Does a pension from the Battery Park City Parks Conservancy Corporation, a subsidiary of a public benefit corporation, qualify for New York's public-employee pension subtraction?
Plain-English summary
A retired horticulturist received pension income from a plan tied to his job at the Battery Park City Parks Conservancy Corporation (BPCPCC) - a nonprofit wholly owned and controlled by the Battery Park City Authority (BPCA), a public benefit corporation created by the Legislature. He asked whether his pension qualifies for the public-employee pension subtraction under Tax Law § 612(c)(3)(i) (pensions of "this State, its subdivisions, and agencies").
The Office of Counsel concluded yes. Applying the "particularized analysis" the Tax Appeals Tribunal used in Matter of Jackson (for MABSTOA, a public-benefit-corporation subsidiary), it found BPCPCC exists solely to carry out a governmental function (operating Battery Park City's parks), is funded over 99% by BPCA, and shares BPCA's purpose and control. So its employees are employees of the State for § 612(c)(3) purposes. Because the benefits related to his public service and BPCPCC actually contributed to the pension (20 NYCRR 112.3(c)(1)), the pension is fully subtractable.
What this means for you
Retirees of public authorities and their subsidiaries
A pension from a quasi-governmental entity can qualify for New York's full public-pension subtraction even if your employer was a nonprofit subsidiary - what counts is whether the entity is really an arm of the State, judged on its purpose, control, funding, and overlapping functions.
Accountants and tax preparers
Don't assume a nonprofit or "authority subsidiary" employer disqualifies the § 612(c)(3)(i) subtraction. Run the Jackson factors (governmental purpose, State control, funding, identity of function) and confirm the government actually contributed to the plan.
Common questions
Q: My employer was a nonprofit, not "the State" - does that automatically disqualify me?
A: No. Public benefit corporations and their subsidiaries have a "hybrid" character; a particularized analysis can treat them as the State for the pension subtraction.
Q: What contribution requirement applies?
A: The benefits must relate to your public service and be actually (not merely deemed) contributed by the government entity - both were satisfied here.
Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.
Citations and references
Statutes and regulations:
- Tax Law § 612(c)(3)(i); § 611(a); § 612(c)
- 20 NYCRR 112.3(c)(1)
- Matter of Jackson, Matter of Byrne, Matter of Langlan (Tax Appeals Tribunal)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2017.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a17_4i.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Counsel
TSB-A-17(4)I
Income Tax
October 10, 2017
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO - I150626A
The Department of Taxation and Finance received a Petition for Advisory Opinion from
Redacted Redacted Redacted Redactedre (together, the “Petitioner”1). Petitioner asks whether the
Petitioner qualifies for the subtraction modification under Tax Law § 612(c)(3)(i) for the pension
payments he received from his employment at Battery Park City Parks Conservancy Corporation
(“BPCPCC”). We conclude that BPCPCC is considered to be part of “this State, its subdivisions
and agencies” for purposes of the subtraction modification under Tax Law § 612(c)(3)(i) and
Petitioner’s pension payments from BPCPCC may be subtracted from federal adjusted gross
income in accordance with that section.2
Facts
Petitioner was employed by BPCPCC as a horticulturist and maintained the planted area of
the parks and open spaces of Battery Park City. Petitioner retired from BPCPCC in July 2013. In
2014, Petitioner received pension income from the Cultural Institutions Retirement System
(“CIRS”) Pension Plan of which BPCPCC was a participating employer.3 The purpose of the
pension plan was to provide covered employees with a retirement annuity upon retirement. Only
employees hired and maintaining a position at BPCCPP could accumulate benefits in the CIRS
Pension Plan. BPCPCC fully contributed to the pension payments paid to and received by the
Petitioner.
BPCPCC is a nonprofit corporation wholly owned by the Battery Park City Authority
(“BPCA”).
