NY TSB-A-97(22)C Corporation Tax 1997-08-12

On a New York combined report, are a securities dealer's sales sourced to New York if they are made through a New York office of an affiliate in the same combined group?

Short answer: Yes. On a combined report the receipts factor is computed as though the combined group were one corporation, with intercorporate receipts eliminated (20 NYCRR 4-4.7, 4-1.2). So a securities dealer's (GSI's) sales of securities held for sale to customers are sourced to New York if the sales were made in New York or through a New York office of EITHER the dealer or its affiliate (PFS) whose financial consultants sold them; otherwise those receipts are not New York receipts (20 NYCRR 4-4.6(a)).

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

Merrill Lynch & Co., Inc. asked how to source, in the receipts factor of the Article 9-A business allocation percentage, the securities sales of one subsidiary (GSI, a marketable-securities dealer with property and payroll only in New York) when a large share of those securities are actually sold through the nationwide network of financial consultants of an affiliate (PFS). All three corporations file a New York combined report.

On a combined report, allocation is made from combined accounts with intercorporate items eliminated (20 NYCRR 4-1.2), and the receipts factor is computed as though the combined corporations were one corporation (20 NYCRR 4-4.7). A dealer's receipts from selling intangible personal property held for sale to customers are New York receipts if the sales were made in New York or through a New York office of the taxpayer (20 NYCRR 4-4.6(a)).

Putting these together (and following Deloitte & Touche, TSB-A-96(25)C), the activities of both GSI and PFS are considered: GSI's securities sales are sourced to New York if made in New York or through a New York office of either GSI or PFS -- otherwise they are not New York receipts.

What this means for you

A combined group is treated as one corporation for the receipts factor

Allocation uses combined accounts, intercorporate receipts are eliminated, and the receipts factor is computed as if the combined corporations were a single corporation.

A dealer's intangible-property sales are sourced to the selling office

Receipts from a dealer's sales of intangible personal property held for sale to customers are New York receipts when the sales are made in New York or through a New York office of the taxpayer.

On a combined report, any member's New York office can source the sale

Because the group is treated as one corporation, a subsidiary's securities sold through an affiliate's New York office are New York receipts -- the New York office of either the dealer or the selling affiliate counts.

Common questions

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

Q: Where are a securities dealer's sales sourced?
A: To New York if the sales of securities it holds as a dealer for sale to customers are made in New York or through a New York office of the taxpayer (or, on a combined report, of any member of the group).

Q: Do an affiliate's out-of-state sales offices pull the receipts out of New York?
A: Yes. Sales not made in New York or through a New York office of either the dealer or the selling affiliate are not New York receipts.

Citations and references

Statutes, regulations, and authorities:
- 20 NYCRR 4-1.2 (combined allocation from combined accounts; intercorporate items eliminated)
- 20 NYCRR 4-4.6(a) (dealer's intangible-property receipts sourced to a New York office)
- 20 NYCRR 4-4.7 (combined receipts factor computed as one corporation)
- Deloitte & Touche LLP, TSB-A-96(25)C (November 7, 1996) (same combined-group sourcing result)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(22)C
Corporation Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C970616A

On June 16, 1997, a Petition for Advisory Opinion was received from Merrill
Lynch & Co., Inc., Two World Financial Center, 7th Floor, Tax Dept., New York,
New York 10080-0748.
The issue raised by Petitioner, Merrill Lynch & Co., Inc., 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 Merrill Lynch Government
Securities Inc. ("GSI") securities are sourced to the locations from which
Merrill Lynch Pierce Fenner & Smith Incorporated ("PFS") financial consultants
sold the securities.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Both PFS and GSI are dealers of marketable securities. PFS has property
and payroll in every state of the United States, while GSI has property and
payroll only in New York State. Both PFS and GSI are subsidiaries of Petitioner
and are included in a New York State combined report group with Petitioner.
PFS has a multistate network of financial consultants which market its
financial products and those of its affiliates. A substantial portion of GSI's
securities are sold through PFS's multistate network of financial consultants.
GSI is charged for the compensation paid to PFS's financial consultants for
selling GSI's securities. In addition, GSI is charged for a portion of PFS'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-97(22)C
Corporation Tax

This issue was addressed in Deloitte & Touche LLP, Adv Op Comm T & F,
November 7, 1996, TSB-A-96(25)C, which had a similar fact pattern.
In that
opinion, it was held that where Corporation A and Corporation B file a combined
report, section 4-4.7 of the Article 9-A Regulations provides that the activities
of both corporations are considered when sourcing the receipts from the sale of
Corporation B's securities that are sold through Corporations A's account
executives. Further, under section 4-4.6(a) of the Article 9-A Regulations, the
receipts from the sale of Corporation B's securities 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.
In this case, it is assumed that PFS and GSI are permitted or required to
file a combined report with Petitioner 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 PFS and GSI file a combined report with Petitioner
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 PFS and GSI are
considered when sourcing the receipts from the sale of GSI's securities that are
sold through PFS's financial consultants. Pursuant to section 4-4.6(a) of the
Article 9-A Regulations, the receipts from the sale of GSI securities that are
held by GSI 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 GSI or PFS. Otherwise, these receipts are not sourced in New York
State.

DATED: August 12, 1997

NOTE:

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

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