irrevocable, applies to all qualified financial instruments, and must be made on an annual basis on the taxpayer's original, timely filed return. If the taxpayer elects the fixed percentage method, then all income, gain or loss, from qualified financial instruments constitutes business income, gain or loss. If the taxpayer does not elect to use the fixed percentage method, then receipts and net gains are included in the apportionment fraction in accordance with the customer sourcing method described in subparagraph two of this paragraph. Under the fixed percentage method, eight percent of all net income (not less than zero) from qualified financial instruments is included in the numerator of the apportionment fraction. All net income (not less than zero) from qualified financial instruments is included in the denominator of the apportionment fraction.

2. (2) Customer sourcing method. Receipts and net gains from qualified financial instruments, in cases where the taxpayer did not elect to use the fixed percentage method described in subparagraph one of this paragraph, and from nonqualified financial instruments are included in the apportionment fraction in accordance with this subparagraph. For purposes of this paragraph, an individual is deemed to be located in the state if his or her billing address is in the state. A business entity is deemed to be located in the state if its commercial domicile is located in the state.

   1. (A) Loans. (i) Receipts constituting interest from loans secured by real property located within the state shall be included in the numerator of the apportionment fraction. Receipts constituting interest from loans secured by real property located within and without the state shall be included in the denominator of the apportionment fraction.
   2. (ii) Receipts constituting interest from loans not secured by real property shall be included in the numerator of the apportionment fraction if the borrower is located in the state. Receipts constituting interest from loans not secured by real property, whether the borrower is located within or without the state, shall be included in the denominator of the apportionment fraction.
   3. (iii) Net gains (not less than zero) from sales of loans secured by real property are included in the numerator of the apportionment fraction as provided in this subclause. The amount of net gains from the sale of loans secured by real property included in the numerator of the apportionment fraction is determined by multiplying the net gains by a fraction the numerator of which is the amount of gross proceeds from sales of loans secured by real property located within the state and the denominator of which is the gross proceeds from sales of loans secured by real property within and without the state. Gross proceeds shall be determined after the deduction of any cost incurred to acquire the loans but shall not be less than zero. Net gains (not less than zero) from sales of loans secured by real property within and without the state are included in the denominator of the apportionment fraction.
   4. (iv) Net gains (not less than zero) from sales of loans not secured by real property are included in the numerator of the apportionment fraction as provided in this subclause. The amount of net gains from the sale of loans not secured by real property included in the numerator of the apportionment fraction is determined by multiplying the net gains by a fraction, the numerator of which is the amount of gross proceeds from sales of loans not secured by real property to purchasers located within the state and the denominator of which is the amount of gross receipts from sales of loans not secured by real property to purchasers located within and without the state. Gross proceeds shall be determined after the deduction of any cost incurred to acquire the loans but shall not be less than zero. Net gains (not less than zero) from sales of loans not secured by real property are included in the denominator of the apportionment fraction.
   5. (B) Federal, state, and municipal debt. Receipts constituting interest and net gains from sales of debt instruments issued by the United States, any state, or political subdivision of a state shall not be included in the numerator of the apportionment fraction. Receipts constituting interest and net gains (not less than zero) from sales of debt instruments issued by the United States and the state of New York or its political subdivisions shall be included in the denominator of the apportionment fraction. Fifty percent of the receipts constituting interest and net gains (not less than zero) from sales of debt instruments issued by other states or their political subdivisions shall be included in the denominator of the apportionment fraction.