BPCA is a public benefit corporation created by the State Legislature through the
passage of the Battery Park City Authority Act4 (“the Act”). BPCA’s powers are provided by and
The question in the case involves the pension income of Thomas J. Birch and all references to “petitioner” shall refer
to Thomas J. Birch unless otherwise indicated.
2
This opinion relates only to former employees of BPCPCC that were part of the Cultural Institutions Retirement
System (“CIRS”) Pension Plan as it existed prior to BPCPCC’s consolidation of operations with BPCA.
3
At fiscal year-end, October 31, 2015, BPCPCC withdrew from the CIRS Plan, and all BPCPCC employees are now
employees of BPCA who, for retirement benefits and to the extent eligible, joined the New York State and Local
Retirement System. The consolidation of BPCPP operations with those of BPCA, including BPCPCC’s withdrawal
from the CIRS Plan and transfer of employees of BPCPCC to BPCA (the “Consolidation of Operations”), was
undertaken for purposes of operational efficiency. The advisory opinion requested by the Petition remains relevant
because the Petitioner has received and will receive pension payments under the CIRS Plan in connection with his
prior employment by BPCPCC. Petitioner states that BPCPCC still exists; it has neither been liquidated, dissolved nor
otherwise had its existence terminated.
4
Codified as Public Authorities Law §§ 1970–1988.
1
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enumerated in the Act, and its corporate existence continues until terminated by law.
terminated, all rights and properties of BPCA vest in the State.
If
BPCA was created to develop and improve, in cooperation with the City of New York and
the private sector, the area on the lower west side of Manhattan known as Battery Park City. The
Act prescribes the development and improvement of a mixed commercial and residential planned
community with utilities systems and civic and public facilities such as schools, open public
spaces, recreational and cultural facilities. The Act states that the development is necessary for the
prosperity and welfare of the people of New York City and the State, and the powers and duties of
BPCA are necessary and proper for the purpose of achieving these results. Petitioner states that
BPCA is a participating employer in the New York State & Local Retirement System.
BPCA owns, manages, and supervises Battery Park City. Under certain mapping
agreements between BPCA and the City of New York, BPCA is obligated: 1) to maintain and
repair, or to cause to be maintained and repaired, substantial parks and public open spaces within
Battery Park City; 2) to establish a fund or funds for maintenance and operation of the parks and
open spaces; and 3) to require ground lessees (“lessees”) of certain residential properties to make
periodic contributions to the funds. Under the ground leases between the lessees and BPCA,
BPCA has the right to transfer its maintenance obligations to a trust or other entity subject to the
reasonable approval of the Lessees. BPCA’s obligation for maintaining and repairing the parks
and open spaces continues unless and until the City exercises its right to reacquire the Battery Park
City Site, and with it the parks and open spaces, pursuant to certain agreements between the City
and BPCA; the City and the New York State Urban Development Corporation (“UDC”), a state
agency; the City, UDC and the Battery Park City Development Corporation (“BPCDC”), a whollyowned subsidiary of UDC; and UDC, BPCDC and BPCA. If the City exercises its right to
reacquire, the City will succeed to all the rights and obligations of BPCA with respect to the parks
and open spaces described below.
BPCA established the Parks and Open Space Operating Corporation (“POSOC”), now
renamed BPCPCC,5 under the New York Not-for-Profit Corporation Law. The Certificate of
Incorporation (as last amended in 1991) states that the purposes for which BPCPCC is formed are
to support and benefit the State of New York directly and indirectly by performing the functions of
government as set forth in section 1974 of the Act, particularly by providing parks, playgrounds,
buildings and other spaces within Battery Park City for use by the general public and by
maintaining and operating the parks, playgrounds, street trees, curb areas and other public features
and areas within Battery Park City, including the provision of such services necessary to make
such open spaces available to the public.
POSOC’s name was amended to the Battery Park City Parks Corporation (“BPCPC”) and further amended to
BPCPCC, its current name.
5
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The Certificate of Incorporation states that BPCPCC is not organized for profit and its net
earnings will not benefit any director, officer, employee or person connected with the Corporation.
