Do a UBT-paying partnership's New York City receipts flow to its corporate partner, and how does the UBT paid credit work?

Two taxes on one stream of income

New York City taxes a partnership doing business in the city at the entity level under the Unincorporated Business Tax, and taxes a corporation under the business corporation tax (Admin. Code, Title 11, Chapter 6, Subchapter 3-A) or, for S corporations, the general corporation tax, which the Department's instructions describe as "only applicable to Subchapter S Corporations and Qualified Subchapter S Subsidiaries" (Form NYC-3L instructions (2025)). A corporate partner of a UBT-paying partnership therefore meets the same income twice: inside the partnership's Form NYC-204 and in its own return.

Whether the corporation is taxable at all comes first. The Form NYC-2 instructions state that where a partnership is doing business in the city, "a corporation that is a general partner in that partnership is subject to tax and must file Form NYC-2," and that a limited partner "may be subject to tax pursuant to the regulations promulgated by the Commissioner of Finance" (Form NYC-2 instructions (2025)). The general corporation tax rule treats a corporation as "doing business in the City if it owns a limited partnership interest" in a partnership doing business, employing capital, owning or leasing property or maintaining an office in the city, with exceptions for a publicly traded partnership and a portfolio investment partnership where the corporation is passive and does not control the partnership or its general partner (19 RCNY 11-06(a) to (d)). The Department's proposed business corporation tax rules carry the same structure forward and add a receipts test: a general or limited partner "derives receipts from activity in New York City" if its own city receipts and the partnership's total at least $1 million, and for that purpose its city receipts "include its distributive share of any New York City receipts" of each partnership (proposed 19 RCNY 11A-04 and 11A-09(d), (g), certified October 16, 2025). Those provisions are proposed, not in effect.

What the statute says, and what it leaves to regulation

The business corporation tax allocates business income by a single fraction: "The percentage of receipts of the taxpayer to be allocated to the city ... shall be equal to the receipts fraction determined pursuant to this section" (Admin. Code section 11-654.2(1)). The City's statutes use "allocation" for the division of business income by formula, which most states call apportionment; this article uses the City's term. Section 11-654.2 sources the corporation's own receipts by type and excludes from the fraction "net gains (not less than zero) from sales of partnership interests" unless the commissioner provides otherwise (section 11-654.2(5)(a)(2)(vii)). It contains no rule on a partner's share of a partnership's receipts.

That rule sits in section 11-654(4-a), and it is a delegation: "A corporation that is a partner in a partnership shall compute tax under this subchapter using any method required or permitted in regulations of the commissioner of finance." The statute does not say whether partnership receipts enter the partner's fraction, and nothing in section 11-654 or section 11-654.2 makes the partnership's UBT status relevant to allocation; that status matters only to the credit in section 11-654(18).

More than ten years after the tax took effect, those regulations do not exist. The Department's business corporation tax page states that it is developing them. Its first proposed rule, Chapter 11A of 19 RCNY, covers only Subchapter 1 (imposition, nexus, definitions); the statement of basis and purpose says the Department "will publish additional proposed rules that set forth the remainder of Chapter 11A, relating to allocation and administration of the BCT," and that no part of Chapter 11A takes effect "until all subchapters of Chapter 11A have completed the rulemaking process" (Proposed Rules Relating to the Implementation of the Business Corporation Tax, certified October 16, 2025). As of October 17, 2026, the City's rules site lists the October 2025 proposal as proposed, with no adopted text and no later subchapter (rules.cityofnewyork.us, Business Corporation Tax Implementation Rules).

Three ways the partnership items can be allocated

The Department's own published statements describe the candidate methods, and they produce different answers.

The UBT-based approach the Department considered and dropped. In 2024 the Department described a departure from the State: because the city "currently taxes partnerships at the entity level pursuant to the Unincorporated Business Tax," it proposed "to continue to use the UBT provisions as the primary method," under which "[a]ny items of income or gain from a partnership will be allocated under the statutory and regulatory rules of the UBT and will not be included in the receipts factor of a corporate partner," with the corporation's other income allocated by its own business allocation percentage (The New York City Department of Finance Business Corporation Tax Regulations (2024)). Even that approach did not leave the distributive share unallocated: the Department described allocating it "using the sourcing rules of the Unincorporated Business Tax," separately from the corporation's other income, so that it "would not have entered the Business Allocation Percentage" of the corporate partner (Business Corporation Tax Regulations, updated as of September 12, 2024). The Department then withdrew it: "the Department will not go forward with the initially considered methodology that uses the UBT sourcing rules to allocate partnership income earned by corporations," because "uniformity across the State and City corporate tax regimes will streamline the process of tax administration" (Business Corporation Tax Regulations, updated as of September 12, 2024). The same update states that the City "maintains that it does have considerable discretion in establishing the allocation of partnership receipts with respect to the BCT" (id.).

