How does New York tax a utility's IRC section 468A nuclear decommissioning trust -- as a corporation itself, as a grantor trust attributed to the utility, and what happens to the utility's own franchise and gross-receipts taxes when the trust's accumulated earnings are finally distributed decades later?

Plain-English summary

Consolidated Edison Company of New York operates two nuclear generating plants (Indian Point 1 and 2) as part of its electric, gas, and steam utility business. To fund the eventual multi-decade decommissioning of those plants, Con Edison and an Illinois trustee (Harris Trust and Savings Bank) established the Con Edison Master Nuclear Decommissioning Trust under IRC section 468A -- a federal tax vehicle letting utilities take a current federal deduction for contributions to a fund dedicated exclusively to future decommissioning costs. The Master Trust, located and administered in Illinois, invests only in U.S. Treasury obligations, bank deposits, and out-of-state tax-exempt municipal bonds; it has made no New York investments, and by law it can't distribute anything to Con Edison until decommissioning actually begins (then projected for 2006). Federal tax law treats a section 468A fund as if it were a corporation, taxed at the top corporate rate on its "modified gross income."

Issue 1 -- Is the Master Trust itself an Article 9-A corporation? No. Regulations section 1-2.3(b)(2) provides that a business trust's actual activities, not its stated purposes, control -- and "the mere investment of funds and the collection of income therefrom, with incidental replacement of securities and reinvestment of funds, does not constitute the conduct of a business." Because the trustee's activities here are limited to exactly that, the Master Trust is not a "corporation" under section 208.1 and owes no Article 9-A tax.

Issue 2 -- Is the Master Trust a grantor trust taxed currently to Con Edison for income tax purposes? No. Since federal law treats a 468A fund as a corporation (not a grantor trust) and taxes it directly at the corporate rate, section 601(g) exempts it from New York personal income tax (Article 22) and New York City personal income tax (Article 30) -- and because it isn't a grantor trust federally, it isn't one for New York purposes either (section 607(a)). This opinion controls over any conflicting result in the Department's earlier Kansas Gas and Electric ruling, TSB-A-87(31)C. Practical effect: Con Edison does NOT currently include the trust's annual earnings in its own income as they accrue.

Issue 3 -- What happens to the gross-receipts taxes (sections 186, 186-a, 186-b, 186-c) when the trust eventually pays out? Since the trust isn't a grantor trust, none of Con Edison's current-year questions about including the trust's ongoing earnings applied -- but the eventual distribution is a different story. Tracing New York's historic "gross earnings from the employment of capital" case law (Brooklyn Union Gas, Westchester Lighting, the 1969 Consolidated Edison case, American Tel. & Tel. v. State Tax Commission), the Department held that the return of Con Edison's own original contributions is tax-free (merely a return of capital, not earnings), but the profit or gain portion of the eventual distribution -- the excess over what Con Edison originally contributed -- is includible in Con Edison's gross earnings under section 186/186-b and gross income under section 186-a/186-c. Critically, this profit is treated as New York-sourced, even though every dollar of the trust's underlying investment activity happens in Illinois, because Con Edison "extensively" manages, controls, and utilizes the trust from New York as an integral, substantial part of its New York utility business -- the source of the income follows the taxpayer's controlling activity, not the location of the underlying assets. If the total distribution ends up being LESS than Con Edison's contributions, that loss is not deductible against Con Edison's other gross earnings/income.

What this means for you

Utilities and other regulated companies funding long-term liabilities through IRC section 468A (or similar) reserve trusts

The trust itself can stay outside both Article 9-A corporate tax and New York income tax as long as its activities are limited to passive investment -- but don't assume that means the utility's later distribution is untaxed. New York will tax the profit portion of the eventual distribution as gross earnings/gross income sourced to New York, based on where the utility manages and controls the fund, not where the fund's assets or trustee sit.

