In 1972, a corporation was a one-bank holding company owning a national bank. Federal law at the time restricted how states could tax national banks, and New York had chosen to tax national banks on their net income under a different tax article rather than through the shares of a holding company. Did the holding company have to include its national-bank shares in the subsidiary capital taxed under the general corporate franchise tax?

Plain-English summary

This is one of three related petitions C.I.T. Financial Corporation and Combined Subsidiaries filed the same day, May 5, 1982 -- this one, Petition B, superseding an earlier version of the same opinion dated March 21, 1983. (Petition A became TSB-A-83(3)C, on combined-report capital eliminations, and Petition C became TSB-A-83(7)C, on sourcing finance income.)

For its 1972 tax year, Petitioner was a "one-bank holding company" -- a corporation whose only banking-related asset was ownership of National Bank of North America. Article 9-A's franchise tax base includes "subsidiary capital" (generally, investments in subsidiary stock). The question was whether Petitioner had to include its investment in that national bank's shares in its own Article 9-A subsidiary capital for 1972.

The answer turned entirely on federal, not state, law. Before December 24, 1969, federal law (12 U.S.C. § 548) let each state choose only one of four ways to tax national banks located there -- and New York had chosen to tax national banks on their net income under Article 9-C, not through a shares-based tax reaching a holding company's investment. Congress amended § 548 in 1969 and again in 1971 to give states somewhat broader authority to tax national banks like state-chartered banks, but for the period December 24, 1969 through January 1, 1973 (which covers the 1972 tax year at issue), the amendment came with a grandfather condition: a state couldn't impose a "new" tax on a class of banks under this broadened authority unless either (1) the tax already existed on that class of banks before the 1969 Act, or (2) the state legislature affirmatively acted, after the 1969 Act, to authorize it. Neither condition was met here -- New York hadn't previously taxed one-bank holding companies' national-bank shares this way, and the Legislature took no such affirmative action during the relevant window. So for 1972, Petitioner was not required to include its national-bank subsidiary's shares in its subsidiary capital.

What this means for you

This is a narrow, historical result, not a general rule

This opinion resolves a specific 1972-tax-year question under a federal statute (12 U.S.C. § 548) that was amended multiple times in the years that followed and no longer reads the way it did during the December 1969-to-January 1973 window discussed here. It has essentially no relevance to how bank holding companies are taxed on their national-bank investments today.

A reminder that state tax outcomes can hinge on federal statutory windows

Where state taxing power over a particular type of entity (here, national banks) is itself governed by a federal statute, changes to that federal statute -- and any grandfather or transition provisions it contains -- can determine the state tax result for a specific historical period, independent of anything the state itself did.

Common questions

Q: Does this ruling mean bank holding companies never have to include national-bank shares in subsidiary capital?
A: No -- it resolves only the 1972 tax year under a federal statute that has since been amended further; it doesn't describe current law.

Q: Why did New York's own prior tax choice matter here?
A: Because the federal statute's grandfather clause asked whether New York already taxed that class of banks before the 1969 federal amendment -- since New York taxed national banks under a different article (net income under Article 9-C) rather than through holding-company shares, the "already taxed" condition wasn't met, and the Legislature never separately authorized the new approach during the relevant window.

Q: Can another 1972-era one-bank holding company rely on this Opinion?
A: No. It binds the Department only as to C.I.T. Financial's own facts and can't be relied upon by other taxpayers, even those with an identical 1972 fact pattern.

Citations and references

Statutes:

• Tax Law § 210.1(b) (subsidiary capital)
• 12 U.S.C. § 548 (as amended by P.L. 91-156 and P.L. 92-213, governing state taxation of national banks December 24, 1969 - January 1, 1973)

Related rulings (same petitioner, filed the same day, May 5, 1982):

• TSB-A-83(3)C -- Petition A, how to split a combined-report intercorporate elimination between subsidiary capital and business capital
• TSB-A-83(7)C -- Petition C, sourcing multi-state finance income for the receipts factor

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a83_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(1)C
Corporation Tax
April 29, 1983

This memo supercedes TSB-A-83(1)C dated March 21, 1983 which should be destroyed.

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C820505B

On May 5, 1982 a Petition for Advisory Opinion was filed by C.I.T. Financial Corp. and
Combined Subsidiaries, 650 Madison Avenue, New York, New York 10022.
The issue presented is whether C.I.T. Financial Corporation is required to include in
subsidiary capital, on its 1972 franchise tax return filed under Article 9-A of the Tax Law, its shares
in the National Bank of North America, of which it was a one-bank holding company during the year
in question.
Prior to December 24, 1969 the various states were permitted to tax national banks located
in such states in only one of four ways, apart from non-discriminatory real estate taxation.12 USC
§548.It was provided, thus, that:
The legislature of each State may determine and
direct, subject to the provisions of this section, the
manner and place of taxing all the shares of national
banking associations located within its limits. The
several States may (1) tax said shares, or (2) include
dividends derived therefrom in the taxable income of
an owner or holder thereof, or (3) tax such
associations on their net income, or (4) according to
or measured by their net income . . . .
During the period in which such statutory provision set forth the full extent of the states'
taxing power over national banks, New York subjected national banks to a tax on their net income,
under Article 9-C of the Tax Law. Having adopted one of the mutually exclusive tax options
presented at the time in 12 USC §548, New York could not require the inclusion of the shares of a
national bank in the subsidiary capital of its "one-bank holding company" for purposes of the tax on
subsidiary capital imposed under Article 9-A of the Tax Law. See in this regard the opinions of the
Counsel to the Department of Taxation and Finance issued on January 14, 1969 and March 4, 1969.
The Federal statutory provision here under discussion was amended by the Congress on
December 24, 1969 (P.L. 91-156), and again by P.L. 92-213. As so amended, section 548 provides,
with respect to the period between December 24, 1969 and January 1, 1973 (thus including the
taxable year at issue herein), in relevant part, as follows:

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-83(1)C
Corporation Tax
April 29, 1983

"5.
(a)
In addition to the other methods of
taxation authorized by the foregoing provisions of this
section and subject to the limitations and restrictions
specifically set forth in such provisions, a State or
political subdivision thereof may impose any tax
which is imposed generally on a nondiscriminatory
basis throughout the jurisdiction of such State or
political subdivision(other than a tax on intangible
personal property) on a national bank having its
principal office within such State in the manner and to
the same extent as such tax is imposed on a bank
organized and existing under the laws of such State."
However, such amendment provided, insofar as is applicable herein, that prior to January 1,
1973 ". . . no tax may be imposed on any class of banks by or under authority of any State legislation
in effect prior to the enactment of this Act unless
(1) the tax was imposed on that class of banks prior to the enactment of this Act, or
(2) the imposition of the tax is authorized by affirmative action of the State legislature after
the enactment of this Act."
As indicated above, the requirement set forth in the first clause of this provision is not
satisfied with respect to the present matter. Further, between December 24, 1969 and January 1, 1973
the Legislature of the State of New York did not take any affirmative action to authorize the
imposition of tax in the manner under discussion.
Accordingly, with regard to taxable year 1972,
Petitioner herein was not required to include in the measure of its subsidiary capital subject to tax
under section 210.1(b) of the Tax Law its investment in its subsidiary national bank.

DATED: March 18, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau