Sec. 16-2.23. Definition of subsidiary capital

Tax Law, § 1450(e)

(a) The term subsidiary capital means the total of:

(1) investment of the taxpayer in shares of stock of its subsidiaries; and

(2) the amount of indebtedness owed to the taxpayer by its subsidiaries, whether or not evidenced by a written instrument, on which interest is not claimed and deducted by the subsidiary for purposes of any tax imposed by article 9-A, 32 or 33 of the Tax Law. Subsidiary capital does not include accounts receivable acquired in the ordinary course of trade or business for services rendered or for sales of property held primarily for sale to customers.

(b) Each item of subsidiary capital must be reduced by any liabilities of the taxpayer (parent), payable by their terms on demand or not more than one year from the date incurred, other than loans or advances outstanding for more than a year as of any date during the year covered by the return which are attributable to that item of subsidiary capital. The reduction will be made, for example, in cases where the liabilities have been incurred in connection with the acquisition or holding of stock or securities of a subsidiary, or in the making of a loan to a subsidiary.

(c) Subsidiary capital does not include stocks, bonds or other securities of a subsidiary held by the taxpayer for sale to customers in the regular course of the taxpayer's business. Indebtedness on which any interest is deducted by the subsidiary in computing any New York State franchise tax imposed on the subsidiary under article 9-A, 32 or 33 of the Tax Law may not be included in the taxpayer's subsidiary capital.