Accountants and tax professionals

The sourcing analysis here is the key takeaway: New York sources investment gains to the state when the taxpayer "exercises extensive management, control and utilization" of the asset from New York and that activity is "integral and substantial" to its New York business -- regardless of where the securities themselves are held or traded. Track and document the extent of in-state management activity over any out-of-state investment vehicle used to fund New York business obligations.

Only the profit is taxed, not the whole distribution

Structure and document contribution records carefully -- the return of original contributions stays untaxed as a capital return, and only gains above that basis get swept into gross earnings/gross income at the time of final distribution, potentially decades after the underlying income was actually earned inside the trust.

Common questions

Q: Does a utility's nuclear decommissioning trust owe New York corporate franchise tax?
A: Not if its activities are limited to passive investment of funds and collection of income -- that doesn't constitute "conducting a business" under the relevant regulations.

Q: Does the utility pay New York income tax on the trust's earnings as they accrue each year?
A: No, if the trust is (like here) treated as a corporation for federal tax purposes rather than a grantor trust -- the utility isn't currently taxed on undistributed trust earnings.

Q: When the trust eventually pays out to the utility, is the whole distribution taxable?
A: No -- only the profit/gain portion above the utility's own original contributions is taxable as New York gross earnings/gross income; the return of the utility's own capital is not.

Q: Does it matter that the trust's investments and trustee are entirely outside New York?
A: Not for sourcing the eventual profit distribution -- New York sources the gain to the state based on the utility's extensive management and control of the trust from New York, not the location of the underlying investments.

Citations and references

Statutes and regulations:

• Tax Law section 208.1; Business Corporation Franchise Tax Regulations section 1-2.3(b)(2) (business trust definition; passive investment exception)
• Tax Law section 601(g), 607(a) (corporation-taxed trusts exempt from Article 22/30; federal-law meaning of terms)
• Tax Law section 186, 186-b (gross earnings tax); section 186-a, 186-c (gross income tax on telephone/utility service, "profits from any transaction" catch-all)
• Internal Revenue Code section 468A; Treasury Regulations section 1.468A-2, 1.468A-4 (qualified nuclear decommissioning fund)

Cases and prior opinions cited:

• Kansas Gas and Electric Company, Adv Op Comm T&F, TSB-A-87(31)C (superseded to the extent inconsistent)
• People ex rel Brooklyn Union Gas Co. v Morgan, 114 App Div 266, affd 195 NY 616
• People ex rel Westchester Lighting Co. v Gaus, 199 NY 147
• Matter of Consolidated Edison Co. of NY v State Tax Commission, 24 NY2d 114
• American Tel. & Tel. Co. v State Tax Commission, 93 AD2d 66, affd 61 NY2d 393
• Matter of Steinbeck v Gerosa, 4 NY2d 302

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a90_24c_12i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z900216A

On February 16, 1990, a Petition for Advisory Opinion was received from
Consolidated Edison Company of New York, Inc., and Con Edison Master Nuclear
Decommissioning Trust, 4 Irving Place, New York, New York 10003.
The issue raised by Petitioners, Consolidated Edison Company of New York,
Inc. (hereinafter "Con Edison") and Con Edison Master Nuclear Decommissioning
Trust (hereinafter "Master Trust") is the application of the (1) New York State
Corporation Franchise Tax, (2) New York State and New York City Personal Income
Tax, and (3) Gross Receipts Taxes under sections 186, 186-a, 186-b and 186-c of
the Tax Law, to the income as earned by the Master Trust and to the eventual
distribution of the funds to Con Edison for the decommissioning of nuclear
plants.
Con Edison is a corporation organized pursuant to the laws of the State of
New York under the name of Consolidated Gas Company of New York by a
consolidation agreement duly filed in the office of the Secretary of State of the
State of New York on November 10, 1884. Con Edison supplies electric service in
all of New York City (except a part of Queens) and in most of Westchester County.
It owns two nuclear generating plants, Indian Point 1 and Indian Point 2
(hereinafter "nuclear plants") located in Buchanan, New York. It also supplies
gas in Manhattan, the Bronx and parts of Queens and Westchester and steam in part
of Manhattan.
Master Trust is a nuclear decommissioning reserve fund for federal income
tax purposes, under section 468A of the Internal Revenue Code (hereinafter
“IRC”), and was established under the terms of an Agreement and Declaration of
Trust made as of December 30, 1988 between Con Edison and the Trustee, Harris
Trust and Savings Bank (hereinafter "Harris").
The Trustee, Harris, is an Illinois banking corporation. The Master Trust
and its assets are located in the State of Illinois. To date, the Master Trust
has invested only in United States Treasury obligations, bank demand or time
deposits and various state and local tax exempt municipal bonds. The Master
Trust has not invested in any New York State or local bond, security or demand
or time deposit accounts.
Its income consists solely of interest from its
investments and capital gains arising from the sale of the various bond holdings,
all of which are from sources outside of New York State.
The Master Trust cannot distribute any of its earnings to Con Edison until
the decommissioning of the plants has begun (presently estimated to occur in the
year 2006).
The purpose of section 468A of the IRC is to provide a tax efficient
vehicle for the accumulation of funds to facilitate the eventual decommissioning
of the nuclear plants. Section 468A allows the establishment of a qualified fund
TP-9(9/88)

