New York Advisory Opinion TSB-A-16(1)C: May a corporate partner aggregate the activities and employees of two majority-owned broker-dealer partnerships to meet the Investment Tax Credit's 'principally used' and employment tests?

Plain-English summary

A corporation indirectly owned 98.7% of one partnership and 92.9% of another. Each partnership, in turn, owned a single-member LLC (an "SMLLC," disregarded for tax) that was an SEC-registered broker-dealer. One partnership bought equipment used by employees of both partnerships in their broker-dealer businesses. The corporate partner asked whether it could aggregate the two partnerships' activities and employees to qualify for New York's Investment Tax Credit (ITC) under Tax Law § 210(12).

The Department said yes. A disregarded SMLLC is treated as part of its owner, so each partnership is itself treated as a registered broker-dealer. Under the regulations a corporate partner with more than a 5% interest computes its tax using the aggregate method (20 NYCRR 3-13.1), treating the partnership's assets and activities as its own. Through that method the corporate partner is deemed a registered broker-dealer and is deemed to have "purchased" its allocable share of property the partnership bought (IRC § 179(d)). Tax Law § 210(12)(b)(i) expressly lets a taxpayer aggregate its uses and those of its affiliated regulated broker-dealer to decide whether property is "principally used" (more than 50%, per 20 NYCRR 5-2.4) in qualifying broker-dealer activity, and to satisfy one of the three employment tests by combining employees. So the corporate partner could combine the qualifying uses and the employees of both partnerships.

What this means for you

Multi-entity securities and commodities firms

If qualifying equipment or buildings are bought by one affiliate but used across a related broker-dealer group, the ITC can still be claimed — but only by running the property through the aggregate method and the statute's affiliated-broker-dealer aggregation rule. The "more than 50% qualifying use" test and an employment test are measured on the combined group, not the single entity.

Accountants and tax professionals

The chain matters: disregarded SMLLC's SEC registration flows up to the partnership; the partnership's broker-dealer status flows to the corporate partner via the aggregate method; the partner is deemed to have purchased its allocable share of the partnership's property under IRC § 179(d). Only employees performing administrative and support functions tied to qualifying uses count toward the first two employment tests.

Common questions

Q: Can a corporate partner claim the ITC on property its partnership bought?
A: Yes, to the extent of its allocable share, because property a partnership purchases under IRC § 179(d) is deemed purchased by each partner pro rata when the partner uses the aggregate method.

Q: What does "principally used" mean here?
A: More than 50% of the property's use must be in the qualifying broker-dealer activity (20 NYCRR 5-2.4); for a building, more than 50% of usable business floor space.

Q: Can my company rely on this opinion?
A: No. It binds the Department only as to this petitioner and these facts. Treat it as reasoning, not a guarantee for your structure.

Citations and references

• Tax Law § 210(12) (Investment Tax Credit; qualifying property, use test, three employment tests)
• IRC § 179(d) (acquisition by purchase); IRC § 46(c)(8) (nonqualified nonrecourse financing)
• IRC § 475(c)(2) (securities) and IRC § 475(e) (commodities)
• 20 NYCRR 3-13.1 and 3-13.2 (corporate partner aggregate vs entity method)
• 20 NYCRR 5-2.4 (principally used = more than 50%)
• 26 CFR § 301.7701-3(b)(1)(ii) (disregarded single-member LLC)
• TSB-A-87(9)C; TSB-A-13(11)C; TSB-M-98(08)C (prior Department guidance applied)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a16_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(1)C
Corporation Tax
January 11, 2016

Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C141209A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTED. Petitioner asks whether it
may aggregate the activities and employees of two majority owned partnerships for purposes of
satisfying the principally used and employment tests of the New York State (“NYS”) Investment
Tax Credit (“ITC”). 1
We conclude that Petitioner may aggregate the activities and employees of two majority
owned partnerships for purposes of satisfying the principally used and employment tests of the
NYS ITC for the reasons set forth below.
Facts
According to the petition, Petitioner is a corporation that indirectly owns 98.7 % of the
interests of REDACTEDREDACTED (“Partnership A”), and 92.9% of the interests of
REDACTEDREDACTEDREDACTED (“Partnership B”). Partnership A is a limited partnership
for federal and NYS tax purposes. Partnership B is a limited liability company treated as a
partnership for federal and NYS tax purposes.
Through
a
disregarded
entity,
Partnership
A
indirectly
owns
REDACTEDREDACTEDREDACTED (“SMLLC #1”), a single member limited liability
company (“SMLLC”) that is disregarded for federal and NYS tax purposes. SMLLC #1 is an
SEC-registered broker-dealer. Partnership B directly owns 100% of REDACTED (“SMLLC

2”), also a SMLLC that is disregarded for federal and NYS tax purposes and is a Securities and

Exchange Commission (“SEC”) -registered broker-dealer.
Partnership A has purchased and placed in service property that is used by employees of
both Partnership A and Partnership B in the ordinary course of their broker-dealer businesses in
connection with the purchase or sale of stocks, bonds, or other securities, or of commodities.
Based on their activities in New York and the activities of their disregarded broker-dealer
entities (SMLLC #1 and SMLLC #2), Partnership A and Partnership B each file in New York a
Form IT-204, Partnership Return. Petitioner is subject to the NYS franchise tax under Article 9A and reports its proportionate share of the partnership activities of both Partnership A and
Partnership B. With respect to its interests in Partnership A and Partnership B, Petitioner
computes its franchise tax using the aggregate method.
1

While Petitioner does not specify as to which taxable year the question is asked, Petitioner does explicitly refer to
New York Tax Law § 210(12) in its Preliminary Statement and elsewhere in the petition. Therefore, this advisory
opinion will reference the provisions of Article 9-A as they were in effect on December 31, 2014, and it is assumed
that the questions asked concern a tax year that began prior to January 1, 2015.

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Analysis
According to New York Tax Law § 210(12)(a), a qualifying taxpayer shall be allowed an
ITC against the tax imposed by Article 9-A. The amount of the credit is a percentage of the
taxpayer’s investment credit base, defined as the cost or other basis for federal income tax
purposes of tangible personal property and other tangible property, including buildings and
structural components of buildings, less the amount of the nonqualified nonrecourse financing
with respect to such property to the extent such financing would be excludible from the credit
base pursuant to Internal Revenue Code (IRC) § 46(c)(8).
Tax Law § 210(12)(b)(i) further defines the property qualifying for the ITC as including,
as pertinent to this petition, buildings and structural components of buildings, that:
(1) are depreciable pursuant to IRC § 167;
(2) have a useful life of four years or more;
(3) are acquired by purchase as defined in IRC § 179(d);
(4) have a situs in NYS; and
(5) are principally used in the ordinary course of the taxpayer’s trade or business
as a broker or dealer in connection with the purchase or sale of stocks, bonds
or other securities as defined in IRC § 475(c)(2), or of commodities as defined
in IRC § 475(e).
This fifth requirement for ITC property is the “use” test at issue in this petition.
Tax Law § 210(12)(b)(i) also provides that the ITC, otherwise available to a taxpayer
using qualified property in the ordinary course of the taxpayer’s trade or business as a broker or
dealer in connection with the purchase or sale of stocks, bonds or other securities, or of
commodities, shall not be allowed unless:
(1) 80% or more of the employees performing the administrative and support
functions 2 resulting from or related to the qualifying uses of such equipment
are located in NYS;
(2) the average number of employees that perform the administrative and support
functions resulting from or related to the qualifying uses of such equipment
and are located in NYS during the taxable year for which the credit is claimed
is equal to or greater than 95% of the average number of employees that
perform these functions and are located in this state during the thirty-six
months immediately preceding the year for which the credit is claimed; or
(3) the number of employees located in NYS during the taxable year for which
the credit is claimed is equal to or greater than 90% of the number of
employees located in this state on December 31st, 1998 or, if the taxpayer was
not a calendar year taxpayer in 1998, the last day of its first taxable year
ending after December 31st, 1998. 3