The State's aggregate method. New York State's Article 9-A regulations, adopted December 27, 2023, require a corporate partner to use the aggregate method if it "has access to the information necessary to compute its tax using such method," and presume access in eight situations, among them conducting a unitary business with the partnership, holding a 5 percent or greater interest, or holding an interest worth more than 50 percent of the corporation's total assets (20 NYCRR 9-2.2(a)). Under the aggregate method the corporation "must include its distributive share of the partnership's business receipts when computing its BAF," its business apportionment factor (20 NYCRR 9-2.3(f)). The methodology repeats at each tier: a corporation with information about the upper tier but not the lower tier uses the aggregate method for upper-tier items and the entity method for items attributable to the lower tier (20 NYCRR 9-2.2(c)).

The State's entity method. A corporation that lacks access and certifies that fact uses the entity method (20 NYCRR 9-2.2(b)). The partnership interest is treated as "an intangible asset that is business capital," and the distributive share is apportioned by the corporation's own factor, computed "without regard to its distributive share of any partnership items of income, gain, loss or deduction" (20 NYCRR 9-2.4(a), (c), (e)).

A rule that keeps a partnership's receipts out of a corporate partner's fraction takes one of two forms in the published sources. Under the State's entity method, the distributive share is apportioned by the partner's own factor, so a partner with no city receipts of its own allocates none of it to the city (20 NYCRR 9-2.4(c), (e)), and the State permits that method only to a partner that lacks access to the information and certifies that fact (20 NYCRR 9-2.2(b)). Under the approach the Department considered in 2024, the distributive share would have been allocated under the UBT's sourcing rules, separately from the partner's fraction; the Department has withdrawn that approach. The city has adopted no rule on the method. The Department has said its business corporation tax regulations "will be retroactive back to the effective date of the BCT and apply to tax years beginning on [or] after January 1, 2015 and supersede any previously issued policy guidance" (Business Corporation Tax Regulations, updated as of September 12, 2024). Until they are adopted, the method a corporate partner uses is a position taken under section 11-654(4-a) without a governing regulation, and a method that departs from the State's may need to be revisited for every open year once the rules arrive.

The general corporation tax, which now reaches S corporations, states no method in its statute or rules, but the Tax Appeals Tribunal has applied the aggregate approach to corporate partners: "the aggregate approach has been and continues to be applied for a variety of purposes under the GCT including the computation of ENI, the character of items of income as coming from subsidiary or investment capital, and the calculation of the BAP" (Matter of National Bulk Carriers, Inc., TAT(E) 04-33(GC) (N.Y.C. Tax App. Trib. Nov. 30, 2007), confirmed, 61 A.D.3d 522 (1st Dep't 2009)). The Department's credit rule computes the second measure "excluding partnership allocation factors, if taken into account in calculating the corporate partner's allocation to the City" (19 RCNY 11-50(b)(2)(ii)(B)(b)). The allocation rules (19 RCNY 11-61 and 11-63) and the Form NYC-3L instructions for Schedule H say nothing about partnership receipts, no rule excludes the items of a partnership that pays UBT, and the Tribunal has noted that the City "has not adopted comparable rules" to the State's corporate partner regulations (National Bulk Carriers, n. 24). The Tribunal's statement about the business allocation percentage rests partly on the taxpayer's concession, and the decision turned on the capital base.

How the UBT paid credit works

The credit is the city's relief for the second layer of tax, and its terms are in the statute. A corporation that "is a partner in an unincorporated business taxable under chapter five of this title, and is required to include in entire net income its distributive share" of that business's items or guaranteed payments receives a credit equal to the lesser of two amounts (Admin. Code section 11-654(18)(a)).

