NY TSB-A-93(11)C Corporation Tax 1993-05-25

Does reincorporating a New York corporation in Delaware by merger trigger New York tax, and how many franchise tax reports are required?

Short answer: Reincorporating a New York corporation as a Delaware corporation by statutory merger -- a mere change in form qualifying as a tax-free reorganization under IRC section 368(a)(1)(F) -- is also tax-free for New York Article 9-A purposes, because entire net income follows federal taxable income and there is no modification for an (F) reorganization. But New York requires two short-period franchise tax reports even though only one federal return is filed: under Tax Law section 211.1, the old New York corporation must file a report for the short period ending when it ceases to exercise its New York franchise, and the surviving Delaware corporation files a separate short-period report from when it begins doing business in New York to the end of the taxable year.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Livingston, Wachtell & Co. asked about a planned reincorporation: an old New York corporation ("A") would merge into a newly formed Delaware corporation ("B") with an identical stock structure, purely to place the company under Delaware corporate law. Each A share would convert into an identical B share. The merger qualifies as a tax-free reorganization under IRC section 368(a)(1)(F) -- a mere change in identity, form, or place of organization. A and B both have July 31 year-ends, and the merger takes effect at the close of business June 30, 1993.

Tax-free for New York -- but two reports, not one.

No New York tax on the reorganization. Under section 208.9, New York entire net income follows federal taxable income, and there is no modification or adjustment for an (F) reorganization. So the change in form is treated the same for Article 9-A as for federal -- it is tax-free.

Two short-period reports. Section 211.1 requires a taxpayer that ceases to be subject to tax to file a report on the date of cessation. Even though only one federal return is filed for the year, New York requires two short-period reports: corporation A files for the period from the start of its federal year (August 1) up to the date it ceases to exercise its New York franchise (June 30), and corporation B files for the period from when it begins doing business in New York (July 1) to the end of the federal year (July 31). Each computes its tax on the entire net income base or other applicable base for its short period.

What this means for you

An (F) reincorporation is tax-free for New York

Because New York follows federal taxable income with no (F)-reorganization adjustment, simply changing your state of incorporation by merger does not trigger Article 9-A tax.

Expect two New York reports for one federal return

When the old corporation ceases its franchise mid-year and the new one begins, New York requires two short-period franchise reports -- one for each entity -- even though the IRS sees a single continuing taxpayer.

Each short period is taxed on its own

Each corporation computes and pays tax on the entire net income base (or other applicable base) for its short period.

Common questions

Q: Does moving my New York corporation to Delaware trigger New York tax?
A: No, if it qualifies as a section 368(a)(1)(F) reorganization -- New York follows the federal tax-free treatment with no special adjustment.

Q: How many New York reports do I file?
A: Two short-period reports -- the old corporation through the date it ceases its New York franchise, and the new corporation from when it begins doing business in New York.

Q: Why two reports if the IRS wants only one return?
A: Section 211.1 requires a report when a taxpayer ceases to be subject to tax; New York treats the old and new corporations as separate taxpayers for the two short periods.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax on every corporation)
- Tax Law section 211.1 (report required when a taxpayer ceases to be subject to tax)
- Tax Law section 208.9 (entire net income follows federal taxable income)
- 20 NYCRR 2-3.1 (domestic corporation taxed until it ceases to possess a franchise)
- IRC section 368(a)(1)(F) (tax-free reorganization; mere change in form)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (11) C
Corporation Tax
May 25, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930325A

On March 25, 1993, a Petition for Advisory Opinion was received from Livingston, Wachtell
& Co., CPA's 1140 Avenue of the Americas, New York, New York 10036.
The issue raised by Petitioner, Livingston, Wachtell & Co., concerns the filing requirements
and computation of tax under Article 9-A of the Tax Law with respect to the proposed corporate
reorganization as described herein.
Corporation A was incorporated under Article 2 of the New York Stock Corporation Law
over 50 year ago. It is subject to tax under Article 9-A of the Tax Law. It has a taxable year ending
July 31 and files a corporate franchise tax report annually.
The Board of Directors and the shareholders of A desire A to reincorporate in Delaware by
means of a statutory merger under section 907 of the New York Business Corporation Law and
section 252 of the Delaware General Corporation Law in order to place the corporation under the
corporate law of Delaware. In accordance with this, the Board of Directors of A proposes adopting
a plan of merger as follows:
Corporation B has recently been organized in Delaware under the General
Corporation Law. It has an authorized stock structure identical to A's with the same
classes and number of shares of stock and the same par values, voting and dividend
rights. It also has a taxable year ending July 31.
Upon approval of the merger by A's Board of Directors and its shareholders and by
B's Board of Directors, a certificate of merger will be filed with the Secretary of State
in New York in compliance with section 907 of the New York Business Corporation
Law, and an agreement of merger or certificate of merger will be filed with the
Secretary of State of Delaware in compliance with section 252 of the Delaware
General Corporation Law. To effectuate the merger, B will issue all its authorized
shares of stock to A in exchange for the assets owned by A, and A will be merged
into B; B will survive the merger. Each share of stock held by the A shareholders
will be converted by operation of law into a share of B stock of the same class and
with the same par value, voting and dividend rights.