   6. (C) Asset backed securities and other government agency debt. Eight percent of the interest income from asset backed securities or other securities issued by government agencies, including but not limited to securities issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Small Business Administration, or asset backed securities issued by other entities shall be included in the numerator of the apportionment fraction. Eight percent of the net gains (not less than zero) from (i) sales of asset backed securities or other securities issued by government agencies, including but not limited to securities issued by GNMA, FNMA, or FHLMC, the Small Business Administration, or (ii) sales of other asset backed securities that are sold through a registered securities broker or dealer or through a licensed exchange, shall be included in the numerator of the apportionment fraction. The amount of net gains (not less than zero) from sales of other asset backed securities not referenced in subclause (i) or (ii) of this clause included in the numerator of the apportionment fraction is determined by multiplying such net gains by a fraction, the numerator of which is the amount of gross proceeds from such sales to purchasers located in the state and the denominator of which is the amount of gross proceeds from such sales to purchasers located within and without the state. Receipts constituting interest from asset backed securities and other securities referenced in this clause and net gains (not less than zero) from sales of asset backed securities and other securities referenced in this clause are included in the denominator of the apportionment fraction. Gross proceeds shall be determined after the deduction of any cost to acquire the securities but shall not be less than zero.
   7. (D) Corporate bonds. Receipts constituting interest from corporate bonds are included in the numerator of the apportionment fraction if the commercial domicile of the issuing corporation is in the state. Eight percent of the net gains (not less than zero) from sales of corporate bonds sold through a registered securities broker or dealer or through a licensed exchange is included in the numerator of the apportionment fraction. The amount of net gains (not less than zero) from other sales of corporate bonds included in the numerator of the apportionment fraction is determined by multiplying such net gains by a fraction, the numerator of which is the amount of gross proceeds from such sales to purchasers located in the state and the denominator of which is the amount of gross proceeds from sales to purchasers located within and without the state. Receipts constituting interest from corporate bonds, whether the issuing corporation's commercial domicile is within or without the state, and net gains (not less than zero) from sales of corporate bonds to purchasers within and without the state are included in the denominator of the apportionment fraction. Gross proceeds shall be determined after the deduction of any cost to acquire the bonds but shall not be less than zero.
   8. (E) Reverse repurchase agreements and securities borrowing agreements. Eight percent of net interest income (not less than zero) from reverse repurchase agreements and securities borrowing agreements shall be included in the numerator of the apportionment fraction. Net interest income (not less than zero) from reverse repurchase agreements and securities borrowing agreements is included in the denominator of the apportionment fraction. Net interest income from reverse repurchase agreements and securities borrowing agreements is determined for purposes of this subdivision after the deduction of the interest expense from the taxpayer's repurchase agreements and securities lending agreements but cannot be less than zero. For this calculation, the amount of such interest expense is the interest expense associated with the sum of the value of the taxpayer's repurchase agreements where it is the seller/borrower plus the value of the taxpayer's securities lending agreements where it is the securities lender, provided such sum is limited to the sum of the value of the taxpayer's reverse repurchase agreements where it is the purchaser/lender plus the value of the taxpayer's securities lending agreements where it is the securities borrower.
   9. (F) Federal funds. Eight percent of the net interest (not less than zero) from federal funds is included in the numerator of the apportionment fraction. The net interest (not less than zero) from federal funds is included in the denominator of the apportionment fraction. Net interest from federal funds is determined after deduction of interest expense from federal funds.
   10. (G) Dividends and net gains from sales of stock or partnership interests. Dividends from stock, net gains (not less than zero) from sales of stock and net gains (not less than zero) from the sale of partnership interests are not included in either the numerator or denominator of the apportionment fraction unless the commissioner determines pursuant to subdivision eleven of this section that inclusion of such dividends and net gains (not less than zero) is necessary to properly reflect the business income or capital of the taxpayer.
   11. (H) Other financial instruments. (i) Receipts constituting interest from other financial instruments shall be included in the numerator of the apportionment fraction if the payor is located in the state. Receipts constituting interest from other financial instruments, whether the payor is within or without the state, are included in the denominator of the apportionment fraction.

   12. (ii) Net gains (not less than zero) from sales of other financial instruments and other income (not less than zero) from other financial instruments where the purchaser or payor is located in the state are included in the numerator of the apportionment fraction, provided that, if the purchaser or payor is a registered securities broker or dealer or the transaction is made through a licensed exchange, then eight percent of the net gains (not less than zero) or other income (not less than zero) is included in the numerator of the apportionment fraction. Net gains (not less than zero) from sales of other financial instruments and other income (not less than zero) from other financial instruments are included in the denominator of the apportionment fraction.

