NY TSB-A-99(23)C Corporation Tax 1999-09-17

Does a corporation's section 1452(d) election to remain taxable under Article 9-A survive a merger of its parent bank, a name change, and a change in its business activities?

Short answer: Yes. The corporation's one-time section 1452(d) election to continue being taxed under Article 9-A (rather than Article 32) was not revoked by the merger of its parent bank into another bank, by its name change, or by the new business activities contributed to it -- because those activities are such that it would still be classified as an Article 9-A taxpayer if it were not bank-owned. As long as it keeps filing under Article 9-A, the election continues in effect.

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

John Street Service Corp. (later renamed NAMCO Asset Management Inc.) had always filed under Article 9-A. When the banking-corporation definition was expanded in 1985 (section 1452(a)(9)), John Street made the one-time section 1452(d) "grandfather" election to continue being taxed under Article 9-A instead of the bank franchise tax (Article 32). Then its parent bank merged into The Dime Savings Bank, John Street changed its name to NAMCO, and new business activities were contributed to it. NAMCO asked whether its 1452(d) election still held.

The Department held the election survives:

A 1452(d) election continues until the taxpayer revokes it by filing an Article 32 return (20 NYCRR 16-2.5(j)(3)).
Following Buckley, Apple Bank, and Barclays, a change in the parent bank's ownership and a change in the electing corporation's own activities do not revoke the election -- unless the corporation's activities change so much that it could no longer be properly classified as an Article 9-A taxpayer.
Here the new activities were such that NAMCO would be subject to Article 9-A if it were not owned by Dime, so classification (and the election) is unaffected.

As long as NAMCO keeps filing under Article 9-A, it continues to be taxed under Article 9-A.

What this means for you

The grandfather election is sticky

A section 1452(d) election to stay under Article 9-A persists across corporate events; it ends only when the taxpayer affirmatively revokes it by filing an Article 32 return.

Parent-level changes do not break it

A merger or acquisition affecting the parent bank does not, by itself, revoke the subsidiary's election.

The one thing that can revoke it

If the electing corporation changes its activities so that it could no longer be classified as an Article 9-A taxpayer at all, the election falls away. Activities that remain 9-A in character keep it intact.

Common questions

Q: Did the parent bank merger revoke the section 1452(d) election?
A: No. Following Buckley, Apple Bank, and Barclays, a parent-bank merger does not revoke the election.

Q: Did the name change or new business activities matter?
A: No, because the new activities would still classify the corporation as an Article 9-A taxpayer if it were not bank-owned.

Q: How is a section 1452(d) election revoked?
A: By the corporation filing a tax return under Article 32; otherwise it continues in effect.

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)
- NAMCO Asset Management Inc., TSB-A-99(23)C (Sept. 17, 1999)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(23)C
Corporation Tax
September 17, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C990729A

On July 29, 1999, a Petition for Advisory Opinion was received from NAMCO Asset
Management Inc., c/o Roberts & Holland LLP, 825 Eighth Avenue, 37th Floor, New York, New
York 10019.
The issue raised by Petitioner, NAMCO Asset Management Inc., is whether, based on the
facts presented, it remains taxable under Article 9-A of the Tax Law pursuant to the election made
under section 1452(d) of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
On April 30,1997, Bankers Federal Savings FSB ("Bankers Federal") was acquired by and
merged into The Dime Savings Bank of New York, FSB, ("Dime"). Both companies were subject
to Article 32 of the Tax Law, and Dime, the surviving corporation, remains subject to Article 32.
John Street Service Corp. ("John Street"), a New York corporation, was formed in 1972.
From its inception and continuing to the date of the merger with Dime, Bankers Federal owned all
of the outstanding shares of John Street. After the merger, Dime owned all of the shares of John
Street.
For all years since its formation in 1972, John Street has been subject to tax and filing returns
under Article 9-A of the Tax Law. Pursuant to section 1452(d) of the Tax Law, John Street made
the grandfather election to continue to be subject to Article 9-A of the Tax Law. That election was
made by John Street by filing its tax return under Article 9-A for its taxable year ending in 1985.
On December 8, 1998, John Street, which was engaged in little or no activity, changed its
corporate name to NAMCO Asset Management Inc.,("NAM"). The federal employer identification
number that had been John Street's continued to be used by NAM. Subsequent to December 8, 1998,
specific business activities were contributed to NAM. The activities are such that the corporation
would properly be classified as subject to Article 9-A of the Tax Law if it were not owned by Dime.
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,

-2
TSB-A-99(23)C
Corporation Tax
September 17, 1999

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.
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

-3
TSB-A-99(23)C
Corporation Tax
September 17, 1999

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, the merger
of Bankers Federal into Dime, and the name change of John Street to NAM would not revoke John
Street's election, pursuant to section 1452(d) of the Tax Law, to be taxed under Article 9-A of the
Tax Law. Further, since the businesses transferred into NAM are such that NAM would be subject
to tax under Article 9-A of the Tax Law if it were not owned by Dime, the change in NAM's
business activities would not revoke John Street's election, pursuant to section 1452(d) of the Tax
Law to be taxed under Article 9-A of the Tax Law. As long as NAM continues to file its tax returns
under Article 9-A of the Tax law, NAM will continue to elect, pursuant to section 1452(d) of the Tax
Law, to be taxed under Article 9-A of the Tax Law.

DATED: September 17, 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.