New York Advisory Opinion TSB-A-13(3)C: Does a U.S. bank holding company stay taxed under Article 9-A (rather than Article 32) after a reorganization and the sale of its banking subsidiary, under the Gramm-Leach-Bliley transition rules?

Plain-English summary

An alien bank operates in the U.S. through a primary holding company (Holdco). Holdco was organized in December 2003, first registered as a bank holding company on December 22, 2003, and elected to be a financial holding company on December 29, 2003. Back in 2004 the Department confirmed Holdco could elect to be taxed under Article 9-A (general business corporation tax) and could not be forced into an Article 32 (bank tax) combined return. During the year ended October 31, 2011 Holdco acquired assets from affiliates in a reorganization, and on March 2, 2012 it sold its banking subsidiary and stopped being a bank holding company. Holdco asked whether it would keep filing under Article 9-A.

The Department said yes. Bank holding companies are classified as Article 9-A taxpayers under Tax Law § 1452(d), but are normally pulled into Article 32 by that article's combined-reporting rules. The Gramm-Leach-Bliley transition provision, Tax Law § 1462(f)(2)(iv)(B), says a bank holding company that first registers and elects financial-holding-company status on or after January 1, 2000 and before January 1, 2015 cannot be required to file an Article 32 combined return. Holdco fits, so it is taxed under Article 9-A. Even if the asset acquisition triggered the election-revocation circumstance in § 1452(n)(3)(E), the no-combination rule would still apply, leaving Holdco in Article 9-A. And because Holdco stopped being a bank holding company only after October 31, 2011, the § 1452(m)(1) transition keeps it in Article 9-A for the following year because it was properly an Article 9-A taxpayer the year before.

What this means for you

Holdco's reorganization and bank sale

The Department kept this Holdco under Article 9-A after the described reorganization. After it ceased to be a bank holding company, § 1452(m)(1) continued that treatment for its tax year ending October 31, 2012, based on its prior-year Article 9-A status. The opinion did not establish a durable rule for other holding companies or later years.

Accountants and tax professionals

Pin down two dates -- when the entity first registered as a bank holding company and when it elected financial-holding-company status -- because the transition relief in § 1462(f)(2)(iv)(B) turns on that January 1, 2000 to January 1, 2015 window. Watch § 1452(n)(3)(E) only as an election-revocation trigger; here it didn't matter because the no-combination rule overrode it. (Note: this opinion predates New York's 2014-2015 bank/corporate tax merger; check current law.)

Common questions

Q: Why isn't a bank holding company taxed under the bank tax (Article 32)? A: For this Holdco, the Department applied the Gramm-Leach-Bliley transition provisions and concluded it remained under Article 9-A for the periods addressed.

Q: Did the reorganization change Holdco's tax article? A: No. Even if the asset acquisition triggered § 1452(n)(3)(E), the no-combination rule still applied, so Holdco remained an Article 9-A corporation.

Q: What happens the year it stops being a bank holding company? A: For Holdco's tax year ending October 31, 2012, § 1452(m)(1) kept it in Article 9-A because it was properly taxed there for its prior year. The opinion does not decide later years.

Citations and references

• Tax Law § 1452(d) (bank holding companies classified as Article 9-A taxpayers); Tax Law § 1452(j)(2) (election to be taxed under Article 9-A)
• Tax Law § 1462(f)(2)(iv)(B) (Gramm-Leach-Bliley transition; cannot be required to file Article 32 combined return)
• Tax Law § 1452(n)(3)(E) (asset acquisition that can revoke an election)
• Tax Law § 1452(m)(1) (transition for a corporation that ceases to be a bank holding company)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a13_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(3)C
Corporation Tax
February 28, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C110114A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name and address redacted. The issue is whether Petitioner’s U.S. subsidiary, Holdco, an Article 9-A taxpayer as a result of the Gramm-Leach-Bliley Act transitional provisions of Article 32, will continue to be taxed under Article 9-A subsequent to the completion of a plan of reorganization (hereinafter the “Reorganization Plan”). We conclude that Holdco will continue to be taxed under Article 9-A of the Tax Law. Facts Petitioner is an alien bank doing business in the United States directly and through various other legal entities that are engaged in numerous financial businesses, including banking, broker-dealer, insurance and other financial services-related activities. The primary U.S. holding company (“Holdco”) indirectly owned by Petitioner was formed on December 8, 2003 and registered for the first time as a bank holding company on December 22, 2003. 1 Holdco elected to be a financial holding company on December 29, 2003. Holdco is exercising its corporate franchise and doing business in New York. In 2003, the parent company of Holdco at the time requested and received an advisory opinion from the New York State Department of Taxation and Finance confirming that Holdco was entitled under Tax Law section 1452(j)(2) to elect to be taxed as an Article 9-A taxpayer.2 Further, this advisory opinion concluded that the Department could not require Holdco to file an Article 32 tax return on a combined basis pursuant to Tax Law section 1462(f)(2)(iv)(B). As a result, Holdco has historically filed general business corporation franchise tax returns in New York under Article 9-A since its formation. During the tax year ended October 31, 2011, Holdco and other entities within Petitioner’s affiliated group initiated its Reorganization Plan whereby Holdco acquired certain assets from other affiliated entities. As a result of such asset acquisitions, Holdco’s business operations may be deemed to have changed from its business operations immediately prior to the Reorganization Plan. Additionally, subsequent to the completion of the Reorganization Plan, Holdco agreed to sell 100% of its ownership interest in its banking subsidiary 1