       1. (I) Physical commodities. Net income (not less than zero) from sales of physical commodities are included in the numerator of the apportionment fraction as provided in this subparagraph. The amount of net income from sales of physical commodities included in the numerator of the apportionment fraction is determined by multiplying the net income from sales of physical commodities by a fraction, the numerator of which is the amount of receipts from sales of physical commodities actually delivered to points within the state or, if there is no actual delivery of the physical commodity, sold to purchasers located in the state, and the denominator of which is the amount of receipts from sales of physical commodities actually delivered to points within and without the state or sold to purchasers located within and without the state. Net income (not less that zero) from sales of physical commodities is included in the denominator of the apportionment fraction. Net income (not less than zero) from sales of physical commodities is determined after the deduction of the cost to acquire or produce the physical commodities.

       2. (b) Other receipts from broker or dealer activities. Receipts of a registered securities broker or dealer from securities or commodities broker or dealer activities described in this paragraph shall be deemed to be generated within the state as described in subparagraphs one through eight of this paragraph. Receipts from such activities generated within the state shall be included in the numerator of the apportionment fraction. Receipts from such activities generated within and without the state shall be included in the denominator of the apportionment fraction. For the purposes of this paragraph, the term "securities" shall have the same meaning as in section 475(c)(2) of the internal revenue code and the term "commodities" shall have the same meaning as in section 475(e)(2) of the internal revenue code.

          1. (1) Receipts constituting brokerage commissions derived from the execution of securities or commodities purchase or sales orders for the accounts of customers shall be deemed to be generated within the state if the mailing address in the records of the taxpayer of the customer who is responsible for paying such commissions is within the state.
          2. (2) Receipts constituting margin interest earned on behalf of brokerage accounts shall be deemed to be generated within the state if the mailing address in the records of the taxpayer of the customer who is responsible for paying such margin interest is within the state. (3)(A) Receipts constituting fees earned by the taxpayer for advisory services to a customer in connection with the underwriting of securities for such customer (such customer being the entity that is contemplating issuing or is issuing securities) or fees earned by the taxpayer for managing an underwriting shall be deemed to be generated within the state if the mailing address in the records of the taxpayer of such customer who is responsible for paying such fees is within the state.
          3. (B) Receipts constituting the primary spread of selling concession from underwritten securities shall be deemed to be generated within the state if the customer is located in the state.
          4. (C) The term "primary spread" means the difference between the price paid by the taxpayer to the issuer of the securities being marketed and the price received from the subsequent sale of the underwritten securities at the initial public offering price, less any selling concession and any fees paid to the taxpayer for advisory services or any manager's fees, if such fees are not paid by the customer to the taxpayer separately. The term "public offering price" means the price agreed upon by the taxpayer and the issuer at which the securities are to be offered to the public. The term "selling concession" means the amount paid to the taxpayer for participating in the underwriting of a security where the taxpayer is not the lead underwriter.
          5. (4) Receipts constituting account maintenance fees shall be deemed to be generated within the state if the mailing address in the record of the taxpayer of the customer who is responsible for paying such account maintenance fees is within the state.
          6. (5) Receipts constituting fees for management or advisory services, including fees for advisory services in relation to merger or acquisition activities, but excluding fees paid for services described in paragraph (d) of this subdivision, shall be deemed to be generated within the state if the mailing address in the records of the taxpayer of the customer who is responsible for paying such fees is within the state.
          7. (6) Receipts constituting interest earned by the taxpayer on loans and advances made by the taxpayer to a corporation affiliated with the taxpayer but with which the taxpayer is not permitted or required to file a combined report pursuant to section two hundred ten-C of this article shall be deemed to arise from services performed at the principal place of business of such affiliated corporation.
          8. (7) If the taxpayer receives any of the receipts enumerated in subparagraphs one through four of this paragraph as a result of a securities correspondent relationship such taxpayer has with another broker or dealer with the taxpayer acting in this relationship as the clearing firm, such receipts shall be deemed to be generated within the state to extent set forth in each of such subparagraphs. The amount of such receipts shall exclude the amount the taxpayer is required to pay to the correspondent firm for such correspondent relationship. If the taxpayer receives any of the receipts enumerated in subparagraphs one through four of this paragraph as as result of a securities correspondent relationship such taxpayer has with another broker or dealer with the taxpayer acting in this relationship as the introducing firm, such receipts shall be deemed to be generated within the state to the extent set forth in each of such subparagraphs.
          9. (8) If, for purposes of subparagraphs one, two, clause (A) of subparagraph three, four, or five of this paragraph the taxpayer is unable from its records to determine the mailing address of the customer, eight percent of the receipts is included in the numerator of the apportionment fraction.

       3. (c) Receipts from credit card and similar activities. Receipts relating to the bank, credit, travel and entertainment card activities described in this paragraph shall be deemed to be generated within the state as described in subparagraphs one through four of this paragraph. Receipts from such activities generated within the state shall be included in the numerator of the apportionment fraction. Receipts from such activities generated within and without the state shall be included in the denominator of the apportionment fraction.

          1. (1) Receipts constituting interest, and fees and penalties in the nature of interest, from bank, credit, travel and entertainment card receivables shall be deemed to be generated within the state if the mailing address of the card holder in the records of the taxpayer is in the state;
          2. (2) Receipts from service charges and fees from such cards shall be deemed to be generated within the state if the mailing address of the card holder in the records of the taxpayer is in the state; and
          3. (3) Receipts from merchant discounts shall be deemed to be generated within the state if the merchant is located within the state. In the case of a merchant with locations both within and without New York state, only receipts from merchant discounts attributable to sales made from locations within New York state are allocated to New York state. It shall be presumed that the location of the merchant is the address of the merchant shown on the invoice submitted by the merchant to the taxpayer.
          4. (4) Receipts from credit card authorization processing, and clearing and settlement processing received by credit card processors shall be deemed to be generated within the state if the location where the credit card processor's customer accesses the credit card processor's network is located within the state. The amount of all other receipts received by credit card processors not specifically addressed in subdivisions one through nine of this section deemed to be generated within the state shall be determined by multiplying the total amount of such other receipts by the average of (i) eight percent and (ii) the percent of its New York access points. The percent of New York access points is the number of locations in New York from which the credit card processor's customers access the credit card processor's network divided by the total number of locations in the United States where the credit card processor's customers access the credit card processor's network.

       4. (d) Receipts from certain services to investment companies. Receipts received from an investment company arising from the sale of management, administration or distribution services to such investment company are included in the denominator of the apportionment fraction. The portion of such receipts included in the numerator of the apportionment fraction (such portion referred to herein as the New York portion) shall be determined as provided in this paragraph.

          1. (1) The New York portion shall be the product of the total of such receipts from the sale of such services and a fraction. The numerator of that fraction is the sum of the monthly percentages (as defined hereinafter) determined for each month of the investment company's taxable year for federal income tax purposes which taxable year ends within the taxable year of the taxpayer (but excluding any month during which the investment company had no outstanding shares). The monthly percentage for each such month is determined by dividing the number of shares in the investment company that are owned on the last day of the month by shareholders that are located in the state by the total number of shares in the investment company outstanding on that date. The denominator of the fraction is the number of such monthly percentages. (2)(A) For purposes of this paragraph, an individual, estate or trust is deemed to be located in the state if his, her or its mailing address on the records of the investment company is in the state. A business entity is deemed to be located in the state if its commercial domicile is located in the state.
          2. (B) For purposes of this paragraph, the term "investment company" means a regulated investment company, as defined in section 851 of the internal revenue code, and a partnership to which section 7704(a) of the internal revenue code applies (by virtue of section 7704(c)(3) of such code) and that meets the requirements of section 851(b) of such code. The preceding sentence shall be applied to the taxable year for federal income tax purposes of the business entity that is asserted to constitute an investment company that ends within the taxable year of the taxpayer.
          3. (C) For purposes of this paragraph the term "receipts from an investment company" includes amounts received directly from an investment company as well as amounts received from the shareholders in such investment company, in their capacity as such.
          4. (D) For purposes of this paragraph, the term "management services" means the rendering of investment advice to an investment company, making determinations as to when sales and purchases of securities are to be made on behalf of an investment company, or the selling or purchasing of securities constituting assets of an investment company, and related activities, but only where such activity or activities are performed pursuant to a contract with the investment company entered into pursuant to section 15(a) of the federal investment company act of nineteen hundred forty, as amended.
          5. (E) For purposes of this paragraph, the term "distribution services" means the services of advertising, servicing investor accounts (including redemptions), marketing shares or selling shares of an investment company, but, in the case of advertising, servicing investor accounts (including redemptions) or marketing shares, only where such service is performed by a person who is (or was, in the case of a closed end company) also engaged in the service of selling such shares. In the case of an open end company, such service of selling shares must be performed pursuant to a contract entered into pursuant to section 15(b) of the federal investment company act of nineteen hundred forty, as amended.
          6. (F) For purposes of this paragraph, the term "administration services" includes clerical, accounting, bookkeeping, data processing, internal auditing, legal and tax services performed for an investment company but only if the provider of such service or services during the taxable year in which such service or services are sold also sells management or distribution services, as defined hereinabove, to such investment company.
       5. (e) For purposes of this subdivision, a taxpayer shall use the following hierarchy to determine the commercial domicile of a business entity, based on the information known to the taxpayer or information that would be known upon reasonable inquiry: (i) the location of the treasury function of the business entity; (ii) the seat of management and control of the business entity; and (iii) the billing address of the business entity in the taxpayer's records. The taxpayer must exercise due diligence before rejecting a method in this hierarchy and proceeding to the next method.
       6. (f) For purposes of this subdivision, the term "registered securities broker or dealer" means a broker or dealer registered as such by the securities and exchange commission or a broker or dealer registered as such by the commodities futures trading commission, and shall include an OTC derivatives dealer as defined under regulations of the securities and exchange commission at title 17, part 240, section 3b-12 of the code of federal regulations (17 CFR 240.3b-12).

(b) Other aviation services. (1)(A) The portion of receipts of a taxpayer from aviation services (other than services described in paragraph (a) of this subdivision) to be included in the numerator of the apportionment fraction shall be determined by multiplying its receipts from such aviation services by a percentage which is equal to the arithmetic average of the following three percentages:

1. (i) the percentage determined by dividing sixty percent of the aircraft arrivals and departures within this state by the taxpayer during the period covered by its report by the total aircraft arrivals and departures within and without this state during such period; provided, however, arrivals and departures solely for maintenance or repair, refueling (where no debarkation or embarkation of traffic occurs), arrivals and departures of ferry and personnel training flights or arrivals and departures in the event of emergency situations shall not be included in computing such arrival and departure percentage; provided, further, the commissioner may also exempt from such percentage aircraft arrivals and departures of all non-revenue flights including flights involving the transportation of officers or employees receiving air transportation to perform maintenance or repair services or where such officers or employees are transported in conjunction with an emergency situation or the investigation of an air disaster (other than on a scheduled flight); provided, however, that arrivals and departures of flights transporting officers and employees receiving air transportation for purposes other than specified above (without regard to remuneration) shall be included in computing such arrival and departure percentage;
2. (ii) the percentage determined by dividing sixty percent of the revenue tons handled by the taxpayer at airports within this state during such period by the total revenue tons handled by it at airports within and without this state during such period; and
3. (iii) the percentage determined by dividing sixty percent of the taxpayer's originating revenue within this state for such period by its total originating revenue within and without this state for such period.
4. (B) As used herein the term "aircraft arrivals and departures" means the number of landings and takeoffs of the aircraft of the taxpayer and the number of air pickups and deliveries by the aircraft of such taxpayer; the term "originating revenue" means revenue to the taxpayer from the transportation or revenue passengers and revenue property first received by the taxpayer either as originating or connecting traffic at airports; and the term "revenue tons handled" by the taxpayer at airports means the weight in tons of revenue passengers (at two hundred pounds per passenger) and revenue cargo first received either as originating or connecting traffic or finally discharged by the taxpayer at airports;
5. (2) All such receipts of a taxpayer from aviation services described in this paragraph are included in the denominator of the apportionment fraction.
6. 8. Receipts from sales of advertising. (a) The amount of receipts from sales of advertising in newspapers or periodicals included in the numerator of the apportionment fraction is determined by multiplying the total of such receipts by a fraction, the numerator of which is the number of newspapers and periodicals delivered to points within the state and the denominator of which is the number of newspapers and periodicals delivered to points within and without the state. The total of such receipts from sales of advertising in newspapers or periodicals is included in the denominator of the apportionment fraction.
7. (b) The amount of receipts from sales of advertising on television or radio included in the apportionment fraction is determined by multiplying the total of such receipts by a fraction, the numerator of which is the number of viewers or listeners within the state and the denominator of which is the number of viewers or listeners within and without the state. The total of such receipts from sales of advertising on television and radio is included in the denominator of the apportionment fraction.
8. (c) The amount of receipts from sales of advertising not described in paragraph (a) or (b) of this subdivision that is furnished, provided or delivered to, or accessed by the viewer or listener through the use of wire, cable, fiber-optic, laser, microwave, radio wave, satellite or similar successor media or any combination thereof, included in the numerator of the apportionment fraction is determined by multiplying the total of such receipts by a fraction, the numerator of which is the number of viewers or listeners within the state and the denominator of which is the number of viewers or listeners within and without the state. The total of such receipts from sales of advertising described in this paragraph is included in the denominator of the apportionment fraction.
9. 9. Receipts from transportation or transmission of gas through pipes. Receipts from the transportation or transmission of gas through pipes are included in the numerator of the apportionment fraction as follows. The amount of receipts from the transportation or transmission of gas through pipes included in the numerator of the apportionment fraction is determined by multiplying the total amount of such receipts by a fraction, the numerator of which is the taxpayer's transportation units within the state and the denominator of which is the taxpayer's transportation units within and without the state. A transportation unit is the transportation of one cubic foot of gas over a distance of one mile. The total amount of receipts from the transportation or transmission of gas through pipes is included in the denominator of the apportionment fraction.

10. 10.

    1. (a) Receipts from other services and other business receipts. Receipts from services not addressed in subdivisions one through nine of this section and other business receipts not addressed in such subdivisions shall be included in the numerator of the apportionment fraction if the location of the customer is within the state. Such receipts from customers within and without the state are included in the denominator of the apportionment fraction. Whether the receipts are included in the numerator of the apportionment fraction is determined according to the hierarchy of method set forth in paragraph (b) of this subdivision. The taxpayer must exercise due diligence under each method described in such paragraph (b) before rejecting it and proceeding to the next method in the hierarchy, and must base its determination on information known to the taxpayer or information that would be known to the taxpayer upon reasonable inquiry.
    2. (b) Hierarchy of methods. (1) The benefit is received in this state;
    3. (2) Delivery destination;
    4. (3) The apportionment fraction for such receipts within the state determined pursuant to this subdivision for the preceding taxable year; or
    5. (4) The apportionment fraction in the current taxable year determined pursuant to this subdivision for those receipts that can be sourced using the hierarchy of sourcing methods in subparagraphs one and two of this paragraph.
11. 11. If it shall appear that the apportionment fraction determined pursuant to this section does not result in a proper reflection of the taxpayer's business income or capital within the state, the commissioner is authorized in his or her discretion to adjust it, or the taxpayer may request that the commissioner adjust it, by (a) excluding one or more items in such determination, (b) including one or more other items in such determination, or (c) any other similar or different method calculated to effect a fair and proper apportionment of the business income and capital reasonably attributed to the state. The party seeking the adjustment shall bear the burden of proof to demonstrate that the apportionment fraction determined pursuant to this section does not result in a proper reflection of the taxpayer's business income or capital within the state and that the proposed adjustment is appropriate.