Also, in the event BCPPCC is liquidated, dissolved or otherwise ceases to exist, its property or
assets shall be distributed only to a New York State or New York City fund, agency, public benefit
corporation or other instrumentality or entity that is created by the State to provide for the
maintenance or operation of the parks. If no such entity exists, then its assets and property shall be
distributed to another organization qualifying under IRC § 501(c)(3) to be used for purposes
similar to the those of BPCPCC.
BPCPCC is exempt from federal income tax under IRC §
501(a) as an organization described in IRC § 501(c)(3).
BPCPCC is managed by a board of directors. The Bylaws of BPCPCC require that all
directors concurrently serve as members of BPCA. Currently, the President and Chief Operating
Officer of BPCA serves as the same officer of BPCPCC. Any director of BPCPCC may be
removed by BPCA, at any time, with or without cause.
Through several management agreements between BPCA and BPCPCC that existed prior
to the consolidation of operations between BPCA and BPCPCC,6 BPCA authorized BPCPCC to
undertake all responsibilities and services related to the operation, management, maintenance,
repair, restoration, replacement, upgrade and security of the parks and open spaces. BPCPCC
provided all services including: 1) the removal of litter, rubbish, snow, ice and obstructions; 2)
landscaping; 3) removal of graffiti; and 4) routine cleaning and maintenance.
The Management Agreements indicated that future control of BPCPCC could be
transferred by BPCA to the lessees, acting as a group, or by the City’s exercise of its right to
reacquire all assets of BPCA, including the Battery Park City Site that included the Parks and
Open Spaces under the Mapping Agreement. However, the lessees did not have a unilateral right
to effectuate such a transfer and BPCA maintained sole governing control of BPCPCC. Also,
Petitioner states that it is highly unlikely that the City would exercise its right to reacquire control
of BPCA, and with it BPCPCC, because exercising that right requires the City to redeem or cause
the defeasance of all outstanding BPCA indebtedness.
Under the Management Agreements, BPCPCC’s activities, including its budgetary process,
were monitored and controlled by BPCA. BPCPCC was required to adopt an annual budget that
was reviewed and approved by BPCA, and to maintain and submit to BPCA detailed financial and
operational records. If BPCA did not approve the budget submitted and resubmitted by BPCPCC,
BPCA in its sole discretion could establish an annual budget. Also, BPCA was allowed to request
an audit of BPCPCC at any time upon the delivery of written notice. BPCA’s financial reporting
comprises the financial reporting for both itself and BPCPCC, and its assets, liabilities, and results
of operations are combined with the operations of BPCA for financial reporting purposes.
6
The Management agreements were terminated as a result of the consolidation of operations between BPCPCC and
BPCA.
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BPCA heavily subsidizes BPCPCC’s operations by providing the majority of funds for its
operating budget. The three main funding sources are: 1) revenues generated by BPCPCC from
miscellaneous programming and events; 2) Civic Facilities Maintenance payments from leases and
certain commercial leases assigned by BPCA to BPCPCC under the Management Agreements; and
3) additional funds provided by BPCA. Historically these payments represented approximately
1%, 66%, and 33% respectively of BPCPCC’s operating budget.
BPCA maintained functional control over BPCPCC under the Management Agreements.
The Agreements required that: 1) all major alterations to the parks and open spaces be approved by
BPCA; 2) any licensing agreement entered into by BPCPCC for concessions and visitor Services
could be revoked by BPCA; 3) any sublicense arrangement for concessions and visitor Services be
subject to prior written approval and certain termination rights of BPCA; and 4) all rules and
regulations governing the public use of, and behavior in, the parks and open spaces be approved by
BPCA. BPCA also prescribed operating standards for the parks and open spaces and the
procedures for concessions and visitor services. Finally, the Management Agreements restricted
BPCPCC from assigning or otherwise encumbering the Management Agreements and from
settling any losses connected with the damage or destruction of the parks and open spaces without
BPCA’s consent.