TP-9 (9/88)

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Corporation Tax
May 25, 1993
The merger will be considered tax-free pursuant to section 368(a)(1)(F) of the Internal
Revenue Code and will take place at the close of business on June 30, 1993. After the merger, B will
be subject to tax under Article 9-A of the Tax Law and will file a corporation franchise tax report
annually.
Section 209.1 of the Tax Law imposes a franchise tax on every corporation for the privilege
of exercising its corporate franchise, or of doing business, or of employing capital, or of owning or
leasing property in New York State in a corporate or organized capacity, or of maintaining an office
in New York State for all or any part of each of its fiscal or calendar years. Every corporation shall
pay the franchise tax annually upon the basis of the corporation's entire net income base, or upon
such other basis as may be applicable.
Section 211.1 of the Tax Law provides that every taxpayer which ceases to exercise its
franchise or to be subject to the tax imposed by Article 9-A of the Tax Law shall transmit to the
Commissioner of Taxation and Finance a report on the date of such cessation or at such other time
as the Commissioner may require covering each year or period for which no report was theretofore
filed.
Section 2-3.1 of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations"), provides that a domestic corporation is required to pay a tax measured by the entire
net income base (or other applicable basis) up to the date on which it ceases to possess a franchise.
Section 208.9 of the Tax Law defines "entire net income" as the total net income from all
sources, which shall be presumably the same as the entire taxable income (but not alternative
minimum taxable income) which the taxpayer is required to report to the United States Treasury
Department, except as modified pursuant to such section 208.9 and 210.3(d) and (e) of the Tax Law.
There is no modification or adjustment for a transaction treated as a reorganization pursuant
to section 368(a)(1)(F) of the Internal Revenue Code. Therefore, for New York State franchise tax
purposes, such reorganization would be treated the same as it is treated for federal income tax
purposes. However, pursuant to section 211.1 of the Tax Law, a taxpayer which ceases to be subject
to tax is required to file a report on the date of cessation. If the date a taxpayer ceases to be subject
to tax is not the last day of its taxable year for federal income tax purposes, the taxpayer is required
to file two short period reports for purposes of Article 9-A of the Tax Law, even though only one
return is required for federal income tax purposes.
Accordingly, if A's change in form from a New York State chartered corporation to B, a
Delaware corporation, is a tax-free reorganization under section 368(a)(1)(F) of the Internal Revenue
Code, such reorganization will be a tax-free reorganization for New York State franchise tax
purposes under Article 9-A. However, for the federal taxable year A changes from a New York
State chartered corporation to B, a Delaware corporation, A will cease to exercise it's New York
franchise and will cease to be subject to tax under Article 9-A, and B will be subject to tax under
Article 9-A when it begins to do business in New York State. Therefore, two short period reports
will be required for New York State franchise tax purposes even though only one return will be
required for federal income tax purposes. Pursuant to section 211.1 of the Tax Law, A will be

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Corporation Tax
May 25, 1993

required to file a short period report for the period from the beginning of its federal taxable year,
August 1, 1993, up to the date A will cease to exercise its New York franchise, June 30, 1993, and,
pursuant to section 2.3-1 of the Regulations, A must compute and pay its tax measured by the entire
net income base or other applicable base for such short period.
Further, B will be required to file a short period report from the date B will begin to do
business in New York State, July 1, 1993, to the end of its federal taxable year, July 31, 1993, and
B must compute and pay its tax measured by the entire net income base or other applicable base for
such short period.

DATED: May 25, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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