NY TSB-A-99(11)C Corporation Tax 1999-01-27

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

Short answer: Generally yes, with one limit. The corporation's section 1452(d) grandfather election to stay under Article 9-A is not revoked by Citicorp's acquisition of it, by a later transfer to Citigroup, or by transferring business activities into it; and it survives a merger in which the corporation is the surviving entity (even if the merged-in activities differ), as long as those activities would be Article 9-A activities but for bank ownership. But if the corporation is not the surviving entity in a merger, it ceases to exist and its election ceases -- the election does not carry over to the survivor. Whether a particular merger revokes the election is a factual question. As long as the corporation keeps filing under Article 9-A, the election continues.

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

Sutdex Real Estate Corp, a New York corporation that did little or no business, had made the section 1452(d) "grandfather" election to continue being taxed under Article 9-A rather than the bank franchise tax (Article 32). It was then acquired by Citicorp (a bank holding company taxed under Article 32), and in the Citicorp/Travelers reorganization the parent group became Citigroup. Sutdex Real Estate Corp asked, across three hypothetical scenarios (corporations merging into it, a transfer to Citigroup, and business activities being moved into it), whether its 1452(d) election to stay under Article 9-A survives.

The Department gave guidance, noting that whether the hypothetical mergers actually revoke the election is a question of fact it cannot decide in an advisory opinion:

A 1452(d) election continues until the taxpayer revokes it by filing an Article 32 return.
Following Buckley and Apple Bank, Citicorp's acquisition of Sutdex Real Estate Corp -- and a later transfer to Citigroup or a Citigroup subsidiary -- does not revoke the election.
If Sutdex Real Estate Corp is the surviving entity when other corporations merge into it, the election survives (following Apple Bank and Barclays), even if the merged-in activities differ -- as long as they would be Article 9-A activities but for bank ownership.
But if Sutdex Real Estate Corp is not the surviving entity, it ceases to exist and its election ceases; the election does not carry over to the surviving entity.
Transferring business activities into Sutdex Real Estate Corp (not a merger) does not revoke the election.

So long as Sutdex Real Estate Corp keeps filing under Article 9-A, the election continues.

What this means for you

The grandfather election rides through ownership changes

A parent-bank acquisition, or a transfer to another bank holding company, does not by itself revoke a section 1452(d) election; only the taxpayer's filing an Article 32 return does.

Surviving the merger is the dividing line

If the electing corporation survives a merger, its election survives with it. If it is absorbed and ceases to exist, the election dies and does not pass to the survivor.

Whether a specific merger revokes it is factual

The Department cannot resolve hypothetical mergers in an advisory opinion; the controlling test is whether the corporation can still be classified as an Article 9-A taxpayer.

Common questions

Q: Did Citicorp's acquisition revoke the section 1452(d) election?
A: No. Following Buckley and Apple Bank, the acquisition (and a later transfer to Citigroup) does not revoke the election.

Q: What happens if the corporation does not survive a merger?
A: Its election ceases when it ceases to exist; the election does not carry over to the surviving entity.

Q: Does moving business activities into it revoke the election?
A: No, as long as those activities would be Article 9-A activities but for bank ownership, and the corporation keeps filing under Article 9-A.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 1452(a)(9) (definition of banking corporation)
- 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)
- Sutdex Real Estate Corp, TSB-A-99(11)C (Jan. 27, 1999)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(11)C
Corporation Tax
January 27, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C981103D

On November 3, 1998, a Petition for Advisory Opinion was received from Sutdex Real
Estate Corp, Corporate Tax Dept., 250 West Street, 9th Floor, New York, New York 10013.
The issue raised by Petitioner, Sutdex Real Estate Corp, is whether it is subject to franchise
tax under Article 9-A of the Tax Law due to its having made the grandfather election, pursuant to
section 1452(d) of the Tax Law, to continue to be subject to Article 9-A.
Petitioner submits the following facts as the basis for this Advisory Opinion.
On August 25, 1998, Citicorp, a bank holding company, subject to Article 32 of the Tax Law,
purchased all of the stock of Petitioner, a New York corporation, from a corporation subject to
Article 32 of the Tax Law. Petitioner, which was engaged in little or no business prior to its
acquisition by Citicorp, was subject to tax under Article 9-A of the Tax Law due to its having made
the grandfather election, pursuant to section 1452(d) of the Tax Law, to continue to be subject to
Article 9-A.
On October 8, 1998, Citicorp merged into Citi Merger Sub Inc. ("Merger Sub"), a wholly
owned subsidiary of Travelers Group Inc. ("Travelers"), as part of the plan of reorganization
between Citicorp and Travelers. Pursuant to that plan of reorganization, when Citicorp merged into
Merger Sub, in exchange for their Citicorp shares, Citicorp shareholders received shares of
Travelers, Merger Sub changed its name to Citicorp, Travelers changed its name to Citigroup Inc.
("Citigroup") and Citigroup became a bank holding company.
Assuming that the election pursuant to section 1452(d) of the Tax Law was properly made
by Petitioner, does Petitioner remain taxable under Article 9-A of the Tax Law under the following
three scenarios:
Scenario 1. Subsequent to Citicorp's acquisition of Petitioner, one or more corporations with
which Citicorp files a federal consolidated return will merge into Petitioner. The activities
of the corporations to be merged into Petitioner are such that, had the corporations not been
owned by a bank holding company, the corporations would be subject to tax under Article
9-A of the Tax Law. The activities of the corporation to be merged into Petitioner may not
be the same as the activities conducted by Petitioner at the time of the section 1452(d) of the
Tax Law election or thereafter.