The Management Agreements provided BPCPCC with the sole and exclusive right and
power to select, appoint, employ, direct, supervise, control, remove, discipline and discharge all
persons employed by BPCPCC in any of its activities in connection with the parks and open
spaces. However, the President/Chief Operating Officer of BPCPCC was subject to BPCA
approval, and it was considered an event of default under the Management Agreement for
BPCPCC to allow the President/Chief Operating Officer to continue in office if BPCA had given
notice to BPCPCC that such person was no longer satisfactory.
Analysis
The New York taxable income of a resident individual shall be his or her New York
adjusted gross income less his or her New York deductions and New York exemptions. Tax
Law § 611(a). Tax Law § 612 provides that the New York adjusted gross income of a resident
individual is his or her federal adjusted gross income with certain modifications.
Tax Law §
612(c)(3)(i) provides that, to the extent includible in gross income for federal income tax
purposes, pensions paid to officers and employees of “this State, its subdivisions, and agencies”
will be subtracted from an individual’s adjusted gross income. New York Tax Regulation
112.3(c)(1) provides that pensions and other retirement benefits (including but not limited to
annuities, interest and lump sum payments) paid to a public employee will qualify for the
exemption pursuant to Tax Law § 612(c)(3)(i) if the benefits relate to the services performed by
the public employee and all or a portion are actually contributed (rather than merely deemed
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contributed) by New York State, its political subdivisions or agencies. Therefore, in order to be
able to claim the income exclusion above, an initial determination must be made as to whether
BPCPCC is considered New York State, or a subdivision or agency of New York State for
purposes of Tax Law § 612(c)(3)(i).
The terms State, subdivisions and agencies are not defined in Tax Law § 612(c)(3)(i) or the
regulations pertaining to that section. However, the Tax Appeals Tribunal has issued decisions in
cases involving a public benefit corporation subsidiary, and whether that subsidiary is considered
“the State, subdivisions and agencies” for purposes of the § 612(c)(3)(i) subtraction modification.
See, Matter of Jackson (Tax Appeals Tribunal, March 5, 1998); Matter of Byrne (Tax Appeals
Tribunal, March 26, 1998); Matter of Langlan (Tax Appeals Tribunal, September 7, 1997).
In Matter of Jackson (Tax Appeals Tribunal, March 5, 1998), the Tribunal used a
particularized analysis inquiry when determining whether pension payments received by a former
employee of the Manhattan and Bronx Surface Transit Operating Authority (“MABSTOA”)
qualified for the subtraction modification. MABSTOA, a public benefit corporation subsidiary of
the New York City Transit Authority (“Transit Authority”), a public benefit corporation, was
created to operate bus lines that were acquired by the City of New York through condemnation
proceedings. Its enabling statute required that MABSTOA’s directors be the chairman and
members of the Transit Authority, and MABSTOA was given the majority of powers vested in the
Transit Authority.7
The Tribunal noted that courts have recognized that public benefit corporations and public
authorities have a hybrid character and qualities of both private corporations and State
instrumentalities. These dual qualities can result in treatment as either a private corporation or the
State under different facts and circumstances. The Tribunal concluded that the proper analysis for
determining whether MABSTOA, a public benefit corporation subsidiary, should be treated as a
private corporation or the state considers the nature of the instrumentality and the statute claimed
to be applicable to it. The Tribunal determined that: 1) the public transportation provided by
MABSTOA is a public service, and the profits of that service inure to the benefit of the State; 2)
MABSTOA, as a subsidiary of the Transit Authority, implements the Transit Authority’s goals and
purposes under its direct management and direction; 3) the Transit Authority and MABSTOA have
overlapping powers and functions and a free transfer of funds between the entities; and 4) the
identity of functions between the entities indicates that the two entities share the same purpose, to
7
These powers include: to sue and be sued; to have a seal; to acquire, hold and use equipment; to acquire real property
by purchase or condemnation; to receive grants of money or assistance from any person, government or agency; to
make rules and regulations for its organization and management; to make rules for the regulation of its transit
facilities; to retain counsel, engineers and private consultants for technical services; to use officers and employees of
the city; to make contracts, leases and conveyances; to surrender to the city property no longer required by it; to rent
space and grant concessions on or in any of its facilities; to exercise authority to manage, control, and direct the
maintenance and operation of the transit facilities transferred to it; and to do all things necessary to carry out its
purposes.
