Is a nuclear plant decommissioning trust fund subject to New York's corporate franchise tax or personal income tax, and can the Department rule on New York City's General Corporation Tax?

Plain-English summary

Kansas Gas and Electric Company set up a trust to hold and invest money for the eventual cost of decommissioning its Wolf Creek nuclear plant. The trust qualified under Internal Revenue Code § 468A as a nuclear decommissioning reserve fund, meaning it can only spend its assets on decommissioning costs, related administrative expenses, and (until needed) safe investments like government securities and bank deposits. It doesn't issue stock or any certificates of ownership -- it just holds and invests the utility's set-aside money. The trust asked the Department three questions: does it owe New York's corporate franchise tax, does it owe New York's personal income tax, and does it owe New York City's General Corporation Tax or Unincorporated Business Tax.

On the franchise tax, the answer turned on a threshold definitional question rather than any exemption: New York's Article 9-A tax reaches "corporations," and the regulations define an unincorporated trust as a taxable "corporation" only if ownership interests are evidenced by a certificate or written instrument. Because the trust issues no such instruments and its only activity is investing government-restricted funds, it simply isn't a "corporation" under that definition -- so Article 9-A doesn't apply at all.

On personal income tax, the trust argued that although IRC § 468A taxes it at corporate rates for certain purposes, it's fundamentally a trust and, absent § 468A, would have qualified as a "grantor trust" -- meaning its income would be taxed directly to Kansas Gas & Electric (the grantor) rather than to the trust. The Department agreed the trust would have qualified as a grantor trust under IRC § 677, because its income is earmarked to be paid or accumulated for the utility's benefit. Since the trust has no federal taxable income under either theory, it has no New York personal income tax liability under Article 22 either -- which meant the Department didn't need to separately decide whether the trust is technically "taxed as a corporation" for federal purposes. Finally, on New York City taxes, the Department noted that the Commissioner's advisory-opinion authority under Tax Law § 171(24) only covers taxes the Commissioner administers -- and NYC's General Corporation Tax and Unincorporated Business Tax aren't among them -- so it issued no opinion on those questions at all.

What this means for you

Utilities and other entities with decommissioning or similar restricted trusts

A trust created solely to hold and invest restricted funds (like a nuclear decommissioning fund), which issues no stock or ownership certificates, generally isn't a "corporation" for New York Article 9-A purposes -- separate from any question about its federal or state income tax treatment as a trust.

Trusts that could otherwise qualify as federal grantor trusts

If a special-purpose trust would have qualified as a grantor trust but for a specific Internal Revenue Code provision taxing it directly (like § 468A), and it has no federal taxable income under that provision, it may also have no New York personal income tax liability -- New York's Article 22 largely follows federal taxable income for trusts.

Anyone with a question about NYC taxes

The State Department of Taxation and Finance only issues advisory opinions on taxes it administers. It does not administer New York City's General Corporation Tax or Unincorporated Business Tax, so don't expect (and can't rely on the absence of) a state ruling to resolve NYC tax questions -- those require a separate inquiry to NYC.

Common questions

Q: Does this mean decommissioning trusts never owe New York tax?
A: No -- this ruling turned on this trust's specific facts (no stock/certificates, qualifies as a grantor trust with no federal taxable income). A differently structured trust could reach a different result.

Q: Can another utility's decommissioning trust rely on this opinion?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied on by other taxpayers, even ones with similar trusts.

Q: What about New York City tax on this trust?
A: Not addressed. The Department explicitly said it isn't authorized to rule on NYC's General Corporation Tax or Unincorporated Business Tax.