1. Measure 1, the share of the UBT. The UBT the partnership paid for its year ending within or with the corporation's year, plus credits the partnership took under section 11-503 other than the subdivision (b) credit, "to the extent that such credits do not reduce such unincorporated business's tax below zero," multiplied by a fraction: the corporation's net distributive share over the total net distributive shares of all partners whose shares are greater than zero (section 11-654(18)(a)(1)).
2. Measure 2, the added city tax, rescaled. The excess of the corporation's tax on business income, computed without credits, over the same tax computed "as if the corporation had no such distributive share or guaranteed payments," multiplied by "a fraction, the numerator of which is four and the denominator of which is eight and eighty-five one hundredths" (nine for a financial corporation, and the applicable rate for a taxpayer subject to the reduced-rate paragraphs) (section 11-654(18)(a)(2)). The computation ignores net operating loss carryovers, treats negative entire net income before partnership items as zero, and treats a negative net distributive share as zero (section 11-654(18)(a)(2)(A) to (C)).

The total credit for a year may not exceed the tax on business income multiplied by the same four over 8.85 fraction; the excess carries forward "to each of the seven immediately succeeding taxable years," with the current year's credit taken before any carryforward and the earliest carryforward before a later one (section 11-654(18)(b)(1)). No credit may be taken in a year in which, without it, the corporation would pay tax on the capital base or the fixed dollar minimum (section 11-654(18)(b)(3)). A combined group computes the credit "as if the combined group were the partner" (section 11-654(18)(c)), and the credit is taken before any other credit and does not change the basis on which tax is computed (section 11-654(18)(d)). Unused general corporation tax credits from years before 2015 carry into the business corporation tax on their old terms (section 11-654(18)(b)(2-a)).

The credit is claimed on Form NYC-9.7C, one schedule per partnership, with "a copy of the distributing partnership's Form NYC-204, Schedule C" and the corporation's K-1 attached (Form NYC-9.7C (2025)). Schedule C of the NYC-204 reports each partner's distributive share in column H and each partner's percentage of the total in column I, and the NYC-204 instructions state that the schedule "must be completed for partners to claim the UBT Paid Credit" (Form NYC-204 instructions (2025)). An S corporation claims the parallel general corporation tax credit, which the Department's rule computes the same way, with the same four over 8.85 limitation and seven-year carryforward (19 RCNY 11-50(b), (c)).

A worked example

A corporation organized and managed outside New York City holds 25 percent of a consulting partnership that operates an office in the city. The partnership has $20,000,000 of receipts, $8,000,000 of them from city customers under the business corporation tax sourcing rules, and $6,000,000 of income. It pays $240,000 of UBT and takes no other credits; all partners have positive shares. The $240,000 assumes the partnership allocates all of its income to the city under the UBT's own rules, while the business corporation tax's customer-based rules treat only 40 percent of its receipts as city receipts. The corporation's own business income is $10,000,000, and its own receipts fraction is 5 percent ($1,000,000 of $20,000,000). The figures assume the business income base governs and use the 8.85 figure the credit statute itself applies.

Measure 1 is 25 percent of $240,000, or $60,000.

Under an aggregate computation, the corporation adds $2,000,000 (25 percent of the partnership's city receipts) to its numerator and $5,000,000 to its denominator, for a fraction of 12 percent ($3,000,000 of $25,000,000). Business income of $11,500,000 times 12 percent is $1,380,000, and tax at 8.85 percent is $122,130. Without the partnership items, $10,000,000 times 5 percent is $500,000, and tax is $44,250. The increase, $77,880, times four over 8.85 is $35,200. The credit is $35,200, the lesser of the two measures, within the overall limit of $55,200 ($122,130 times four over 8.85).

Under an entity computation, the distributive share of $1,500,000 is allocated at the corporation's own 5 percent. City income rises from $500,000 to $575,000, tax rises by $6,637.50, and Measure 2 is $3,000. The credit is $3,000. If the corporation had no city receipts of its own, its fraction would be zero, its tax would not rise, and Measure 2, and the credit, would be zero.

The two questions are therefore one: a method that allocates little of the partnership's income to the city produces a small credit, a method that allocates more produces a larger one, and the credit never exceeds the partner's share of the UBT.

