An out-of-state bank stations a representative in New York and plans to open a loan production office here -- one that solicits loans, gathers credit information, and does appraisals, but doesn't approve loans, disburse funds, or accept deposits (all of that happens back at the bank's home state). Does this create New York franchise tax liability, under either the banking-corporation tax or the general business-corporation tax?

Plain-English summary

Lloyds Bank California, chartered in California with its principal offices in Los Angeles, stationed a representative in New York City and planned to open a New York loan production office. The representative's work -- developing secured and unsecured loans, developing leasing business, and selling related business services -- doesn't itself function as a bank branch. The planned loan production office would go further: originating (soliciting) loans, assembling credit information, performing property inspections and appraisals, and handling other services incident to securing loans. Critically, though, all loans and leases would still be APPROVED in California, all funds DISBURSED from California, and all payments DUE in California -- none of the money-moving or decision-making steps would happen in New York.

The Banking Department's own Supervisory Policy CB 121 draws a bright line for exactly this situation: a "representative" and a "loan production office" are both non-banking-business functions, so long as the office doesn't approve loans, disburse funds, or accept deposits or loan repayments -- activities limited to soliciting loans, gathering credit information, doing appraisals, preparing loan applications, and similar "agent-type" activities don't cross into actually "doing a banking business" in New York under Tax Law § 1452(b). Because Petitioner's described activities fit squarely within that non-banking description, the Department concluded Petitioner would not be "doing a banking business" in New York and would not owe the Article 32 Franchise Tax on Banking Corporations.

That answer also resolved the Article 9-A question. Under Matter of Central Park Plaza Corp. v. Bates, a corporation is treated as a single entity for purposes of deciding which franchise tax article applies to it, and the Department has long taken the position (per a 1973 Letter of Counsel) that it will not treat a foreign banking corporation as separately taxable under the general Article 9-A business-corporation tax based only on its particular in-state activities. Having resolved Petitioner's liability by applying Article 32's rules, the Department did not separately subject Petitioner to Article 9-A.

What this means for you

Out-of-state banks scoping a New York presence

If you're structuring a New York representative office or loan production office, keeping loan approval, fund disbursement, and payment processing entirely outside New York -- consistent with Banking Department Supervisory Policy CB 121's definitions -- can keep you outside both the Article 32 banking tax and the Article 9-A business tax. Crossing into approval, disbursement, or deposit-taking activities in New York would likely change this analysis.

Banks are analyzed as a single entity across tax articles

This ruling illustrates that New York decides which franchise tax article governs a corporation (Article 32 banking tax versus Article 9-A general business tax) as a threshold, all-or-nothing question based on the nature of the entity and its activities -- it doesn't look at particular activities to potentially impose the OTHER article's tax once the primary article's analysis is resolved.

Common questions

Q: Does stationing a representative in New York automatically create bank franchise tax liability?
A: Not if the representative's activities stay within Supervisory Policy CB 121's definition of a "representative" or "loan production office" -- non-banking functions like solicitation, credit-gathering, and appraisals, without loan approval, fund disbursement, or deposit-taking.

Q: If a bank isn't taxable under Article 32, could it still owe the general Article 9-A tax on the same New York activities?
A: Under this ruling's reasoning, no -- the Department treats a banking corporation as a single entity resolved under Article 32's framework, and doesn't separately apply Article 9-A to the same activities once that determination is made.

Q: Can another out-of-state bank with a similar representative/loan-production setup rely on this Opinion?
A: No. It binds the Department only as to Lloyds Bank California's own facts and can't be relied upon by other taxpayers, even those with an apparently identical office structure.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 1451(a); § 1452(a)(2), (b) (Article 32 banking corporation tax and definitions)
• Banking Law § 200, Article 5 (foreign bank licensing)
• Supervisory Policy CB 121 (Banking Department, representative and loan production office definitions)
• Tax Law § 209.4 (Article 9-A exclusion for Article 32 taxpayers)
• Matter of Central Park Plaza Corp. v. Bates, 278 App. Div. 607, aff'd 303 N.Y. 694

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a82_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82(13)C
Corporation Tax
September 21, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C810716A