Citations and references

Statutes and regulations:

• Tax Law § 209(1) (Article 9-A franchise tax); § 208(1) (definition of corporation)
• Business Corporation Franchise Tax Regulations § 1-2.3(b)
• IRC § 468A and Temp. Reg. § 1.468A-5T(a)(3)(i) (nuclear decommissioning funds)
• Tax Law § 601(c); § 618 (Article 22 treatment of trusts)
• IRC §§ 671-679, 677 (grantor trust rules)
• Tax Law § 171(24) (scope of advisory opinion authority)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a87_31c_8i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-87 (31) C
Corporation Tax
TSB-A-87 (8) I
Income Tax
December 8 , 1987

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z870603A

On June 3, 1987, a Petition for Advisory Opinion was received from Kansas
Gas and Electric Company, Wolf Creek Generating Station Decommissioning Trust,
21 West Street, New York, New York 10015.
The issues raised are whether Petitioner is subject to tax under (I) the
franchise tax on business corporations imposed under Article 9-A of the Tax Law;
(II) the New York State persona] income tax imposed under Article 22 of the Tax
Law and the New York City Personal Income Tax authorized under Article 30 of the
Tax Law and (III) the New York City General Corporation Tax and Unincorporated
Business Income Tax imposed under Title II of the Administrative Code of the City
of New York.
Petitioner is a nuclear decommissioning reserve fund for federal income tax
purposes under section 468A of the Internal Revenue Code of 1986. Petitioner was
established as a trust solely for purposes of paying the future cost of decommis­
sioning a nuclear power plant. Petitioner does not issue stock or other certifi­
cates or written instruments evidencing ownership interests. Petitioner's sole
activity is investing for its own account.
Temporary regulation section 1.468A-5T(a)(3)(i) provides as follows:
(3) Limitation on use of fund - (i) In general. The assets of
a nuclear decommissioning fund are to be used exclusively­
(A) To satisfy in whole or in part, the liability of the
electing taxpayer for decommissioning costs of the nuclear power
plant to which the nuclear decommissioning fund relates;
(B) To pay administrative costs and other incidental expenses
of the nuclear decommissioning fund; and
(C) To the extent that the assets of the nuclear decommis­
sioning fund are not currently required for the purposes described
in paragraph (a)(3)(i)(A) or (B) of this section to invest in­
(l) Public debt securities of the United States;
(2) Obligations of a State or local government that are not in
default as to principal or interest; or
(3) Time or demand deposits in a bank ... or a credit union
... located in the United States.
TP-8 (3/83)

-2­

TSB-A-87 (31) C
Corporation Tax
TSB-A-87 (8) I
Income Tax
December 8 , 1987

Issue (I)
Section 209(1) of Article 9-A of the Tax Law imposes a corporate franchise
tax on a corporation "[f]or the privilege of exercising its corporate franchise,
or of doing business, or of employing capital, or of owning or leasing property
in this state in a corporate or organized capacity .... "
Section 208(1) of the Tax Law provides that "[It]he term "corporation"
includes a joint-stock company or association and any business conducted by a
trustee or trustees wherein interest or ownership is evidenced by certificate or
otber written instrument .... "
Regulation section 1-2.3 (b) provides:
(b) The term corporation includes a joint stock company or
association and any business conducted by a trustee or trustees
wherein interest or ownership is evidenced by certificate or other
written instrument. An entity conducted as a corporation is deemed
to be a corporation.
(1) The terms joint stock company and association include
every unincorporated Joint stock association, joint stock company or
enterprise having written articles of association and capital stock
divided into shares. The term association includes a joint stock
association.
(2) The term trust includes any business conducted by a
trustee or trustees in which interest or ownership is evidenced by
certificate or others written instrument. Such a trust includes,
but is not limited to, an association commonlv referred to as a
business trust or Massachusetts trust. In determining whether a
trustee or trustees are conducting a business, the form of the
agreement is of significance but is not controlling. The actual
activities of the trustee or trustees, not their purposes and
powers, will be regarded as decisive factors in determining whether
a trust is subject to tax under Article 9-A. The mere investment of
funds and the collection of income therefrom, with incidental
replacement of securities and reivestment of funds, does not
constitute the conduct of a business in the case of a trust. (20
NYCRR 1-2.3).
Inasmuch as Petitioner was created as a trust, does not issue stock or
other certificates or written instruments evidencing ownership interests and is
limited to investing in government debt securities and bank time or demand
deposits, it is concluded that Petitioner is not a "corporation" for purposes of
regulation section 1-2.3(b) and is not subject to the tax imposed by Article 9-A
of the Tax Law.

