Is a federally chartered Farm Credit System leasing corporation, an instrumentality of the United States, exempt from New York franchise tax under Articles 9-A and 32?

Plain-English summary

Farm Credit Leasing Services Corporation is a federally chartered organization, based in Minneapolis and doing business in New York, organized by Farm Credit System banks under the Farm Credit Act of 1971 (12 USC 2211) to provide leasing services to Farm Credit System borrowers. Its charter was issued by the Governor of the Farm Credit Administration, and on charter it became a federally chartered body corporate and an instrumentality of the United States.

The question: is it exempt from New York franchise tax under Article 9-A (general business corporations) and Article 32 (banking corporations)?

Yes. Under 12 USC 2214, state and other laws apply to a corporation organized under this part of the Act to the same extent they would apply to its organizing banks engaged in the same activity -- with a proviso that other tax exemptions of the Farm Credit banks do not extend to such corporations, except with respect to franchise taxes. The organizing Farm Credit Banks are themselves exempt from federal, state, municipal, and local taxation (except real-estate taxes) under 12 USC 2023. Putting those together: because the organizing banks are tax-exempt and the franchise-tax exemption does extend to corporations like Farm Credit Leasing, the company is exempt from the franchise taxes imposed under both Article 9-A (section 209.1) and Article 32 (section 1451) of the New York Tax Law.

What this means for you

A federal instrumentality charter can carry a franchise-tax exemption

Farm Credit Leasing's status as a federally chartered instrumentality under 12 USC 2211, combined with the franchise-tax carve-in of 12 USC 2214, exempts it from New York's corporate and bank franchise taxes.

The franchise-tax exemption is the specific exception

12 USC 2214 generally denies these corporations the broader tax exemptions of Farm Credit banks -- but expressly keeps the franchise-tax exemption. That distinction is what controls the New York result.

Real-estate taxes are not covered

The underlying 12 USC 2023 exemption excludes taxes on real estate; this opinion addresses only the franchise taxes under Articles 9-A and 32.

Common questions

Q: Why is a leasing company exempt from New York's bank and corporate franchise taxes?
A: Because it is a federally chartered Farm Credit System instrumentality, and 12 USC 2214 extends its organizing banks' franchise-tax exemption to it.

Q: Does the exemption cover all New York taxes?
A: No. It covers the Article 9-A and Article 32 franchise taxes. Real-estate taxes, for example, are not exempt under 12 USC 2023.

Q: Does it matter that the company is based out of state?
A: No. The exemption flows from its federal-instrumentality status under the Farm Credit Act, not from where it is headquartered.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax on foreign corporations unless specifically exempt)
- Tax Law section 1451 (Article 32 franchise tax on banking corporations)
- 12 USC 2211 (corporation organized by Farm Credit System banks is a federally chartered instrumentality of the United States)
- 12 USC 2214 (state laws apply as to the organizing banks, but the franchise-tax exemption extends to such corporations)
- 12 USC 2023 (Farm Credit Banks exempt from federal, state, and local taxation except real estate taxes)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a94_17c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (17) C
Corporation Tax
December 23, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C940812A

On August 12, 1994, a Petition for Advisory Opinion was received from Farm Credit Leasing
Services Corporation, 5500 Wayzata Blvd - #1600, Minneapolis, Minnesota 55416-1252.
The issue raised by Petitioner, Farm Credit Leasing Services Corporation, is whether it is exempt
from franchise tax under Articles 9-A and 32 of the Tax Law.
Petitioner is a Federally chartered organization based in Minneapolis, currently doing business in
New York State. Petitioner is organized pursuant to the provisions of the Farm Credit Act of 1971,
as amended (12 USCS 2001 et seq)("Act") and is an instrumentality of the United States. Petitioner's
charter was issued by the Governor of the Farm Credit Administration on August 23, 1983. The
Farm Credit Administration is an independent agency in the executive branch of the United States
Government.
Petitioner was organized by certain Farm Credit Banks under Title IV, part E (formerly Part D) of
the Act (12 USCS 2211) as a service organization of the Farm Credit System to provide leasing
services to those entities eligible to borrow from the Farm Credit System Banks and associations.
Petitioner states that section 4.27 of the Act (12 USCS 2213) provides that corporations such as
Petitioner shall be subject to the same regulations and examination by the Farm Credit
Administration as are the organizing bank or banks. Further, section 4.28 of the Act (12 USCS
2214) provides that state and other laws apply to such corporations' activities to the same extent such
laws would apply to its organizing banks, provided that, to the extent sections 1.21; 2.8; and 3.13
of the Act (12 USCS 2023; 2098; and 2134) may exempt banks of the Farm Credit System from
taxation, such exemptions, other than with respect to franchise taxes, shall not extend to corporations
such as Petitioner.
Section 2211 of Title 12 of the United States Code Service ("USCS") provides:
[a]ny bank of the Farm Credit System, or two or more of such banks acting together,
may organize a corporation ... for the purpose of performing functions and services
for or on behalf of the organizing bank or banks that the bank or banks may perform
pursuant to this Act .... The organizing bank or banks shall apply for a Federal charter
for the corporation by forwarding to the Farm Credit Administration a statement of
the need for the corporation and proposed articles specifying in general terms the
objectives for which the corporation is formed, the powers to be exercised by it in
carrying out the functions and services, and the territory it is to serve .... Upon the
TP-9 (9/88)

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TSB-A-94 (17) C
Corporation Tax
December 23, 1994

approval of articles by the Farm Credit Administration and the issuance of a charter,
such corporation shall become as of such date a federally chartered body corporate
and an instrumentality of the United States.
Section 2214 of Title 12 of the USCS provides:
[s]tate and other laws shall apply to corporations organized pursuant to this part [12
2211 et seq] to the same extent such laws would apply to the organizing banks
engaged in the same activity in the same jurisdiction. Provided, however, that to the
extent that sections 1.15, 2.16, and 3.13 of this Act [12 USCS
2023, 2098 and
2134] may exempt banks or associations of the Farm Credit System from taxation,
such exemptions, other than with respect to franchise taxes, shall not extend to
corporations organized pursuant to this part.[12 USCS2211 et seq].
Section 2023 of Title 12 of the USCS provides:
[t]he Farm Credit Banks and the capital, reserves, and surplus thereof, and the
income derived therefrom, shall be exempt from Federal, State, municipal, and local
taxation, except taxes on real estate held by a Farm Credit Bank to the same extent,
according to its value, as other similar property held by other persons is taxed. The
mortgages held by the Farm Credit Banks and the notes, bonds, debentures, and other
obligations issued by the banks shall be considered and held to be instrumentalities
of the United States and, as such, they and the income therefrom shall be exempt
from all Federal, State, municipal, and local taxation, other than Federal income tax
liability of the holder thereof under the Public Debt Act of 1941 (31 USC 3124).
Herein, Petitioner is a corporation organized under section 2211 of Title 12 of the USCS.
Pursuant to section 2214 of Title 12 of the USCS, Petitioner is exempt from franchise taxes because
its organizing banks (Farm Credit Banks) are exempt from taxation under section 2023 of Title 12
of the USCS (except for taxes on real estate).
Section 209.1 of Article 9-A of the Tax Law imposes the business corporation franchise tax
on every foreign corporation, unless specifically exempt, for the privilege 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.
Section 1451 Article 32 of the Tax Law imposes an annual franchise tax on every banking
corporation for the privilege of exercising its franchise or doing business in New York State in a
corporate or organized capacity during the taxable year.

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TSB-A-94 (17) C
Corporation Tax
December 23, 1994

Accordingly, pursuant to section 2214 of Title 12 of the USCS, Petitioner is exempt from the
franchise taxes imposed under Articles 9-A and 32 of the Tax Law.

DATED: December 23, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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