Tiers, and the partnership with nothing to report

The UBT has its own tier rule. A partner that is itself an unincorporated business takes a credit against its own UBT for its share of a lower-tier partnership's UBT, but "may only take a credit with respect to distributive shares from partnerships in which it is a direct owner," meaning a partner named in the partnership agreement and on the federal Schedule K-1; in the Department's example, the top partnership "will get the benefit of Partnership B's UBT Paid Credit with respect to Partnership A" through the middle tier's own computation (19 RCNY 28-03(d)(4)). The general corporation tax rule applies the same limit to corporate partners (19 RCNY 11-50(d)). The UBT also has its own allocation rule for tiers. A partner that is itself an unincorporated entity "must allocate to the City the same percentage of its distributive share of each item of a particular partnership's business income" as the partnership allocated to the City for its own business income, and "should not report its distributive share of that partnership's business income or any of that partnership's allocation factors on Schedule E," unless the Commissioner of Finance permits or requires another method (19 RCNY 28-07(j)(2)(i)(A); Form NYC-204 instructions (2025), Schedule E). The alternatives, which apply only where the Commissioner permits or requires them, include a single allocation percentage that takes in the partner's percentage interest in the partnerships' property, gross income and payroll, and the partner's own percentage where diligent efforts to obtain the partnership's information have failed (19 RCNY 28-07(j)(2)(i)(B), (C)). An administrative law judge upheld and applied the rule in Matter of Cantor Fitzgerald Securities, TAT(H) 19-16(UB) (N.Y.C. Tax App. Trib., ALJ Div., Dec. 16, 2025). The taxpayer's exceptions to that determination are pending before the Tribunal (TAT(E) 19-16(UB)). In a UBT tier, the lower tier's income reaches the upper tier, but its property, payroll and receipts do not enter the upper tier's allocation. The business corporation tax has no comparable rule.

For a corporation that holds a city business through an upper-tier partnership, Measure 1 carries the lower tier's tax upward: it counts the upper tier's UBT paid plus the credits it took under section 11-503, including its own credit for lower-tier UBT, to the extent they do not take its tax below zero. The chain holds only while every link is "an unincorporated business taxable under chapter five." Trading for its own account does not take an upper tier out of the chain: an unincorporated entity is treated as carrying on the city business of an entity in which it owns an interest, and an upper-tier investment partnership holding an interest in a partnership doing business in the city is taxed on its share of that partnership's income, while its own trading stays exempt (Admin. Code section 11-502(a), (c)(4); Form NYC-204 instructions (2025), Schedule B, Part 1, and the partial investment exemption examples). Where a link is wholly outside the UBT, it pays no UBT and has no credit to pass through, and the corporate partner has no direct interest in the lower tier that paid the tax. The business corporation tax has no rule of its own on tiers; the statute's words and the Department's two existing rules point to the direct-partner limit, and the question is open until the allocation regulations are written.

The partnership with no city factors presents the opposite case. If the partnership has no city receipts under the business corporation tax sourcing rules, an aggregate computation adds its receipts only to the corporation's denominator, which lowers the corporation's city fraction. The partnership may still owe UBT, because the UBT allocates under its own rules (Admin. Code section 11-508), but where the partnership items lower the corporation's tax there is no excess under section 11-654(18)(a)(2), and so no credit. If the partnership has city receipts but pays no UBT, for example because an exemption applies, an aggregate computation still brings the city receipts into the partner's numerator, with no credit to offset them. In neither case does the partnership's UBT status answer the allocation question.

Practice notes

The city filing of a corporate partner of a UBT-paying partnership rests on three documents and one decision. The documents are the partnership's Form NYC-204 Schedule C and the corporation's K-1, which support Form NYC-9.7C; and a schedule from the partnership of its receipts in total and in the city, sourced under the business corporation tax rules of section 11-654.2 rather than the UBT rules, which the city's forms do not require the partnership to prepare and which the corporate partner obtains by request, ideally in the partnership agreement or a side letter. The decision is the allocation method under section 11-654(4-a), made with the State's access presumptions in view, documented with the facts that support it, applied the same way in every year, and disclosed where the return allows. A corporation that has been reporting city income on its own fraction alone, while holding 5 percent or more of a partnership with city receipts, carries the risk that the Department's retroactive regulations follow the State and require amended computations for open years; the credit computation moves with the allocation and is recomputed with it. For tiered holdings, the UBT status of each upper tier is confirmed before any credit is assumed to reach the corporation. G&G State Tax Group provides New York City business corporation tax and unincorporated business tax analysis for corporate partners, including allocation method reviews and UBT paid credit computations, alongside its state and local tax practice.