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Scenario 2. Subsequent to Citicorp's acquisition of Petitioner, Petitioner will be transferred
to Citigroup, or a subsidiary of Citigroup with which Citigroup files a federal consolidated
return. Citigroup is a bank holding company with which Citicorp files a federal consolidated
return. Subsequent to the transfer, one or more corporations with which Citicorp and
Citigroup file a federal consolidated return will merge into Petitioner. The activities of the
corporation(s) to be merged into Petitioner 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 Petitioner may
not be the same as the activities conducted by Petitioner at the time of the section 1452(d)
of the Tax Law election or thereafter.
Scenario 3. Assuming the same facts as in Scenarios 1 and 2 above, in addition to the merger
of the corporations into Petitioner, certain businesses currently conducted by subsidiaries of
Citicorp or Citigroup will be transferred into Petitioner. The businesses transferred into
Petitioner 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 Petitioner may not be the same as the
businesses conducted by petitioner at the time of the section 1452(d) of the Tax Law 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. To qualify as a banking corporation under section
1452(a)(9) of the Tax Law, a corporation, in addition to meeting certain ownership requirements,
must 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 was made by a
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.

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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 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, 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, it is assumed that Petitioner properly made the election under section 1452(d)
of Article 32 of the Tax Law, to continue to be subject to tax under Article 9-A of the Tax Law. In
all three Scenarios, one or more corporations will merge with Petitioner. Since these are
hypothetical scenarios that have not taken place, Petitioner cannot describe the merger transactions
or state which entity will be the survivor. Therefore, it is not possible in this advisory opinion to
determine whether Petitioner's election to continue to be taxable under Article 9-A made pursuant
to section 1452(d) of the Tax Law, would be revoked as a result of the transactions described in
Scenarios 1, 2 and 3. Such determination is a question of fact not susceptible of determination in
an advisory opinion. An Advisory Opinion merely sets forth the applicability of pertinent statutory
and regulatory provisions to "a specified set of facts." Tax Law, §171.Twenty-fourth; 20 NYCRR
2376.1(a).

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January 27, 1999

However, the following will provide guidance in determining whether Petitioner's election,
pursuant to section 1452(d) of the Tax Law would be revoked. As in Buckley, supra, and Apple
Bank, supra, Citicorp's acquisition of Petitioner will not revoke Petitioner's election, pursuant to
section 1452(d) of the Tax Law, to be taxed under Article 9-A of the Tax Law. Likewise, with
respect to Scenario 2, the subsequent transfer of Petitioner to Citigroup, or a subsidiary of Citigroup
would not revoke Petitioner's election.
With respect to Scenarios 1 and 2, if Petitioner is the surviving entity when one or more
corporations are merged with Petitioner, following Apple Bank, supra, and Barclays, supra, such
transaction or transactions would not revoke Petitioner's election, pursuant to section 1452(d) of the
Tax Law, to be taxed under Article 9-A of the Tax Law. However, if Petitioner is not the surviving
entity after the merger transaction or transactions, Petitioner would cease to exist, and Petitioner's
election, pursuant to section 1452(d) of the Tax Law would also cease. Petitioner's election made
pursuant to section 1452(d) of the Tax Law would not carry over to the surviving entity.
With respect to Scenario 3, it is assumed that the transfer to Petitioner of certain businesses
conducted by subsidiaries of Citicorp or Citigroup does not constitute a merger of the entities.
Following Apple Bank, supra, the transfer of such business activities to Petitioner would not revoke
Petitioner's election, pursuant to section 1452(d) of the Tax Law, to be taxed under Article 9-A of
the Tax Law.
If the transactions described in Scenarios 1, 2 and 3 do not revoke Petitioner's election,
Petitioner, pursuant to section 1452(d) of the Tax Law, will continue to elect to be taxed under
Article 9-A as long as Petitioner continues to file its tax returns under Article 9-A of the Tax Law.

DATED: January 27, 1999

NOTE:

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

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