Can a bank holding company's newly organized futures brokerage subsidiary apportion its income between New York and other states, based on maintaining a genuine office in another state (Chicago), even though the state hasn't written specific apportionment regulations for this kind of Article 32 taxpayer?

Plain-English summary

Manufacturers Hanover Corporation, a bank holding company taxed under Article 32, organized a new subsidiary, Manufacturers Hanover Futures, Inc. ("MHFI"), a Delaware corporation formed to act as a futures advisory and brokerage firm. MHFI would rent staffed offices in both Chicago and New York, executing futures contracts and giving investment advice to third-party clients (not trading for its own account). MHFI would meet the requirements to be taxed under Article 32 as a bank holding company subsidiary (Tax Law § 1452(a)(9)) and would file a consolidated return with its parent. Petitioner asked whether MHFI could apportion its income between New York and Illinois, rather than having 100% of it taxed by New York.

Article 32's own apportionment provision (Tax Law § 1454(a)) simply says multi-state income "shall be allocated under rules and regulations prescribed by the tax commission" -- but the Tax Commission had never actually written apportionment regulations under Article 32 itself. Instead, per a 1973 Department policy letter, the OLD regulations from Article 32's predecessors (Articles 9-B and 9-C, "Part 35") remain in effect by default wherever they don't conflict with Article 32. Those regulations define "doing business" as occupying or maintaining "an office, agency or branch where its functions are systematically and regularly carried on" -- and it's enough if that out-of-state office conducts SOME of the corporation's authorized functions "with a fair measure of permanency and continuity," not necessarily all of them.

There was a wrinkle: bank holding company subsidiaries like MHFI (added to Article 32 taxation under section 1452(a)(9)) didn't exist as a taxpayer category when Part 35 was written, and they're not addressed by TSB-M-78(23)C either, since they're not doing a BANKING business specifically. The Department bridged this gap by applying the same underlying concepts anyway: a section 1452(a)(9) taxpayer is "doing business" within or without New York if it has a permanent place of business regularly and systematically maintained, occupied, and used by its own employees who are regularly in attendance during normal business hours -- the same standard used for full-service banking offices.

Applying that standard (and assuming, without deciding, that MHFI is properly taxable under Article 32 at all), the Department concluded that if MHFI's own employees are regularly in attendance at its Chicago office during normal business hours, MHFI would be doing business both within and without New York and could apportion its entire net income accordingly under the old Part 35 regulations.

What this means for you

Bank holding company subsidiaries taxed under Article 32

Even though New York has no apportionment regulations written specifically for your entity type, you're not stuck paying tax on 100% of your income in New York. The old Articles 9-B/9-C "doing business" regulations still govern by default, and a genuinely staffed, regularly used out-of-state office -- even one that doesn't do a full banking business -- can support apportionment.

Multi-state financial services companies planning office footprints

The key factual driver here is whether your own employees are "regularly in attendance" at the out-of-state office "during normal business hours" -- a nominal or occasionally-used location likely won't satisfy this test. Structure and staff your out-of-state offices with this standard in mind if apportionment matters to your tax planning.

Common questions

Q: Does New York have apportionment regulations specifically written for bank holding company subsidiaries like MHFI?
A: No -- the Tax Commission has never promulgated regulations under Article 32's own apportionment provision (§ 1454), so the older Articles 9-B/9-C "Part 35" regulations continue to apply by default.

Q: What makes an out-of-state office sufficient to support apportionment?
A: A permanent place of business, regularly and systematically maintained, occupied, and used by the taxpayer's own employees who are regularly in attendance during normal business hours -- it's not necessary that the office perform all of the company's functions.

Q: Does this Opinion decide whether MHFI is actually taxable under Article 32?
A: No -- the Department explicitly assumed that threshold question without deciding it, focusing only on the apportionment question presented.

Q: Can another bank holding company subsidiary rely on this Opinion?
A: No. It binds the Department only as to Manufacturers Hanover Futures' own facts and cannot be relied upon by other taxpayers, even in a similar corporate structure.

Citations and references

Statutes, regulations, and memoranda:

• Tax Law § 1452(a)(9), § 1454(a)
• Articles 9-B/9-C regulations § 35.1, § 35.2(a)-(b)
• TSB-M-78(23)C

Date note: The document header reads "June 5, 1985," while the sign-off line reads "DATED: June 4, 1985" -- a one-day gap consistent with internal signing before the header/publication date; issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_8c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (8) C
Corporation Tax
June 5, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C840515A

On May 15, 1984 a Petition for Advisory Opinion was received from Manufacturers Hanover
Corporation, 270 Park Avenue, New York, New York 10017.
Manufacturers Hanover Corporation, a bank holding company and a taxpayer under Article
32 of the Tax Law, requested that its recently organized subsidiary Manufacturers Hanover Futures,
Inc. ("MHFI") be allowed to allocate its entire net income within and without New York State
pursuant to regulation section 35.2(a) and (b) which was promulgated pursuant to Articles 9-B and
9-C of the Tax Law, the predecessor to Article 32.
Petitioner presents the following statement of facts. MHFI is a Delaware corporation
organized on July 25, 1983 to act as a futures advisory and brokerage firm. MHFI will rent offices
in Chicago and New York. These offices will be authorized to execute futures contracts for third
parties and give related investment advice to third parties, but will not engage in any futures trans­
actions for MHFI's own account. MHFI will be staffed by its own employees who will perform
services exclusively for and be compensated exclusively by MHFI. MHFI will meet the requirements
of section 1452(a)(9) of Article 32 and will file a consolidated return with its parent, Manufacturers
Hanover Corporation.
Section 1454(a) of Article 32 states:
"If the taxpayer's entire net income is derived from business carried on both within
and without the state, the portion thereof which is derived from business carried on
within the state shall be allocated under rules and regulations prescribed by the tax
commission."
The Tax Commission, to date, has not promulgated regulations in accordance with section
1454 of Article 32. However, in a letter to Commerce Clearing House, Inc., dated February 26, 1973,
the Director of the Corporation Tax Bureau has made the following statement:
"Inasmuch as the provisions of Article 32 conform with Articles 9-B and 9-C, except
in areas of privilege period and Federal conformity, regulations issued under Articles
9-B and 9-C remain applicable except when they are in conflict with the provisions
of Article 32. Federal taxable income is the starting point in computing entire net
income and therefore Federal regulations applicable to such computation will be
followed."

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85 (8) C
Corporation Tax
June 5, 1985

Therefore, until such time as the Tax Commission promulgates regulations in accordance
with section 1454 of Article 32, Part 35 of the Tax on State Banks, other Financial Corporations and
National Banking Associations regulations (hereinafter Article 9-B and 9-C regulations) with regard
to the apportionment of income from sources within and without the State are in effect. Such Part
35 has not been revised since the enactment of Article 32.
Section 35.1 of the Articles 9-B and 9-C regulations provides that a corporation which is
doing business or carries on its business through offices maintained both within and without New
York State must apportion its net income as provided in the regulations.
Section 35.2 of the Articles 9-B and 9-C regulations states:
"(a) A corporation or association is regarded as "doing business" or "carrying on
business" within or without the State when it occupies, has or maintains an office,
agency or branch where its functions are systematically and regularly carried on.
(b) In order to require an apportionment of the income from business carried on
within and without New York State, it is not necessary that the branch or agency
maintained without the State, in the case of a domestic corporation or association, or
within the State, in the case of a foreign corporation or association, shall necessarily
conduct all functions of the banking business of the corporation or association. It is
sufficient if the branch conducts some of the functions which the corporation or
association is authorized to exercise regularly and with a fair measure of permanency
and continuity."
Technical Services Bureau memorandum TSB-M-78(23)C provides that a banking
corporation which is doing a banking business both within and without New York State may allocate
its entire net income within and without New York State when it is doing a full service banking
business. The memorandum then defines an office, branch or agency as follows:
". . . For purposes of Article 32, an office, branch or agency is a permanent place of
business which is regularly and systematically maintained, occupied and used by the
taxpayer to carry on a full service banking business. Such business must be
conducted through its own employees who are regularly in attendance at such place
of business during normal business hours. It is not necessary that the office, branch
or agency maintained without New York State conduct all the functions of a banking
business. . . ."
Corporations that are now taxpayers under Article 32 pursuant to section 1452(a)(9) were not
specifically addressed in the Article 9-B and 9-C regulations because when Part 35 of such
regulations was promulgated, such corporations were not taxpayers under Articles 9-B and 9-C.
Such corporations are not addressed in TSB-M-78(23)C because such corporations are doing
business but are not doing a banking business. However, section 1454 of Article 32 allows such

-3­
TSB-A-85 (8) C
Corporation Tax
June 5, 1985

corporations that derive entire net income from business carried on both within and without New
York State to allocate such entire net income under rules and regulations prescribed by the Tax
Commission. Therefore, the concepts of Articles 9-B and 9-C regulation Part 35 and TSB-M­
78(23)C should be applied to a taxpayer under Article 32 pursuant to section 1452(a)(9), and such
taxpayer is doing business or carrying on business within or without New York State if it has an
office that is a permanent place of business which is regularly and systematically maintained,
occupied and used by the taxpayer to carry on business. Such business must be conducted through
its own employees who are regularly in attendance at such place of business during normal business
hours.
Accordingly, assuming that MHFI is a banking corporation taxable under Article 32 of the
Tax Law pursuant to section 1452(a)(9) (which is not herein at issue), MHFI would be doing
business within and without New York State based on the facts presented if its own employees are
regularly in attendance at the Chicago office during normal business hours and would be allowed
to allocate its entire net income within and without New York pursuant to Articles 9-B and 9-C
regulation Part 35.

DATED: June 4, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.