New York Advisory Opinion TSB-A-86 (17)I: Must an individual shareholder of a New York S corporation add back, under section 612(b)(3) of the Tax Law, the New York City General Corporation Tax paid by the corporation?

Plain-English summary

Alan Langer, an individual shareholder of a New York S corporation, asked the identical question the Department had just answered three weeks earlier for a different taxpayer: whether Tax Law § 612(b)(3) required him to add back, when computing his New York adjusted gross income, his pro rata share of the New York City General Corporation Tax paid by his S corporation. As in that earlier case, sections 617(a) and 637(c) require S-corp shareholders to make any section 612(b) modification relating to an S-corp item according to their pro rata share, and section 612(b)(3) requires adding back "income taxes" imposed by any taxing jurisdiction that were federally deductible and not credited against federal tax - so everything turned on whether the NYC General Corporation Tax counts as an "income tax."

The Department answered no, and did so largely by pointing back to its own recent precedent. It repeated the same federal-conformity analysis - Tax Law § 607(a) ties Article 22 terms to comparable federal meanings, IRC § 164(a) allows a deduction for state and local "income" taxes, and federal case law (Stratton's Independence, Eisner v. Macomber, Bank of America v. United States) requires an "income tax" to be a net income tax - a direct tax on gain or profits. It then stated flatly: "The New York City General Corporation Tax is not an income tax that is required to be added back to federal adjusted gross income, pursuant to section 612(b)(3) of the Tax Law," citing by name Matter of AD Rutland Realty, Inc., Advisory Opinion of the State Tax Commission, November 13, 1986 (TSB-A-86(16)I) - the opinion issued just three weeks before this one on the same question - alongside a New York court decision, Matter of Bankers Trust New York Corp. v. Department of Finance. Accordingly, Langer was not required to make the section 612(b)(3) addback for his distributive share of the NYC General Corporation Tax.

This opinion is a clean illustration of how the Department's advisory opinions build on each other as precedent within the same tax-type series: rather than re-deriving the "net income tax" analysis from scratch, this opinion largely adopts the AD Rutland Realty opinion's reasoning by direct citation, reaching the identical result for a different S-corp shareholder just weeks later.

What this means for you

Individual shareholders of New York S corporations paying the NYC General Corporation Tax

You are not required to add back your distributive share of the NYC General Corporation Tax under Tax Law § 612(b)(3) - this is now confirmed by two Department opinions issued within weeks of each other (this one and its companion, TSB-A-86(16)I), both holding the tax fails the federal "net income tax" standard.

Accountants who want a second, independent confirmation before relying on a single advisory opinion

This opinion is useful precisely because it isn't a one-off: it expressly adopts and cites the reasoning of the earlier AD Rutland Realty opinion (TSB-A-86(16)I), giving you two independently-issued opinions reaching the same conclusion on the identical question, which strengthens confidence in relying on the underlying legal analysis (while remembering that, formally, each opinion still binds the Department only as to its own named petitioner).

Tax preparers researching whether a specific state/local tax must be added back under section 612(b)(3)

When the Department has already ruled on a particular tax's characterization (as it did here for the NYC General Corporation Tax), expect later opinions raising the same question to cite the earlier one directly rather than re-litigating the underlying "net income tax" analysis - a useful signal that the earlier ruling reflects settled Department position, at least at the time both opinions were issued.

Common questions

Q: I'm an S-corp shareholder and my corporation paid the NYC General Corporation Tax - do I need to add back my share of it?
A: No. This opinion, following its companion TSB-A-86(16)I (AD Rutland Realty), confirms the NYC General Corporation Tax is not an "income tax" under Tax Law § 612(b)(3), so no addback is required.

Q: Why does this opinion just cite an earlier opinion instead of doing its own independent analysis?
A: The Department had already worked through the federal "net income tax" characterization test in its AD Rutland Realty opinion three weeks earlier and reached a clear conclusion; rather than repeat the full analysis, this opinion adopts that reasoning by name for a different taxpayer facing the identical question.

Q: Does citing a prior advisory opinion make this a binding rule for all taxpayers?
A: Not formally. Each advisory opinion still binds the Department only as to the specific petitioner named in it. But two independently-requested opinions reaching the same conclusion on the same issue, within weeks of each other, is a strong signal of the Department's settled position at the time.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_17i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (17) I
Income Tax
December 4, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I860908A

On September 8, 1986, a Petition for Advisory Opinion was received from Alan Langer, c/o
Richard A. Eisner & Company, 380 Madison Avenue, New York, New York 10017.
The issue raised is whether section 612(b)(3) of Article 22 of the Tax Law requires the New
York City General Corporation Tax to be an addition to federal adjusted gross income in calculating
the New York adjusted gross income of an individual shareholder of an S Corporation.
Section 617(a) of the Tax Law, relating to resident shareholders, and section 637(c) of the
Tax Law, relating to non-resident shareholders, require that in determining New York adjusted gross
income, shareholders of an electing New York S Corporation must make any of the modifications
in section 612(b) of the Tax Law that relate to an S Corporation item of income, loss or deduction
in accordance with their pro rata shares.
Section 612(b)(3) of the Tax Law provides that "[i]ncome taxes imposed by this state or any
other taxing jurisdiction, to the extent deductible in determining federal adjusted gross income and
not credited against federal income tax" must be added to federal adjusted gross income in
computing New York adjusted gross income.
Section 607(a) of the Tax Law provides that any term used in Article 22 of the Tax Law shall
have the same meaning as when used in a comparable context in the Internal Revenue Code, unless
a different meaning is clearly required. Section 164(a) of the Internal Revenue Code allows a
deduction for: "State and local, and foreign, income ... taxes". In determining what constitutes an
"income tax" under section 164(a)(3) of the Code, the federal courts agree that such a tax must be
a net income tax"; that is, a direct tax on gain or profits, and that gain is a necessary ingredient of
income. See Stratton's Independence, Ltd. v. Howbert, 231 US 399, 415; Eisner v. Macomer, 252
US 189, 207; and Bank of America National T. & S. Assoc. v. US, 459 F.2d 513, 517-8.
The New York City General Corporation Tax is not an income tax that is required to be
added back to federal adjusted gross income, pursuant to section 612(b)(3) of the Tax Law, when
computing New York adjusted gross income. AD Rutland Realty, Inc. Advisory Opinion of the State
Tax Commission, November 13, 1986; See Matter of Bankers Trust New York Corporation v.
Department of Finance, 120 AD2d 992, 502 N.Y.S. 2d 567.

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

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

-2­
TSB-A-86 (17) I
Income Tax
December 4, 1986

Accordingly, a shareholder of a New York S Corporation is not required to make the
modification required by section 612(b)(3) of the Tax Law for the shareholder's distributive share
of the New York City General Corporation Tax paid by the S Corporation.

DATED: December 4, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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