-3­

TSB-A-87 (31) C
Corporation Tax
TSB-A-87 (8) I
Income Tax
December 8 , 1987

Issue II
Section 468A(e)(2)(A) of the Internal Revenue Code provides that "[t]here
is hereby imposed on the gross income of the fund for any taxable year a tax at
the rate equal to the highest rate of tax specified in section ll(b) [the tax
imposed upon the taxable income of every corporation]..." Section 468A(e)(2)(C)
provides "[flor purposes of subtitle F (i) the fund shall be treated as if it
were a corporation, and (ii) any tax imposed by this paragraph shall be treated
as a tax imposed by section 11."
Section 601(c) of Article 22 of the Tax Law provides that "[a]n
association, trust or other unincorporated organization which is taxable as a
corporation for federal income tax purposes shall not be subject to tax under
this article."
However, Petitioner argues that it should not be considered an
unincorporated entity taxable as a corporation for federal income tax purposes
because "[a]lthough the rate imposed on the Trust's income is a corporate rate,
the Trust is generally set up as a trust and it is treated as a corporation only
for very specific enumerated purposes."
Additionally, Petitioner argues that before the enactment of Code section
468A, Petitioner would qualify as a grantor trust under Code section 671 through

679. Under such circumstances, the income of the trust would be treated as income
     of the grantor and the trust itself would not be subject to tax for either
     federal or state purposes.
     Thus, Petitioner argues the Kansas Gas & Electric Company (the Grantor)
     should include in its taxable income the income, deductions and credits which are
     attributable to the trust and the trust itself should be exempt from tax.
     The New York personal income tax includes no provision analogous to Code
     section 468A. Section 618 of the Tax Law provides that taxable income of a
     resident trust means its federal taxable income with certain modifications.
     Clearly, if Petitioner is a nuclear decommissioning reserve fund under Code
     section 468A, it does not have federal taxable income. Moreover, if Petitioner's
     federal taxable income could be computed as if Code section 468A did not apply,
     Petitioner would still not have federal taxable income if it qualifies as a
     federal grantor trust.
     Prior to the enactment of Code section 468A, Petitioner would have
     qualified as a grantor trust under Code section 677. Pursuant to that section,
     the grantor of a trust is treated as the owner of any portion of a trust whose
     income is or may be distributed to the grantor or held or accumulated for future
     distribution to the grantor without the approval or consent of any adverse party.
     Since the income of the fund will be distributed to Kansas Gas and Electric
     Company when it is needed to decommission the nuclear powerplant or will be held
     or accumulated for future distribution to the grantor in order for the grantor
     to pay for its liabilities in the decommissioning of its nuclear power plant, the
     Petitioner would have clearly qualified as a grantor trust.

-4­

TSB-A-87 (31) C
Corporation Tax
TSB-A-87 (8) I
Income Tax
December 8 , 1987

Inasmuch as Petitioner has no federal taxable income in any event, it is
concluded that Petitioner is exempt from personal income tax under Article 22 of
the Tax Law. In light of this answer, Petitioner's question regarding whether it
would be deemed to be taxed as a corporation for federal income tax purposes is
rendered moot.
Issue (III)
Petitioner makes reference in its petition to the New York City Genera]
Corporation Tax (Title II, Chapter 6, Subchapter 2 of the Administrative Code of
the City of New York) and the New York City Unincorporated Bus,ness Income Tax
(Title II, Chapter 5 of the Administrative Code of the City of New York).
Section 171, paragraph twenty-fourth of the Tax Law provides that the
Commissioner of Taxation and Finance shall "render advisory opinions with respect
to taxes administered by such commissioner .... " The New York City Ceneral
Corporation Tax and Unincorporated Business Income Tax are not among the taxes
administered by the Commissioner of Taxation and Finance. Accordingly, the
Commissioner is not authorized to issue an advisory opinion with respect to
either such tax and no opinion is rendered herein with respect to either such
tax.

DATED: December 8, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.