On a combined report, are a securities dealer's sales sourced to New York based on the selling activity of an affiliate in the same combined group?

Plain-English summary

Corporation A and Corporation B are both securities dealers in the same federal consolidated and New York combined group. Corporation A has property and payroll in several states (including New York); Corporation B has property and payroll only in New York. A large portion of Corporation B's securities are sold through Corporation A's multistate network of account executives, and Corporation B is charged for that selling effort. Deloitte & Touche asked: for the receipts factor of the business allocation percentage, are Corporation B's securities sales sourced to the locations from which Corporation A's account executives sold them?

Yes. On a combined report the receipts factor is computed as though the combined corporations were one corporation, eliminating intercorporate receipts (20 NYCRR 4-1.2 and 4-4.7). Under 20 NYCRR 4-4.6(a), receipts from a dealer's sales of securities held for sale to customers in the regular course of business are allocated to New York if the sales were made in New York or through a New York office of the taxpayer. Because the combined group is treated as one corporation, "the taxpayer" includes both members: Corporation B's securities sales are sourced to New York if they were made in New York or through a New York office of either Corporation B or Corporation A.

What this means for you

A combined group's receipts factor is computed as one corporation

All members are treated as a single corporation and intercorporate receipts are eliminated, so the selling activity of each member is taken into account when sourcing the group's receipts.

A dealer's securities sales are sourced to where the sale is made or to a New York office

Under 20 NYCRR 4-4.6(a), a dealer's sales of securities held for customers are New York receipts if made in New York or through the taxpayer's New York office.

"The taxpayer" means the whole combined group

When one member's securities are sold through another member's account executives, the sales are New York receipts if made in New York or through a New York office of either member. This is the rule the later Merrill Lynch opinion (TSB-A-97(22)C) follows.

Common questions

Q: How is the receipts factor computed on a combined report? A: As though the combined corporations were one corporation, with intercorporate receipts eliminated.

Q: Where are a dealer's securities sales sourced?
A: To New York if the sales were made in New York or through a New York office of the taxpayer (the combined group).

Q: If an affiliate's account executives make the sales, whose offices count? A: Both. The sales are New York receipts if made in New York or through a New York office of either the selling affiliate or the dealer whose securities are sold.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 210 (business allocation percentage; receipts factor)
• 20 NYCRR 4-4.6(a) (receipts from a dealer's sales of intangible personal property; New York sourcing)
• 20 NYCRR 4-1.2 (combined report allocation on combined accounts; eliminate intercorporate items)
• 20 NYCRR 4-4.7 (combined receipts factor computed as one corporation; eliminate intercorporate receipts); see also Merrill Lynch, TSB-A-97(22)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_25c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (25) C
Corporation Tax
November 7, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C960607B

On June 7, 1996, a Petition for Advisory Opinion was received from Deloitte & Touche LLP, Attn: Russell W. Banigan, Two World Financial Center, South Tower, 8th Floor, New York, New York 10281-1426. The issue raised by Petitioner, Deloitte & Touche LLP, is whether, for purposes of computing the receipts factor of the business allocation percentage under Article 9-A of the Tax Law, the sales of Corporation B's securities are sourced to the locations from which the Corporation A account executives sold the securities. Petitioner submits the following facts as the basis for this Advisory Opinion. Corporation A and Corporation B are dealers of marketable securities. Both entities are members of the same federal consolidated return group and the same combined report group under Article 9-A of the Tax Law. Corporation A has property and payroll in several states (including New York), while Corporation B has property and payroll only in New York State. Corporation A has a multistate network of account executives which market its financial products and those of its affiliates. A substantial portion of Corporation B's securities are sold through Corporation A's multistate network of account executives. Corporation B is charged for the compensation paid to Corporation A's account executives for selling Corporation B's securities. In addition, Corporation B is charged for a portion of Corporation A's branch office selling expenses (advertising, occupancy, telecommunications, clerical compensation, supplies, etc.) Section 4-4.6(a) of the Business Corporation Franchise Tax Regulations ("Article 9-A Regulations") provides that receipts from the sale of intangible personal property included in business capital, held by the taxpayer as a dealer for sale to customers in the regular course of its business, are business receipts and are allocated to New York State if the sales were made in New York State or through a New York State office of the taxpayer. Section 4-1.2 of the Article 9-A Regulations provides that "[i]n the case of combined reports, allocation is made on the basis of combined accounts from which intercorporate items including intercorporate receipts are eliminated." Section 4-4.7 of the Article 9-A Regulations provides that the "receipts factor on a combined report is computed as though the corporations included in the report were one corporation. All intercorporate business receipts are eliminated in computing the combined business receipts factor. Intercorporate receipts are receipts by any corporation included in the combined report from any other corporation included in the combined report. As to when combined reports will be required or permitted, see Subpart 6-2 of this Title."

-2­
TSB-A-96 (25) C
Corporation Tax
November 7, 1996
In this case, it is assumed that Corporation A and Corporation B are permitted or required to file a combined report pursuant to Subpart 6-2 of the Article 9-A Regulations. Pursuant to sections 4-1.2 and 4-4.7 of the Article 9-A Regulations, the combined activities of the combined group are used in computing the receipts factor of the business allocation percentage on a combined report. The factor is computed as though the corporations included in the combined report were one corporation. Intercorporate dividends and all other intercorporate transactions between the corporations included in the combined report are eliminated. Accordingly, where Corporation A and Corporation B file a combined report pursuant to Subpart 6-2 of the Article 9-A Regulations, section 4-4.7 of the Article 9-A Regulations provides that the activities of both Corporation A and Corporation B are considered when sourcing the receipts from the sale of Corporation B's securities that are sold through Corporation A's account executives. Pursuant to section 4-4.6(a) of the Article 9-A Regulations, the receipts from the sale of Corporation B's securities that are held by Corporation B as a dealer of marketable securities for sale to customers in the regular course of its business and included in business capital, are sourced in New York State if the sales were made in New York or through a New York office of either Corporation B or Corporation A.

DATED: November 7, 1996

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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