2

As pertinent to this petition, employees performing administrative support functions include all employees other
than the brokers or dealers engaged in the purchase or sale of stocks, bonds, other securities, or of commodities.
TSB-M-98 (08)C.
3
If the taxpayer becomes subject to tax in this state after the taxable year beginning in 1998, then the taxpayer is not
required to satisfy the employment test provided for its first taxable year. The employment test instead will be based

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These are the three “employment tests,” only one of which must be satisfied for a taxpayer to
qualify for the ITC. 4
Petitioner asserts that, for purposes of the questions presented by this petition, the
property purchased and placed in service by Partnership A, as described above, meets each of the
first four requirements listed above for ITC-qualified property and the only issue presented, on
the question of whether or not this property is ITC-qualified property, is whether the property is
principally used in the ordinary course of the taxpayer’s trade or business as a broker or dealer in
connection with the purchase or sale of stocks, bonds or other securities, or of commodities. In
this regard, Petitioner requests a determination that Petitioner may aggregate the activities of the
employees of Partnership A and Partnership B to meet this fifth requirement of ITC-qualified
property. Implicit in making this determination, however, are the necessary conclusions, or not,
that Petitioner may be considered to be in the trade or business of a broker or dealer in
connection with the purchase or sale of stocks, bonds or other securities, or of commodities; and
that Petitioner may be considered to have purchased the property placed in service. The final
question is whether Petitioner may aggregate the employees of Partnership A and Partnership B
to meet one of the employment tests.

May Petitioner be considered to be in the trade or business of a broker or dealer in connection
with the purchase or sale of stocks, bonds or other securities, or of commodities?
In order to qualify for the ITC, Petitioner must be considered to be a “registered securities
or commodities broker or dealer.” Tax Law § 210(12)(b)(i). A registered securities or
commodities broker or dealer is a broker or dealer that is registered with the SEC or the
Commodities Futures Trading Commission. See TSB-M-00(5)C. Under the facts presented,
Petitioner itself is not registered with either of those commissions. However, the SMLLCs
identified in the Petition, which are owned indirectly by Petitioner through partnerships, are
registered with the SEC.
A SMLLC that is treated as an entity disregarded from its single member for federal tax
purposes will be disregarded for State tax purposes as well. See 26 CFR § 301.7701-3(b)(1)(ii);
NYS Tax Publication 16. When a partnership is the single member of a SMLLC, the SMLLC is
treated as a part of the partnership. Thus, as Partnership B is the single member of SMLLC #2,
SMLLC #2 is treated as a part of Partnership B. See TSB-A-13(11)C. The Department has
concluded that certification under the Empire Zones Program of a SMLLC that is a disregarded
entity treated for tax purposes as a division of its single member is treated as the certification of
the single member. See TSB-A-12(6)C. This type of conclusion has been extended to the
registration of broker-dealers with the SEC. TSB-A-13(11)C. Thus, if a SMLLC that is treated
for tax purposes as a disregarded entity is a registered broker-dealer, its single member should be
treated as a registered broker-dealer. Therefore Partnership B should also be treated as a brokeron the number of employees located in New York State on the last day of the first taxable year the taxpayer is
subject to tax in this state.
4
Notwithstanding references in the statute to “such equipment”, TSB-M-98 (08)C clarifies that the employment
tests also contemplate qualifying uses of buildings and structural components of buildings which satisfy the
elements for ITC-qualifying property found in Tax Law § 210(b)(i).

