New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter I - Franchise and Certain Business Taxes › Subchapter C - Franchise Taxes On Insurance Corporations › Part 32 - COMBINED RETURNS › Section 32.9 - Examples

Current through Register Vol. 46, No. 28, July 10, 2024
Unless otherwise provided, assume the following facts for
					 all examples: Corporation A owns all of the stock of corporations B, C, D, E,
					 F, G, H, I, L, M, N, O, P, Q, and R. All of the corporations are calendar year
					 taxpayers for Federal income tax purposes. Corporation I is taxable under
					 article 9-A. Corporations B and C are taxable under sections 1501 and 1502 of
					 article 33. All remaining corporations would be subject to tax under sections
					 1501 and 1502 of article 33 if they had nexus with New York. None of the
					 corporations are taxable under section 1502-a. Only Corporation D is a
					 corporation organized under the laws of a country other than the United States.
					 To the extent that the conclusion of the example is filing on a separate basis,
					 it is assumed that the Commissioner did not find that a combined report would
					 be required to properly reflect tax liability as a result of inter-company
					 transactions or some agreement, understanding or arrangement or
					 transaction.
Example 1: 90 percent of B's receipts are from D.
					 Therefore, there are substantial intercorporate transactions between B and D. B
					 and D are a tentative combined group and must file a combined return.
Example 2: B's receipts are: 22 percent from A, 20 percent
					 from C, 30 percent from D, 10 percent from E and the rest are from unrelated
					 entities. 40 percent of C's expenses are to B. No other substantial
					 intercorporate transactions occur between the corporations. Since there is no
					 tentative combined group among the related corporations, corporations B and C
					 file on a separate basis.
Example 3: 90 percent of B's receipts are from D and 100
					 percent of D's receipts are from E. D is an alien corporation. There are
					 substantial intercorporate transactions between B and D, and D and E. B, D and
					 E must file a combined return.
Example 4: A is the only taxpayer and 50 percent of A's
					 receipts are from B, with another 4 percent from E. 30 percent of E's
					 expenditures are to A and 20 percent to D. C has no transactions with anyone in
					 the group. 50 percent of D's receipts are from A. 50 percent of F's receipts
					 are from A. 100 percent of H's receipts are from F. 100 percent of R's receipts
					 are from H. 20 percent of B's receipts are from L, 20 percent from M, and 20
					 percent from N. 100 percent of L's receipts are from M. 100 percent of M's
					 receipts are from N. 40 percent of O's receipts are from R and 30 percent are
					 from D. 60 percent of P's receipts are from O. 80 percent of L's expenditures
					 are to Q. All of these corporations are in the step 1 group of related
					 corporations because they meet the stock ownership test. The step 2 tentative
					 combined group consists of A, B, D, and F. As a result of step 3, H is added to
					 the tentative combined group. As a result of step 4, R is added to the
					 tentative combined group. As described in step 5, L, M, N and Q is an
					 unattached related group and O and P is an unattached related group.
					 Corporations O and P are added to the tentative group pursuant to step 6
					 because 70 percent of O's receipts are from R and D. The step 6 tentative
					 combined group is A, B, D, F, H, R, O and P. The corporations in the unattached
					 unrelated group of L, M, N and Q are all added to the tentative combined group
					 pursuant to step 7 because B has substantial intercorporate transactions with
					 the unattached related group of L, M, N and Q. The step 7 tentative combined
					 group is A, B, D, F, H, R, O, P, L, M, N and Q. Pursuant to step 8, E is added
					 to the step 7 tentative combined group because 30 percent of its expenditures
					 are from A and 20 percent are from D. The step 9 tentative combined group is
					 the same as the step 8 tentative combined group. Since no corporations will be
					 excluded from the step 9 tentative combined group pursuant to step 10, the
					 group of corporations that must file a combined return are A, B, D, F, H, R, O,
					 P, L, M, N, Q and E.
Example 5: A's only activity is to receive dividends from
					 its wholly owned subsidiaries. B sells stocks, C sells municipal bonds and D
					 sells corporate bonds. B, C and D each have their own employees. However, the
					 employees of one corporation are authorized to and do sell extensively the
					 securities sold by the other corporations. 80 percent of the receipts of B, 70
					 percent of the receipts of C and 60 percent of the receipts of D are generated
					 by sales made by the common pool of employees of B, C, and D. All three
					 corporations carry on their activities at or using common facilities. Because
					 there are substantial intercorporate transactions using common facilities and
					 employees among B, C and D, they are a combined group and must file a combined
					 return. A is not included in the combined group because it has no substantial
					 intercorporate transactions with a related corporation.
Example 6: 90 percent of B's receipts are from I and 100
					 percent of I's receipts are from E. C has no transactions with anyone in the
					 group. I is taxable under article 9-A. There are substantial intercorporate
					 transactions between B and I, and I and E. B, I and E are a tentative combined
					 group. However, since I is taxable under another franchise tax imposed by the
					 Tax Law, it cannot be included in a combined return. Therefore, B and E must
					 file a combined return. C files on a separate basis.
Example 7: A, B, C, D, and E are parties to an intercompany
					 reinsurance pooling agreement. In accordance with the terms and conditions of
					 this agreement, the member companies cede 100% of their direct and assumed
					 business to Company A, the lead company pool participant. In turn, each pool
					 participant assumes their percentage share of the pooled business ceded from
					 Company A. The capital stock requirement is met but substantial intercorporate
					 transactions are absent. However, the Commissioner deems a combined report
					 including A. B, C, D and E is necessary to properly reflect tax liability
					 because of inter-company agreements between the corporations.