If a beverage distributor gets IRS approval to switch its accounting method for container-deposit income (from a reserve method to the cash method required by Rev. Rul. 78-273), must it use that same new method for New York franchise tax purposes?

Subject

Whether, for purposes of the franchise tax under Article 9-A, New York State will accept the terms and conditions the IRS may require in granting a change in accounting method for deposits on nonrefillable containers under Rev. Rul. 78-273.

Plain-English summary

Charles Snyder Beverages, a White Plains wholesale beer distributor, had always used a reserve (accrual) method to account for the deposits it collects on nonrefillable beverage containers — refundable to retailers when empty containers come back. Its accountants advised that while this reserve method follows GAAP, it doesn't clearly reflect income for tax purposes; IRS Revenue Ruling 78-273 instead requires beverage distributors to use the cash receipts and disbursements method for these deposits, treating deposits as taxable income when received and the refund as deductible only when the container actually comes back. The company asked for federal permission to switch, and wanted to know whether that same switch would automatically apply for New York franchise tax purposes too.

The Department confirmed it would — because New York's entire net income computation is required by regulation to always use the same accounting method a taxpayer uses for federal income tax purposes (both the overall method and each individual item's treatment), any accounting method the IRS approves federally must be adopted for New York's Article 9-A purposes starting the same taxable year. The company would need to submit a copy of the IRS Commissioner's consent letter, plus complete details of any resulting income/deduction adjustments, with its first New York franchise tax report using the new method. The Department also flagged a reserved power: regardless of the accounting method used, Tax Law § 208.9(d) lets the Commissioner of Taxation and Finance independently determine which taxable period an item of income or deduction belongs in, if necessary to properly reflect the taxpayer's entire net income.

What this means for you

Businesses seeking an IRS accounting method change

If the IRS approves a change in your accounting method — for container deposits or any other item — that change automatically carries over to your New York Article 9-A computation for the same taxable year; there's no separate New York approval process, but you do need to attach the federal consent documentation to your next franchise tax report.

Beverage distributors and similar businesses handling refundable deposits

This ruling confirms Rev. Rul. 78-273's cash-method treatment of nonrefillable container deposits (taxable when received, deductible when refunded on container return) applies for New York purposes automatically once adopted federally — no separate New York-specific analysis is needed.

Accountants and tax professionals

Remember New York's dual conformity rule: 20 NYCRR § 2-2.1(a) requires the same method as federal, and § 2-2.2 requires any mid-stream federal method change to be mirrored for Article 9-A at the same time, with matching duplication/omission adjustments. Keep in mind the Commissioner's independent § 208.9(d) authority to reassign an item's taxable period if needed to properly reflect income, regardless of the accounting method otherwise in use.

Common questions

Q: Does New York require a separate application to change accounting methods for franchise tax purposes?
A: No. Once the IRS approves a federal accounting method change, it applies automatically to Article 9-A entire net income for the same taxable year — but the taxpayer must submit the IRS consent and adjustment details with its next franchise tax report.

Q: What accounting method applies to deposits on nonrefillable beverage containers?
A: Rev. Rul. 78-273 requires the cash receipts and disbursements method — deposits are gross income when received, and the refund is deductible only when the empty container is actually returned.

Q: Can another beverage distributor rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• 20 NYCRR § 2-2.1(a) (New York accounting method must match federal method)
• 20 NYCRR § 2-2.2 (mid-year federal accounting method change must be mirrored for Article 9-A)
• Tax Law § 208.9(d) (Commissioner's discretion to determine the taxable period for an item of income/deduction)
• Referenced federal authority: Rev. Rul. 78-273 (cash method required for nonrefillable container deposits)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_26c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(26)C
Corporation Tax
December 8, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880915A

On September 15, 1988, a Petition for Advisory Opinion was received from Charles Snyder
Beverages, Inc., 50 Yellowstone Avenue, White Plains, New York 10607.
The issue raised is whether, for purposes of the franchise tax under Article 9-A, New York
State will accept the terms and conditions that the Internal Revenue Service may require in granting
a change in the method of accounting for deposits on nonrefillable containers resulting from the
application of Rev. Rul. 78-273.
Since its inception on April 19, 1960, Petitioner has conducted a wholesale beer
distributorship in White Plains, New York. The vast majority of its income has been attributable to
the wholesale distribution of bottled and canned beer. It presently reports its income on the accrual
basis of accounting for purposes of preparing both its financial statements and its income tax returns.
Petitioner was informed by its accountants that though the reserve method of accounting for
deposits on nonrefillable containers is in accordance with generally accepted accounting principles
(GAAP), it does not clearly reflect income for tax purposes. Internal Revenue Service Rev. Rul. 78­
273 provides that the use of the cash receipts and disbursement method of accounting is required
when accounting for deposits on nonrefillable containers. The service has adopted similar positions
that represent departures from "GAAP", i.e. Treasury Regulation 1.61-8(b) states that "[g]ross
income includes advance rentals, which must be included in income for the year of receipt regardless
of the period covered or the method of accounting employed by the taxpayer."
Petitioner has requested, for federal income tax purposes, permission to change from its
present reserve (accrual) method of accounting for deposits on nonrefillable containers to the cash
method of accounting for such deposits, which is the method mandated by Rev. Rul. 78-273.
Petitioner states that New York State conforms to the Internal Revenue Code, regulations and rulings
as the starting point of New York taxable income and any changes in the method of accounting for
federal income tax purposes would apply to New York as well. Petitioner contends that if it did not
change from its present method of accounting for deposits on nonrefillable containers for federal
purposes, it might have to make such change for New York purposes. For simplicity of tax return
preparation, Petitioner desires to apply Rev. Rul. 78-273 for both federal and New York state income
tax purposes.
In Rev. Rul. 78-273, the taxpayer is engaged in the wholesale beverage distributing business.
The deposit paid by the retailer on each beverage container sold is to be refunded to the retailer by
the distributor upon return of the empty beverage container. Until an empty container is returned, a
TP-9 (9/88)

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TSB-A-88(26)C
Corporation Tax
December 8, 1988

distributor has no more than a contingent liability to refund the deposit. It was held that the
taxpayer's reserve method of accounting does not clearly reflect the taxpayer's income and may not
be used to account for refundable deposits on nonrefillable containers for federal income tax
purposes. Further, deposits received on nonrefillable containers are includible in the taxpayer's gross
income in the taxable year in which received. Refundable deposits on nonrefillable containers are
not deductible by the taxpayer until the empty containers are returned.
Section 2-2.1(a) of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations") provides that "[t]he accounting method or basis on which entire net income is to be
computed must be the same as the taxpayer's method of accounting for Federal income tax
purposes."
Section 2-2.2 of the Regulations provides that:
(a)
If a taxpayer's method of accounting for Federal income tax purposes is
changed, the accounting method employed in determining entire net income for
purposes of article 9-A of the Tax Law must be changed at the same time to the
method approved for Federal income tax purposes. When a change of accounting
method occurs, any adjustments which are determined to be necessary solely by
reason of the change in order to prevent amounts from being duplicated or omitted
must be taken into account to the extent they are required to be taken into account in
determining the taxpayer's Federal taxable income.
(b)
A taxpayer whose method of accounting is changed must submit, with its first
report in which the new accounting method is used, a copy of the consent of the
Commissioner of Internal Revenue, together with complete details of any
adjustments with respect to items of income or deduction.
Accordingly, when computing entire net income for any taxable year or period under Article
9-A of the Tax Law, Petitioner must use the same method of accounting that is used for federal
income tax purposes. This includes both the overall method of accounting and the treatment of any
individual item. If the method of accounting is changed for federal income tax purposes, it must be
changed for purposes of Article 9-A.
Therefore, if Petitioner's request to change the method of accounting for deposits on
nonrefillable containers, to reflect the provisions of Rev. Rul. 78-273, is approved for federal income
tax purposes, Petitioner must use such method for purposes of computing entire net income under
Article 9-A. Petitioner must use such new method for the taxable years for which the new method
is approved for federal income tax purposes. Petitioner must submit, with the first franchise tax
report using the new method, a copy of the consent of the Commissioner of Internal Revenue,
together with complete details of any adjustments with respect to items of income or deduction.

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TSB-A-88(26)C
Corporation Tax
December 8, 1988

It should be noted that regardless of the method of accounting used by Petitioner, section
208.9(d) of the Tax Law and section 2-2.1(a) of the Regulations provide that when the
Commissioner of Taxation and Finance deems it necessary in order to properly reflect the entire net
income of the taxpayer, he may determine the taxable year or period in which any item of income
or deduction must be included.

DATED: December 9, 1988

s/FRANK J. PUCCIA
Director
Technical Services

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