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January 11, 2016

dealer. A similar analysis leads to the conclusion that Partnership A should also be treated as a
broker-dealer because SMLLC #1 is a SMLLC and Partnership A owns 100% of SMLLC #1
through an affiliate that is also a disregarded entity. As both SMLLC #1 and this affiliate are
disregarded entities, SMLLC #1 ultimately should be treated as a part of Partnership A. This
analysis does not, however, directly apply to Petitioner because neither Partnership A nor
Partnership B are SMLLCs or disregarded entities, and Petitioner does not own 100% of either
Partnership A or Partnership B.
Nevertheless, Section 3-13.1 of the Corporate Franchise Tax Regulations states that “a
taxpayer that is a partner in a partnership shall compute its tax with respect to its interest in such
partnership under the aggregate method or entity method, whichever applies” according to the
rules in § 3-13.2 of the regulations. 20 NYCRR 3-13.1(a). Taxpayers with more than a 5%
interest in a partnership are required to use the aggregate method unless they are unable to access
the information necessary to compute their tax using this method. 20 NYCRR 3-13.2. When
using the aggregate method, “a corporate partner is viewed as having an undivided interest in the
partnership’s assets, liabilities and items of receipts, income, gain, loss and deduction. Under the
aggregate method, the partner is treated as participating in the partnership’s transactions and
activities.” 20 NYCRR 3-13.a (b). An Article 9-A taxpayer that uses the aggregate method to
calculate its tax with respect to its interest in a partnership must use “its distributive share of the
partnership’s receipts … within and without NYS … in computing its business allocation
percentage.” 20 NYCRR 4-6.5(a)(1). To do so, the taxpayer must calculate its receipts factor by
adding its own business receipts within NYS to its distributive share of the partnership’s receipts.
A taxpayer that is a corporate partner in a partnership that is a registered broker-dealer would
utilize the allocation rules for registered security brokers and dealers provided for under Tax Law
§ 210.3(a)(9) for its distributive share of the receipts from the partnership. 5 Section 4-4.7(c). In
sum, a taxpayer that is a corporate partner in a partnership that is a registered broker-dealer will
be deemed to be a registered broker-dealer for purposes of qualifying for the ITC. TSB-A13(11)C. In this matter, Petitioner is a corporate partner in both Partnership A and Partnership B,
which are both deemed to be registered broker-dealers. Petitioner also uses the aggregate method
with respect to its interests in Partnership A and Partnership B to compute its franchise tax.
Therefore, under this analysis, Petitioner is deemed to be a registered broker-dealer (and thus
considered to be in the trade or business of a broker or dealer in connection with the purchase or
sale of stocks, bonds or other securities, or of commodities) solely for purposes of the ITC for its
allocable share of the cost or other basis of the property put in service by Partnership A,
assuming this property is ITC-qualified property. 6

May Petitioner be considered to have purchased the property placed in service?
As stated in the petition and above, Partnership A purchased the property placed in
service as to which Petitioner seeks the ITC. In TSB-A-87(9)C, one of the issues raised for
purposes of Article 9-A of the Tax Law was whether or not a corporate partner of a partnership
5

But only for its distributive share of the receipts from the partnership; the taxpayer could not use the allocation
rules for registered security brokers and dealers for its own business receipts that are not part of the distributive
share of the receipts from the partnership.
6
This portion of this advisory opinion does not extend beyond this specific conclusion under the facts presented and
questions posed in the petition.

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would be able to claim its allocable share of the cost or other basis of tangible personal property
for purposes of the ITC pursuant to Tax Law § 210.12(a) where the partnership purchased the
tangible personal property that otherwise qualified for the credit. One requirement at issue was
whether the property qualifying for the investment tax credit was “acquired by the taxpayer” by
purchase as defined in IRC § 179(d), notwithstanding that the petitioner was a corporate partner
of a partnership that actually purchased the property. The Department concluded that tangible
property that a partnership purchases, as defined in IRC § 179(d), is deemed to be purchased by
each partner to the extent of the partner's allocable or pro rata share of the partnership’s property.
Accordingly, tangible property that is deemed to be purchased by a corporate partner pursuant to
IRC § 179(d) will be deemed to be acquired by purchase for purposes of Tax Law § 210.12(b).
Therefore, Petitioner here may be considered to have purchased the property placed in service by
Partnership #1 for purposes of qualifying for the ITC.