The term bank holding company, as used throughout this petition, is defined as set forth in the United States Bank Holding Company Act of 1956. 2 See, RBC Holdings USA, Inc., TSB-A-04(1)C, Petition No. C031028A, February 26, 2004.

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TSB-A-13(3)C
Corporation Tax
February 28, 2013

(hereinafter the “Bank”). Holdco’s sale of the Bank closed on March 2, 2012, at which time Holdco ceased to be a bank holding company. Analysis The issue presented by the Petitioner is whether Holdco will continue to be taxed under Article 9-A subsequent to the completion of the Reorganization Plan. Generally, while bank holding companies are classified as Article 9-A taxpayers under Tax Law section 1452(d), they are subject to tax under Article 32 by virtue of the combined reporting provisions of that article. However, one of the statutory components of the GrammLeach-Bliley transitional provisions, Tax Law section 1462(f)(2)(iv)(B), states that a bank holding company which first registers as a bank holding company and elects to be a financial holding company on or after January first, two thousand and before January first, two thousand fifteen, cannot be required to be included in a combined return under Article 32. In that instance, the classification stated in section 1452(d) applies and the bank holding company is subject to tax under Article 9-A. As previously noted, Holdco was organized on December 8, 2003, registered for the first time as a bank holding company on December 22, 2003 and subsequently elected to be a financial holding company on December 29, 2003. Accordingly, because of its bank holding company and financial holding company status, Holdco has been subject to taxation under Article 9-A pursuant to sections 1452(d) and 1462(f)(2)(iv)(B). Under Petitioner’s Reorganization Plan, Holdco acquired certain assets from other affiliated entities. This acquisition of assets might have triggered the circumstances set forth under Tax Law section 1452(n)(3)(E).3 Subdivision (n) of section 1452 specifies certain circumstances that, if they occur, would cause the revocation of an election of a corporation to be taxed under Article 9-A or Article 32. In this type of instance, when an election is revoked, the taxable status of the corporation would be determined under the remaining provisions of Article 9-A and Article 32. Because the restriction on combined reporting that applies to those bank holding companies that both first register as a bank holding company and then elect to be a financial holding company after January 1, 2000 would apply to Holdco, even if the requirements set forth in Tax Law section 1452(n)(3)(E) are triggered during the course of the Restructuring Plan that occurred in the tax year ended October 31, 2011, Holdco would still be classified as an Article 9-A corporation.

3

The circumstance described in Tax Law section 1453(n)(3)(E) is the acquisition by a corporation in a transaction or series of related transactions of assets having an average value or, tax basis if greater, in excess of 40% of the average value or, tax basis if greater, in excess of all of the assets of the corporation immediately prior to the acquisition and, as a result of such acquisition, the corporation is principally engaged in a business that is different from the business immediately prior to the acquisition and that different business is described in Tax Law section 1452(a)(9)(i), (ii) or (iii). We do not have sufficient facts to determine if the circumstances described in Tax Law section 1453(n)(3)(E) occurred.

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TSB-A-13(3)C
Corporation Tax
February 28, 2013

Finally, because Holdco ceased to be a bank holding company after October 31, 2011 as a result of its sale of the Bank, it will continue to be taxed during its tax year ending October 31, 2012 under Article 9-A pursuant to the Gramm-Leach-Bliley transition provision applicable to that year, section 1452(m)(1), because it was properly taxed as an Article 9-A taxpayer for its prior tax year ended October 31, 2011.

DATED: February 28, 2013

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.