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benefit the people of New York State, a governmental function. The Tribunal concluded that the
employees of MABSTOA were employees of the State, its subdivisions and agencies for purposes
of the Tax Law § 612(c)(3).
In this case, BPCPCC was formed under the Not-for-Profit Corporation law as a wholly
owned subsidiary of BPCA, a public benefit corporation. Although the particularized inquiry
analysis in Jackson was used to analyze the treatment afforded to a public benefit corporation
subsidiary (MABSTOA) of a public benefit corporation (the New York City Transit Authority),
the spirit of the inquiry supports its extension to BPCPCC, as BPCPCC was created solely to carry
out a public purpose and governmental function as the wholly owned and controlled subsidiary of
BPCA.
We conclude that the employees of BPCPCC are employees of the State, its subdivisions
and agencies for purposes of Tax Law § 612(c)(3). First, BPCPCC was created by BPCA for one
purpose, that is, to maintain and operate the parks and open spaces within Battery Park City.
Except for maintaining and operating the parks and open spaces, BPCPCC had no other functions
or powers. Secondly, BPCA was created by the Legislature to develop and improve Battery Park
City, including its parks and open spaces, for the prosperity and welfare of the people of New York
City and the State. As its wholly-owned subsidiary, BPCPCC assisted BPCA in carrying out its
mandated duties under the Act for the benefit of the public. BPCA achieved this assistance
through its detailed Management Agreements with BPCPCC and its direct organizational,
operational, and functional control of BPCPCC. Third, BPCA and BPCPCC had overlapping
powers and functions in that both entities were required to maintain and operate the parks and open
spaces in Battery Park City. BPCA’s powers and duties are set forth in the Act and those powers
and duties were carried out by BPCPCC through the Management Agreements between the two
entities. Furthermore, the majority of funds (over 99 percent) used by BPCPCC to maintain and
operate the parks and open spaces were provided by BPCA. Finally, the identity of functions
between BPCA and BPCCPP indicates that the two entities shared the same purpose, namely to
operate and maintain the parks and open spaces for the people of New York, a governmental
function.8
To qualify for the subtraction modification under Tax Law § 612(c)(3)(i), the
pension benefits also must: 1) relate to the services performed by the public employee; and 2) all
or a portion of those benefits must be contributed (rather than merely deemed contributed) by New
York State, its political subdivisions or agencies. 20 NYCRR 112.3(c)(3)(i). An indicated above,
the purpose of BPCPCC’s pension plan was to provide covered employees with a retirement
annuity upon retirement. Also, only BPCPCC employees that were hired and maintained a
position at BPCPCC could accumulate benefits in the pension plan. Therefore, BPCPCC’s
8
We express no opinion whether in the event control of BPCPCC shifted to private interests or the City of New York,
benefit payments attributable to services rendered after such change in control would qualify under Tax Law §
612(c)(3)(i).
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pension plan benefits paid to Petitioner are related directly to his service as a public employee.
Secondly, as BPCPCC contributed to the pension payments paid to and received by Petitioner, the
pension plan satisfies the requirement that all or a portion of the pension benefits are actually
contributed by the State, its political subdivisions or agencies.
Accordingly, based on the facts presented, the pension benefits received by
Petitioner qualify for the subtraction modification under Tax Law § 612(c)(3)(i) and may be
subtracted from his federal adjusted gross income.
DATED: October 10, 2017
/S/
DEBORAH R. LIEBMAN
Deputy Counsel
NOTE:
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.