(a) Except as modified in subsections (b) and (c) of this section, the Headquarters Management Corporation taxable income of a Headquarters Management Corporation for any income year means the amount of its federal taxable income for such year as computed for purposes of the federal income tax increased by (i) any interest income (including discount) on obligations issued by states of the United States or political subdivisions thereof other than this State and its subdivisions, and (ii) the amount of any deduction allowed for purposes of the federal income tax pursuant to § 164 of the Internal Revenue Code [26 U.S.C. § 164] for taxes paid on, or according to or measured by, in whole or in part, such corporation’s net income or profits, to any state (including this State), territory, county or political subdivision thereof, or any tax paid in lieu of such income tax, and its federal taxable income shall be further adjusted by eliminating:
(1) Dividends received on shares of stock or voting trust certificates of foreign corporations or interest income or royalty income, on which a foreign tax is paid, deemed paid or accrued under the applicable provisions of the Internal Revenue Code [26 U.S.C. § 1 et seq.];
(2) Interest income (including discount) from securities issued by the United States or agencies or instrumentalities thereof and interest income (including discount) arising from obligations representing advances, loans or contractual transactions between corporations which are eligible to file a consolidated return for federal income tax purposes and which are subject to taxation under Chapter 19 of this title or under this chapter, if the paying corporation eliminates such interest (including discount) in determining its entire net income under Chapter 19 of this title or in determining its Headquarters Management Corporation taxable income under this section, whichever is applicable; provided, however, that the expenses allocable to interest income from securities issued by the United States or agencies or instrumentalities thereof shall not be allowed as a deduction;
(3) Gains and losses from the sale or other disposition of securities issued by the United States or agencies or instrumentalities thereof or by this State or political subdivisions thereof. Expenses incurred in connection with such gains and losses shall not be considered in computing Headquarters Management Corporation taxable income;
(4) Any deduction allowed for depletion of oil and gas wells under § 611 of the Internal Revenue Code [26 U.S.C. § 611] to the extent such deduction is determined by reference to § 613 of the Internal Revenue Code [26 U.S.C. § 613] (relating to percentage depletion);
(5) An amount equal to the portion of the wages paid or incurred for the taxable year which is disallowed as a deduction for federal purposes under § 280C of the Internal Revenue Code [26 U.S.C. § 280C], relating to the portion of wages for which the new jobs tax credit is claimed;
(6) The cost, not to exceed $5,000, of a renovation project to remove physical design features in a building that restricts the full use of the building by physically handicapped persons. The modification shall be allowed for the taxable year in which the renovation project is completed and is in addition to any depreciation or amortization of the cost of the renovation project. “Building” means a building or structure or that part of a building or structure and its related sidewalks, curbing, driveways and entrances that are located in this State and open to the general public;
(7) The “eligible net income” of an Edge Act corporation organized pursuant to § 25(a) of the Federal Reserve Act [12 U.S.C. § 611 et seq.]. The eligible net income of an Edge Act corporation shall be the net income from any international banking facility of such corporation each computed as described in § 1101(a)(1)d. and e. of Title 5; and
(8) Any deduction, to the extent such deduction exceeds $30,000, for a net operating loss carryback as provided for in § 172 of the Internal Revenue Code [26 U.S.C. § 172] or successor provisions; provided, however, that the taxpayer may increase deductions in any year, consistent with the operation of § 172, to carry forward losses which were carried back in calculating federal taxable income but which were prevented from being carried back under this paragraph (a)(8).
(b) The amount determined under subsection (a) of this section shall be allocated and apportioned to this State in accordance with the following provisions:
(1) Rents and royalties (less applicable or related expenses) from tangible property shall be allocated to the state in which the property is physically located;
(2) Copyright, patent, service mark, trademark and trade name royalties (less applicable or related expenses) shall be allocated to this State;
(3) Gains and losses from the sale or other disposition of real property shall be allocated to the state in which the property, and expenses incurred in connection with dispositions resulting in such gains and losses, is physically located;
(4) Gains and losses from the sale or other disposition of tangible property for which an allowance for depreciation is permitted for federal income tax purposes, and expenses incurred in connection with dispositions resulting in such gains and losses, shall be allocated to the state where the property is physically located or is normally used in the taxpayer’s business;
(5) Interest (including discount) to the extent included in determining Headquarters Management Corporation taxable income under subsection (a) of this section, less related or applicable expenses, shall be allocated to this State, except where the facts and circumstances demonstrate that the transaction creating the obligation with respect to which the interest was earned occurred in another state, in which case it shall be allocated to such other state;
(6) If the entire business of the Headquarters Management Corporation is transacted or conducted within this State, the remainder of the amount determined under subsection (a) of this section shall be allocated to this State. If the business of the Headquarters Management Corporation is transacted or conducted in part without this State, such remainder, whether income or loss, shall be apportioned to this State on the basis of the ratio obtained by taking the arithmetical average of these 3 ratios:
a. The average of the value, at the beginning and end of the income year, of all the real and tangible personal property, owned or rented, in this State by the taxpayer, expressed as a percentage of the average of the value at the beginning and end of the income year of all such property of the taxpayer both within and without this State; provided, that any property, the income from which is separately allocated under paragraph (b)(1) of this section or which is not used in the taxpayer’s business, shall be disregarded. For the purposes of this paragraph (b)(6)a., property owned by the taxpayer shall be valued at its original cost to the taxpayer, and property rented by the taxpayer shall be valued at 8 times the annual rental;
b. Wages, salaries and other compensation paid by the taxpayer to employees within this State during the income year expressed as a percentage of all such wages, salaries and other compensation paid within and without this State during the income year to all employees of the taxpayer;
c. Gross receipts from sales of tangible personal property physically delivered within this State to the purchaser or the purchaser’s agent (but not including delivery to the United States mail or to a common or contract carrier for shipment to a place outside this State) and gross income from other sources within this State for the income year expressed as a percentage of all such gross receipts from sales of tangible personal property and gross income from other sources both within and without this State for the income year; provided, that any receipts or items of income that are eliminated in determining the taxpayer’s Headquarters Management Corporation taxable income or are directly allocated under paragraphs (b)(1) to (6) of this section shall be disregarded.
(c) If, in the discretion of the Secretary of Finance, the application of the allocation or apportionment provisions of this section would result in an unfair or inequitable proportion of the taxpayer’s Headquarters Management Corporation taxable income being assigned to this State, the Secretary of Finance or the Secretary’s delegate may permit or require the exclusion or alteration of the weight to be given to 1 or more of the factors in the formula specified in subsection (b) of this section or the use of separate accounting or other method to produce a fair and equitable result. For purposes of this chapter and of § 2061 of this title, the Director may, in the Director’s discretion, redistribute, reallocate, or reapportion items of gross income or deduction on account of the providing of headquarters services if the Director determines that such items are disproportionate to their fair market value compared to arm’s length transactions between similar but unrelated companies.