May Petitioner aggregate the activities of the employees of Partnership A and Partnership B to
establish that the property put in service by Partnership A is principally used in the ordinary course
of Petitioner’s trade or business as a broker or dealer in connection with the purchase or sale of
stocks, bonds or other securities, or of commodities?
According to Tax Law § 210(12)(b)(i), property purchased by a taxpayer affiliated with a
regulated broker-dealer is allowed an ITC if the property is principally used by its affiliated
regulated broker-dealer in the ordinary course of the trade or business as a broker or dealer in
connection with the purchase or sale of stocks, bonds or other securities, or of commodities. Tax
Law § 210(12)(b)(i) further provides, in pertinent part, that, for purposes of determining if the
property is principally used in qualifying uses, the uses by the taxpayer and its affiliated
regulated broker-dealer in the ordinary course of the trade or business as a broker or dealer in
connection with the purchase or sale of stocks, bonds or other securities, or of commodities may
be aggregated.
In this case, as discussed and qualified above, Petitioner may be considered to have
purchased the property placed in service by Partnership A and is deemed to be a registered
broker-dealer. Therefore, under Tax Law § 210(12)(b)(i), Petitioner may aggregate its uses of the
property and the uses of the property of its affiliated regulated broker-dealers for purposes of
determining if the property is principally used in the ordinary course of the its trade or business
as a broker or dealer in connection with the purchase or sale of stocks, bonds or other securities,
or of commodities. This is in accord with TSB-A-87(9)C, wherein it was concluded that the New
York State Legislature intended, through the legislation enacting the ITC, that a corporate
partner of a partnership would be allowed its allocable share of the cost or other basis of
qualifying tangible personal property where the property qualifying for the credit was purchased
by the partnership. In reaching this conclusion, TSB-A-87(9)C approved the pass-through to the
corporate partner of the principal uses of the qualifying property.
Therefore, Petitioner may aggregate the activities of the employees of SMLLC #1 and
SMLLC #2, to the extent those particular activities are qualifying uses of the property. In order
to satisfy the use test, the aggregated qualifying activities of the employees of SMLLC #1 and
SMLLC #2 must constitute more than 50% of the total use of the property placed in service by
Partnership A. See 20 NYCRR 5-2.4 (principally used means more than 50%). In this regard, a

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building is “principally used” for qualifying activities if more than 50% of the usable business
floor space is used in qualifying activities. TSB-A-10(9)C.

May Petitioner aggregate the employees of Partnership A and Partnership B to satisfy one of the
three employment tests?
According to Tax Law § 210(12)(b)(i), a taxpayer shall not be allowed the ITC in
connection with ITC-qualified property principally used in the ordinary course of the taxpayer’s
trade or business as a broker or dealer in connection with the purchase or sale of stocks, bonds or
other securities, or of commodities, unless one of the three employment tests described above is
satisfied. Tax Law § 210(12)(b)(i) additionally provides, in pertinent part, that if the uses of the
property in question must be aggregated to determine whether the property is principally used in
qualifying uses, then either each affiliate using the property must satisfy an employment test or
an employment test must be satisfied through the aggregation of the employees of the taxpayer
and its affiliated regulated broker-dealer(s).
As the Partnership A and Partnership B broker-dealer uses of the property put in service
by Partnership A may be aggregated to determine whether the property is principally used in
qualifying uses, an employment test may be satisfied through the aggregation of the employees
of Partnership A and Partnership B insofar as they are employees of SMLLC #1 and SMLLC #2.
Once again, this is because the employees of SMLLC #1 and SMLLC #2 are deemed to be the
employees of Partnership A and Partnership B because SMLLC #1 and SMLLC #2 are
disregarded entities and Partnership A and Partnership B are deemed to be broker-dealers based
on the status of SMLLC #1 and SMLLC #2 as registered broker-dealers. For the first two of the
employment tests set forth above, only employees performing the administrative and support
functions resulting from or related to the qualifying uses of the property may be aggregated.

DATED: January 11, 2016

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.