NY TSB-A-98(10)C Corporation Tax 1998-07-27

Does a corporation's section 1452(d) election to stay taxable under Article 9-A survive its purchase by a bank holding company and later mergers and business transfers into it?

Short answer: Yes. A corporation (B) that made the section 1452(d) grandfather election to remain under Article 9-A keeps that election after a bank holding company buys all its stock and after the three proposed scenarios -- other affiliated corporations merging into B, transferring B to another bank holding company, and moving additional businesses into B -- as long as B remains the surviving entity and keeps filing its returns under Article 9-A. The election continues until the taxpayer revokes it by filing an Article 32 return.

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

Roberts & Holland LLP asked, on behalf of a client, whether a corporation's section 1452(d) "grandfather" election -- the one-time election that lets certain corporations continue to be taxed under Article 9-A (the general business franchise tax) instead of Article 32 (the bank franchise tax) -- is revoked when a bank holding company (or one of its Article 32 subsidiaries) buys all the corporation's stock and then changes what the corporation does.

In the facts, "Corporation B" was engaged in little or no business but had properly made the 1452(d) election. After a bank holding company ("A") acquired it, three things might happen: (1) other corporations in A's federal consolidated group merge into B; (2) B is transferred to another bank holding company ("C") and corporations then merge into B; or (3) on top of those mergers, additional businesses are moved into B. In every scenario, the merged-in activities would be Article 9-A activities but for the bank ownership.

The Department concluded that, following Buckley, Apple Bank, and Barclays, B's election survives all three scenarios so long as B continues to file its returns under Article 9-A. The 1452(d) election continues in effect until the taxpayer revokes it by filing an Article 32 return -- a change of corporate parent or of the corporation's activities does not revoke it, provided the corporation can still properly be classified as an Article 9-A taxpayer.

What this means for you

A bank-holding-company acquisition does not revoke the election

Buying the electing corporation's stock -- even by a bank holding company taxed under Article 32 -- does not, by itself, end the 1452(d) election.

Surviving the merger is what matters

In each scenario here, B is the surviving corporation when other entities merge into it, so the election rides through. (A separate line of opinions holds that if the electing corporation is absorbed and does not survive, the election dies and does not pass to the survivor.)

Changing activities is fine if they stay 9-A-type

Moving new businesses or merged-in activities into the corporation does not revoke the election, as long as those activities would be Article 9-A activities but for the bank ownership and the corporation keeps filing under Article 9-A.

Common questions

Q: How is a 1452(d) election revoked?
A: Only by the taxpayer filing a return under Article 32. The election otherwise continues indefinitely.

Q: Do the corporation's own activities matter?
A: They are generally not considered, except that if the corporation changes its activities so much that it can no longer be classified as an Article 9-A taxpayer, the election would be revoked.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion is limited to the petitioner and the facts it describes.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 1452(a) (definition of banking corporation)
- Tax Law section 1452(a)(9) (banking corporations added in 1985)
- Tax Law section 1452(d) (one-time election to remain taxable under Article 9-A)
- 20 NYCRR 16-2.5(j)(3) (making and revoking the section 1452(d) election)
- Robert J. Buckley, TSB-A-94(8)C (May 26, 1994)
- Apple Bank for Savings, TSB-A-96(7)C (March 25, 1996)
- Barclays Business Credit Inc., TSB-A-96(26)C (Nov. 15, 1996)
- Roberts & Holland LLP, TSB-A-98(10)C (July 27, 1998)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(10)C
Corporation Tax
July 27, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C980623B

On June 23, 1998, a Petition for Advisory Opinion was received from Roberts
& Holland LLP, Worldwide Plaza, 825 Eighth Avenue, 37th Floor, New York, New York
10019.
The issue raised by Petitioner, Roberts & Holland LLP, is whether a
corporation's election to be taxed under Article 9-A of the Tax Law pursuant to
the grandfather provision set forth in section 1452(d) of Article 32 of the Tax
Law is revoked upon the purchase of all of the stock of the corporation by a bank
holding company or one of its subsidiaries subject to Article 32 of the Tax Law
and a change in the corporation's activities.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Corporation A, a bank holding company, or one of its subsidiaries, subject
to Article 32 of the Tax Law, will purchase all of the stock of corporation B
from a corporation subject to Article 32 of the Tax Law. B is currently engaged
in little or no business activity, and is subject to tax under Article 9-A of the
Tax Law due to B's having made the grandfather election pursuant to section
1452(d) of the Tax Law to continue to be subject to Article 9-A. It is assumed
that B properly made the election pursuant to section 1452(d) of the Tax Law to
remain taxable under Article 9-A.
After A's acquisition of B, the activities of B will vary with the three
following scenarios:
Scenario 1. Subsequent to A's acquisition of B, one or more corporations with
which A files a federal consolidated return will merge into B. The activities
of the corporation(s) to be merged into B are such that, had the corporation(s)
not been owned by a bank holding company, the corporation(s) would be subject to
tax under Article 9-A of the Tax Law. The activities of the corporation(s) to
be merged into B may not be the same as the activities conducted by B at the time
of the section 1452(d) election or thereafter.
Scenario 2.
Subsequent to A's acquisition of B, B will be transferred to
corporation C.
C is a bank holding company with which A files a federal
consolidated return. Subsequent to the transfer to C, one or more corporations
with which A and C file a federal consolidated return will merge into B. The
activities of the corporation(s) to be merged into B are such that, had the
corporation(s) not been owned by a bank holding company, the corporation(s) would
be subject to tax under Article 9-A of the Tax Law.
The activities of the
corporation(s) to be merged into B may not be the same as the activities
conducted by B at the time of the section 1452(d) election or thereafter.

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Scenario 3. Assuming the same facts as in 1 and 2 above, in addition to the
merger of corporation(s) into B, certain businesses currently conducted by
subsidiaries of A or C will be transferred to B. The businesses transferred into
B are such that, had the businesses been conducted in a corporation not owned by
a bank holding company, such corporation would have been subject to tax under
Article 9-A of the Tax Law. The businesses to be transferred into B may not be
the same as the businesses conducted by B at the time of the section 1452(d)
election or thereafter.
Discussion
Section 1452(a) of Article 32 of the Tax Law defines a “banking
corporation”. Chapter 298 of the Laws of 1985 amended section 1452(a)(9) of the
Tax Law by expanding the definition of a banking corporation to include
additional entities. However, to be a banking corporation, a corporation must
still be principally engaged in a business which might be lawfully conducted by
a corporation subject to Article 3 of the Banking Law or by a national banking
association or which is so closely related to banking or managing or controlling
banks as to be a proper incident thereto, as set forth in section 4(c)(8) of the
Federal Bank Holding Company Act of 1956, as amended.
Section 1452(d) of the Tax Law was added by Chapter 298 of the Laws of
1985, and provides that, notwithstanding the provisions of Article 32, all
corporations of classes now or heretofore taxable under Article 9-A shall
continue to be taxable under Article 9-A except, among other entities, banking
corporations described in section 1452(a)(9) of the Tax Law. However, section
1452(d) provides further that a corporation described in section 1452(a)(9) of
the Tax Law which was subject to the tax imposed by Article 9-A for its taxable
year ending during 1984 may make a one-time election to continue to be taxable
under Article 9-A. The election is made by the corporation on or before the due
date for filing its return (determined with regard to extensions) for its taxable
year ending during 1985. The election shall continue to be in effect until
revoked by the taxpayer. In no event shall the election or revocation be for a
part of a taxable year.
Section 16-2.5(j)(3) of the Franchise Tax on Banking Corporations
Regulations provides that the election is made by the filing of a tax return
pursuant to Article 9-A of the Tax Law and the revocation is made by the filing
of a tax return pursuant to Article 32 of the Tax Law.
In Robert J. Buckley, Adv Op Comm T & F, May 26, 1994, TSB-A-94(8)C, it was
held that where a corporation made the election pursuant to section 1452(d) of
the Tax Law, the subsequent takeover of the electing corporation's parent bank
by the FDIC and the subsequent sale of the parent bank’s stock did not affect the
corporation’s election.
In Apple Bank for Savings, Adv Op Comm T & F, March 25, 1996, TSB-A-96(7)C,
it was held that where a corporation made the election pursuant to section
1452(d) of the Tax Law, the acquisition of a subsidiary's parent bank by another
bank and the expansion of the subsidiary's line of business did not affect the
subsidiary's election to be taxable under Article 9-A of the Tax Law. Further,

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for purposes of determining whether the election made under section 1452(d) of
the Tax Law is revoked, the activities of the corporation making the election are
not considered, except that, if the corporation changes its activities to the
extent that it can not be properly classified as a corporation taxable under
Article 9-A of the Tax Law, the election made under section 1452(d) of the Tax
Law would be revoked. In Apple Bank, the subsidiary had been solely involved in
an insurance agency business. As a condition of its parent's reorganization, the
Federal Reserve Bank of New York required that the subsidiary cease all new
insurance business by a certain date. The subsidiary did cease all insurance
operations and it planned to expand its line of business to include investments
in securities after its New York charter was amended.
In Barclays Business Credit Inc., Adv Op Comm T & F, November 15, 1996,
TSB-A-96(26)C, it was held that where a corporation made the election pursuant
to section 1452(d) of the Tax Law, the merger of another corporation into it with
the electing corporation as the surviving entity and the change in the electing
corporation's activities to be a registered broker/dealer and a primary dealer
in U.S. government securities did not require a change in the classification of
the corporation as an Article 9-A taxpayer and did not affect the corporation's
election to be taxable under Article 9-A.
In this case, following Buckley, supra, Apple Bank, supra, and Barclays,
supra, as long as B continues to file its tax returns under Article 9-A of the
Tax Law, under the three scenarios presented, B will continue to elect, pursuant
to section 1452(d) of the Tax Law, to be taxed under Article 9-A.

DATED: July 27, 1998

NOTE:

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

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