Sec. 21-2.3. Corporations permitted or required to file a combined return

Tax Law, § 1462(f)

(a)

(1) In the discretion of the Tax Commission, any banking corporation or bank holding company which is exercising its corporate franchise or doing business in New York State in a corporate or organized capacity, and:

(i) any banking corporation or bank holding company which owns or controls, directly or indirectly, 65 percent or more of its voting stock; and

(ii) any banking corporation or bank holding company in which it owns or controls, directly or indirectly, 65 percent or more of the voting stock;

may be permitted or required to make a return on a combined basis. The Tax Commission will permit or require such corporations to file on a combined basis if it determines that a combined return is necessary in order to properly reflect the tax liability of such a banking corporation or bank holding company. The corporations described in subparagraphs (i) and (ii) of this paragraph include corporations which are not exercising their corporate franchise or doing business in New York State in a corporate or organized capacity.

(2) The Tax Commission may, in its discretion, permit or require the filing of a combined return by banking corporations or bank holding companies 65 percent or more of the voting stock of each of which is owned or controlled, directly or indirectly, by the same interest, if at least one of such corporations is a taxpayer and if the Tax Commission determines that such filing is necessary in order to properly reflect the tax liability of any one or more of such corporations.

(b)

(1) For those corporations described in subdivision (a) of this section, in making its determination whether a combined return is necessary in order to properly reflect the tax liability of any one or more of such corporations, the Tax Commission will first determine whether the group of corporations under consideration is engaged in a unitary business. In deciding whether a corporation is part of a unitary business, the Tax Commission will consider whether the activities in which the corporation engages are related to the activities of the other corporations in the group, or whether the corporation is engaged in the same or related lines of business as the other corporations in the group. It will be presumed that a group of corporations meeting the stock ownership requirements of subdivision (a) of this section (including those also meeting the requirements of section 21-2.2[a][1] of this Subpart and of section 21-2.6[a] of this Subpart) is engaged in a unitary business. The burden of establishing that a corporation in such group is not part of a unitary business shall be upon the person so asserting, whether such person be the Tax Commission or any member of such group.

(2) When a taxpayer engaged in a unitary business reports on a separate basis, the tax liability of such taxpayer and any other banking corporation or bank holding company in such unitary business may be deemed to be improperly reflected because of:

(i) intercorporate transactions (see paragraph [3] of this subdivision); or

(ii) some agreement, understanding, arrangement or transaction existing between the taxpayer and any other combinable corporation, whereby the activity, business, income or assets of the taxpayer within New York State is improperly or inaccurately reflected.

(3)

(i) If there are substantial intercorporate transactions among the banking corporations or bank holding companies engaged in a unitary business, it will be presumed that the tax liability of the taxpayer will be improperly reflected when the taxpayer reports on a separate basis. In determining whether there are substantial intercorporate transactions, the Tax Commission will consider transactions directly connected with the business conducted by such corporations, such as:

(a) performing services for other corporations in the group;

(b) providing funds to other corporations in the group; or

(c) performing related customer services using common facilities and employees.

Service functions will not be considered when they are incidental to the business of the corporation providing such services. Service functions include, but are not limited to, accounting, legal and personnel services. The substantial intercorporate transaction test may be met where as little as 50 percent of a corporation's receipts or expenses are from one or more qualified activities described in this paragraph. It is not necessary that there be substantial intercorporate transactions between any one member with every other member of the group. It is, however, essential that each corporation have substantial intercorporate transactions with one other combinable corporation or with a combined or combinable group of corporations. For example, corporations X, Y and Z are banking corporations and Z derives 30 percent of its receipts from the performance of services for corporation X and 40 percent from the performance of services for corporation Y. If corporations X and Y constitute a combined or combinable group, there are substantial intercorporate transactions between corporation Z and such a combined group because 70 percent of corporation's Z's receipts are from such combined group. If corporations X and Y do not constitute a combined or combinable group, there are not substantial intercorporate transactions between corporation Z and corporations X and Y.

(ii) If a corporation described in subdivision (a) of this section fails to meet the presumption of improper reflection of tax liability because it does not have substantial intercorporate transactions with any other combinable corporation or with a combined or combinable group of such corporations and if the filing of a return on a separate basis nevertheless results in an improper reflection of the taxpayer's tax liability in New York State, the Commissioner of Taxation and Finance will permit or require the filing of a combined return. If a corporation described in subdivision (a) of this section meets the presumption of improper reflection of tax liability because it has substantial intercorporate transactions with any other combinable corporation or with a combined or combinable group of such corporations, and if the filing of a return on a separate basis does not result in an improper reflection of the taxpayer's tax liability in New York State, the Commissioner of Taxation and Finance will not permit or require the filing of a combined return.

(4) When a taxpayer reports on a separate basis, the tax liability of such taxpayer and any other banking corporation or bank holding company may be deemed to be improperly reflected because of some agreement, understanding, arrangement or transaction existing between the taxpayer and any other combinable corporation, whereby the activity, business, income or assets of the taxpayer within New York State is improperly or inaccurately reflected.

(c) Except for corporations described in section 21-2.2(a)(1) of this Subpart, any banking corporation or bank holding company described in subdivision (a) of this section and those described in section 21-2.6(a) of this Subpart which meet the applicable requirements may file a combined return with one or more banking corporations or bank holding companies, or be added to or excluded from a combined return in accordance with section 21-2.5(a)(2) of this Subpart.