On July 16, 1981 a Petition for Advisory Opinion was received from Lloyds Bank California,
612 Flower Street, Los Angeles, California 90017.
At issue is whether a banking corporation organized under the laws of California would be
subject to either the Franchise Tax on Business Corporations imposed under Article 9-A of the Tax
Law or the Franchise Tax on Banking Corporations imposed under Article 32 of the Tax Law, as a
result of maintaining a representative within the State and of establishing a loan production office
in New York City.
Petitioner is a banking corporation chartered and organized under the laws of California.
Petitioner's principal place of business and chief executive offices are located in Los Angeles,
California.
Petitioner has stationed a representative in New York City and anticipates establishing an
office in New York for loan production' purposes. The Petitioner's representative is primarily
responsible for developing secured and unsecured loans, developing leasing business, and selling
other related business services. In the future, the personnel staffing the representative office will
originate loans, assemble credit information, make property inspections and appraisals, and perform
other services incident to securing loans. All loans and leases, however, will be approved in
California, all funds will be disbursed from California and all payments will be due in California.
Section 1451(a) of the Tax Law, contained in Article 32, provides, in pertinent part, for the
imposition of a tax on every banking corporation "exercising its franchise or doing business in this
state in a corporate or organized capacity . . .".
Section 1452(a)(2) of the Tax Law defines the term "banking corporation," in pertinent part,
to include "every corporation or association organized under the laws of any other state or country
which is doing a banking business in this state . . . . "
Section 1452(b) of the Tax Law, in pertinent part, defines the term "banking business" to
mean "such business as a corporation or association may be created to do under articles three, three­
b, five, five-a, six, seven and ten of the banking law, or any business which a corporation or
association is authorized by such articles to do."
Section 200 of the Banking Law, contained in Article 5 thereof, requires that foreign banks
be licensed by the Superintendent of Banks before they may transact any banking business in New
York, with certain exceptions not germane to the present matter. Supervisory Policy CB 121 of the
Banking Department describes two activities of foreign and other banks which would not constitute
ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

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TSB-A-82(13)C
Corporation Tax
September 21, 1982

the doing of the business of banking. These are the maintenance of a representative and the operation
of a loan production office. The term "loan production office" is defined in section 121.2(a) of the
aforementioned Supervisory Policy, as follows: "A loan production office is not a branch office of
a bank. Such an office may not approve loans; may not disburse funds; and may not accept deposits
or loan repayments. The activities of a loan production office shall be limited to the solicitation of
loans on behalf of the bank (or a branch thereof) and, in connection therewith, the assembly of credit
information, the making of property inspections and appraisals, the securing of title information, the
preparation of applications for such loans (including making recommendations with respect to action
thereon), the solicitation of investors to purchase loans from the bank, the search for such investors
to contract with the bank for the servicing of such loans, and engaging in other similar agent-type
activities (not to be confused with agency-type activities as defined by article V of the Banking
Law)."
Section 121.2(b) of the Supervisory Policy defines the term "representative,'' as follows: "A
representative does not function as the branch office of a bank but is any representative or service­
type division or subsidiary engaged in non-banking functions of a parent banking organization. The
activities of a representative may include but are not limited to: the solicitation of new business,
research, servicing home office needs, and acting as a liaison between the home office and its
customers in New York State. The representative shall be subject to all the restraints set forth in
section 121.2(a) on loan production offices."
Petitioner's representative's operations, consisting of developing secured and unsecured loans,
developing leasing business and selling related business services, appear to fall within the
description of non-banking functions contained in section 121.2(b) of the Banking Department's
Supervisory Policy CB 121.
The activities of the proposed loan production office, including the origination of loans (viz.,
the solicitation of loans), the assembling of credit information, the making of property inspections
and appraisals, as well as the performance of other services incident to the securing of loans, appear
to be within the ambit of those functions described in section 121.2(a) of Supervisory Policy CB 121.
Accordingly, if Petitioner's sole activities in New York consist of the maintenance of a
representative and the operation of a loan production office, within the meaning of Supervisory
Policy CB 121, and assuming that Petitioner is not otherwise required to obtain a license pursuant
to section 200 of the Banking Law, Petitioner would not be subject to the Franchise Tax on Banking
Corporations imposed under Article 32 of the Tax Law.
Article 9-A of the Tax Law imposes the Franchise Tax on Business Corporations, applicable
to foreign corporations which do business, employ capital, own or lease property in New York in a
corporate or organized capacity, or maintain an office in New York. Subdivision 4 of Section 209
of the Tax Law, contained in Article 9-A, provides that corporations liable to tax under Article 32

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TSB-A-82(13)C
Corporation Tax
September 21, 1982

of the Tax Law are not subject to tax under Article 9-A. It has been held that a corporation is to be
treated as a single entity for purposes of determining whether it is liable to tax under former section
182 or under Article 9-A of the Tax Law. (Former Section 182 imposed a franchise tax on real estate
corporations). Matter of Central Park Plaza Corp. v. Bates, 278 App. Div. 607, aff'd 303 N.Y. 694.
Recognizing this principle, the State Tax Commission has not sought to treat a foreign banking
corporation as taxable under Article 9-A based upon the particular activities conducted in this state
only. Accordingly, Petitioner's liability for tax has been effectively ruled upon herein by application
of the provisions of Article 32 of the Tax Law. See Letter of Counsel, November 14, 1973.

DATED: September 20, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau