Tax Alert

New York Modifies Combined Reporting Regulations

(Jan. 11, 2013)

New York State has amended its business corporation franchise tax regulations for combined reporting, expanding on its ability to require corporations to file on a combined basis. The amended regulations apply to taxable years beginning on or after Jan. 1, 2013.

New York generally requires corporations (other than financial institutions, which are subject to separate combined reporting rules) under common ownership to file a combined return if intercompany transactions represent more than 50 percent of a corporation’s total receipts or expenditures (the substantial intercorporate transaction test). The substantial intercorporate transaction test can apply on a company-by-company or subgroup basis, making determining the combined filing group a complicated exercise. Expenditures made by a corporation on behalf of a related corporation also will be considered in the substantial intercorporate transaction test under the new regulations.

If the 50 percent substantial intercorporate transaction test is not satisfied, combination is still required if one company contributes assets to a second company and the second company receives more than 20 percent of its gross receipts from the contributed assets. The new regulations broaden the definition of receipts from contributed property that are considered for the 20 percent test.

The new regulations provide New York with the ability to require or permit combination if the corporations are unitary and the commissioner determines a combined filing is necessary to properly reflect the tax liability, even if the corporations do not satisfy the substantial intercorporate transaction test. The new regulations also provide that corporations that apportion their income using a different statutory method (such as transportation and aviation companies) cannot be combined with regular corporations even if the substantial intercorporate transaction test is satisfied.


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