New York Advisory Opinion TSB-A-12(7)C / 12(32)S: Does a parent corporation keep the Empire Zone benefits of a certified subsidiary it absorbs in an IRC section 332 liquidation?

Plain-English summary

The petitioner owned 100% of a New York C corporation that had been certified as an Empire Zone (EZ) business since 2003. On June 1, 2010 that subsidiary underwent an IRC section 332 liquidation and merged into the petitioner, its parent. The subsidiary's operations continued as a division of the parent, in the same EZ facility with the same employees. The parent asked whether it would keep the EZ benefits the subsidiary had held.

The Department said yes, provided the parent re-papers the certification in its own name. EZ benefits require certification under Article 18-B of the General Municipal Law plus compliance with the Tax Law. The Department of Economic Development (DED) decides certification, so the parent must obtain its own certificate of eligibility and EZ Retention Certificate. If DED certifies the parent after the merger, the Tax Department will accept that as evidence, and the parent may claim the EZ credits for the remainder of the subsidiary's benefit period as long as it meets the annual employment test (Tax Law § 14(b)(4)) and the credits' other requirements.

What this means for you

Groups consolidating EZ operations

Absorbing a certified subsidiary in a tax-free liquidation doesn't forfeit the zone benefits, but the benefits don't transfer automatically -- the surviving entity needs its own DED certificate and retention certificate. The benefit period continues to run on the original subsidiary's clock, not a fresh one.

Accountants and tax professionals

The continuity facts mattered: same facility, same employees, operations continuing as a division. Re-certify the surviving parent with DED, then keep the annual employment test satisfied to claim credits for the rest of the original benefit period.

Common questions

Q: Does liquidating a certified subsidiary into its parent forfeit Empire Zone benefits? A: No, if the parent keeps the operations going and obtains its own certificate of eligibility and EZ Retention Certificate from DED and meets the employment test.

Q: Does the parent get a new benefit period?
A: No. It steps into the remainder of the subsidiary's existing benefit period.

Q: What does the parent have to do?
A: Get its own DED certificate of eligibility and EZ Retention Certificate, and meet the annual employment test (Tax Law § 14(b)(4)).

Citations and references

• Tax Law § 14(b)(4) (QEZE annual employment test)
• General Municipal Law § 959(a) (DED authority to certify under Article 18-B)
• Internal Revenue Code § 332 (tax-free liquidation of a subsidiary into its parent)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2012.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a12_7c_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-12(7)C
Corporation Tax
TSB-A-12(32)S
Sales Tax
December 6, 2012

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z120504A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name and address redacted (Petitioner). Petitioner asks whether liquidation of its subsidiary into the parent, Petitioner, would result in the loss of Empire Zone (EZ) tax benefits, when the subsidiary was the entity that was certified under Article 18-B of the General Municipal Law (GML). We conclude that Petitioner will continue to be eligible for EZ tax benefits after the liquidation of its subsidiary for the duration of the subsidiary’s benefit period, provided that Petitioner meets the requirements in the Tax Law and obtains a certificate of eligibility and an EZ Retention Certificate (EZRC) from the Department of Economic Development (DED). Facts Petitioner owned 100% of a New York C corporation (Subsidiary) that was certified under Article 18-B of the GML, effective June 19, 2003. On June 1, 2010, Subsidiary underwent an Internal Revenue Code (IRC) section 332 liquidation and merged into Petitioner, its parent corporation. After the merger, Subsidiary’s business operations continued as a division of Petitioner. Petitioner maintains the same facility and employees in the former EZ. Analysis You have asked whether the EZ certification and tax benefits maintained by Subsidiary prior to the merger will available to Petitioner after the merger. In order to be eligible to claim the EZ tax benefits, a business enterprise must be certified under Article 18-B of the GML and meet the specific requirements in the Tax Law. The DED Commissioner is authorized to certify a business enterprise under Article 18-B which qualifies the business enterprise to participate in the EZ program.1 The Department of Taxation and Finance (DTF) is charged with ensuring that the business enterprise is in compliance with the Tax Law. If Petitioner continues to be certified by DED after the merger, DTF will accept a copy of Petitioner’s Certificate of Eligibility and EZRC, issued by DED, as evidence that Petitioner is certified. Petitioner must also meet the requirements of the Tax Law in order to claim the EZ tax benefits. If Petitioner is certified by DED and annually meets the employment test under Tax Law §14(b)(4), it will be eligible to

1

§959(a) of the GML.

-2-

TSB-A-12(7)C
Corporation Tax
TSB-A-12(32)S
Sales Tax
December 6, 2012

claim the tax credits for the remainder of its benefit period, provided that it meets the other requirements for the credit(s) in the Tax Law.

DATED: December 6, 2012

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.