1. (1) A foreign corporation which is a limited partner in one or more limited partnerships, which is subject to tax under article 9-A of the Tax Law solely as a result of the application of section 1-3.2(a)(6) of this Title and which does not file on a combined basis for article 9-A purposes, may elect to compute its tax bases by taking into account only its distributive share of each partnership item of receipts, income, gain, loss and deduction (including any modifications relating thereto) and its proportionate part of each partnership asset and liability, and each partnership activity (see section 3-13.3[a][1] , [2] and [3]), of each such limited partnership which is doing business, employing capital, owning or leasing property or maintaining an office in New York State, whether or not such share is actually distributed (see section 4-6.5[c] of this Title). However, such election may not be made if:

   1. (i) the limited partnership and corporate group are engaged in a unitary business wherever conducted (see section 6-2.3[e] of this Title); and

   2. (ii) there are substantial inter-entity transactions between the limited partnership and the corporate group.

      The term corporate group means the corporate limited partner itself or, if it is a member of an affiliated group, the corporate limited partner and all other members of such affiliated group. The term affiliated group shall have the same meaning as provided in section 3-13.2(d)(1) of this Subpart.

2. (2) If the taxpayer meets the criteria to make the election described in paragraph (1) of this subdivision and does not have access to the information necessary to do the computation described in such paragraph the taxpayer may treat its distributive share of such partnership's items of income, gain, loss and deduction as business income and its interest in such partnership as business capital and allocate such business income and capital entirely to New York State. Provided however, if the taxpayer can establish to the satisfaction of the commissioner that allocating such business income and business capital entirely to New York State does not properly reflect the activity, business income, alternative business income or business capital in New York State, the taxpayer shall use any other method which the commissioner has determined results in a proper reflection of the taxpayer's activity, business income, alternative business income or business capital in New York State. (See sections 4-6.1 and 4-6.2 of this Subpart and section 210.8 of the Tax Law for information relating to the power of the commissioner to adjust the business allocation and alternative business allocation percentage.)

3. (b) In determining whether there are substantial inter-entity transactions, the Commissioner of Taxation and Finance will consider transactions directly connected with the business conducted by the limited partnership and the corporate group, such as:

   1. (1) the manufacturing or acquiring of goods or of property or the performing of services by the limited partnership for the corporate group, or by the corporate group for the limited partnership;
   2. (2) the selling of goods acquired by the limited partnership from the corporate group, or by the corporate group from the limited partnership;
   3. (3) the financing of sales of the corporate group by the limited partnership, or of the limited partnership by the corporate group; or

   4. (4) the performing of related customer services using common facilities and employees.

      Service functions will not be considered when they are incidental to business of the limited partnership or the corporate group providing such service. Service functions include, but are not limited to: accounting, legal and personnel services. The substantial inter-entity transactions requirement is met if (1) at least 50 percent of the limited partnership's receipts or expenses are from engaging in one or more qualified activities described in this section with the corporate group, or (2) at least 50 percent of the corporate group's receipts or expenses are from engaging in one or more qualified activities described in this section with the limited partnership.

      Example 1:

      Limited partnership Z sells 30 percent of its product to limited partner X corporation and 40 percent of its product to Y corporation, a wholly owned subsidiary of X corporation. Corporations X and Y constitute a corporate group. There are substantial inter- entity transactions between Z and such corporate group because 70 percent of Z's sales are to the group.

      Example 2:

      X corporation is a limited partner in limited partnership Z. If 60 percent of X's expenses arise from its purchases of products from Z, there are substantial inter-entity transactions between X and Z.

      Example 3:

      X corporation is a limited partner in limited partnership Z. Y corporation is a wholly owned subsidiary of X. X and Y constitute a corporate group. 95 percent of X's receipts are from sales of products to Z. 10 percent of Y's receipts are from sales of products to Z. However, in the aggregate only 40 percent of the receipts of the corporate group consisting of X and Y are from sales of products to Z. There are not substantial inter-entity transactions between Z and the corporate group.

      (c) The election is made at the time of filing the report.

      Once an election is made, it may not be revoked by filing an amended report and is binding with respect to that partnership interest for all future taxable years. Notwithstanding the foregoing, the Commissioner of Taxation and Finance, pursuant to section 210.8 of the Tax Law, may use any other similar or different method calculated to effect a fair and proper allocation of the income and capital reasonably attributable to the State.

4. (d) Where a corporation makes such an election with respect to one or more such partnerships (“election partnerships”), but does not make such an election with respect to one or more other such partnerships (“nonelection partnerships”), then, subdivision (a) of this section to the contrary notwithstanding, the taxpayer shall compute its tax bases with respect to nonelection partnerships by reducing its deductions and liabilities by the amounts which are directly and indirectly attributable to such election partnerships.

Tax Law, § 210(8)

(a)