-2­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

to accept deductible contributions from the owners of nuclear plants. Investment
choices are limited in order to provide safety and assurance that the funds will
be available when needed.
Section 468A of the IRC provides that a public utility will be allowed a
federal income tax deduction for payments it elects to make to a qualified
nuclear decommissioning reserve fund (hereinafter "qualified fund") which is
established exclusively to pay for the future decommissioning costs of a nuclear
power plant. A qualified fund must be established for each nuclear plant owned
by the utility, however, two or more qualified funds can be established and
maintained pursuant to a single trust instrument with the assets pooled for
investment purposes.
The qualified fund's assets must be used exclusively to satisfy, in the
whole or in part, the utility's liability for decommissioning costs of the plant
to which the fund relates and to pay administrative costs and other expenses of
the fund, and to the extent the assets are not currently required for these
purposes, to invest directly in public debt securities of the United States,
obligations of a state or local government, or time or demand deposits. The fund
can invest only in assets similar to those allowed to Black Lung Trust Funds.
The qualified fund is required to distribute its assets to the utility when
needed. Section 1.468A-2 of the Treasury Regulations provides that any actual or
deemed distribution from the fund shall be included in the gross income of the
electing utility for the taxable year in which the distribution occurs. The
utility will be able to offset the income to the extent decommissioning expenses
are incurred. If the distribution matches the decommissioning expense, the
effective federal tax treatment for the utility is a "wash" i.e., income matches
deductible expense.
To obtain the deduction, the utility must request and receive a schedule
of "ruling amounts" from the Internal Revenue Service to establish the maximum
annual deduction that can be claimed. A ruling amount is the amount the Internal
Revenue Service deems necessary:
(1) to fund the future decommissioning costs
and (2) to prevent excess funding or funding at a rate no more rapid than level
funding. Contributions to the funds must be made within 2 1/2 months after the
close of the utility's tax year.
Section 1.468A-4 of the Treasury Regulations provides that a qualified fund
is subject to tax on all of its modified gross income for each taxable year and
is treated as if it were a corporation. The tax imposed under section 468A is
to be treated as a tax imposed by section 11 of the IRC.
Issue 1 - New York State Corporate Franchise Tax
The question presented is whether the Master Trust is a corporation subject
to tax under Article 9-A of the Tax Law.

-3­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

The Master Trust was established as a trust to conform to the provisions
of section 468A of the IRC. Its sole purpose is to accumulate funds for the
eventual decommissioning of the nuclear plants. The Master Trust is limited to
investing in government debt securities and bank time or demand deposits.
Section 209.1 of the Tax Law imposes the business corporation franchise tax
on every foreign corporation, unless specifically exempt, for the privilege of
doing business, or of employing capital, or of owning a leasing property in New
York State in a corporate or organized capacity, or of maintaining an office in
New York State.
Section 208.1 of the Tax Law provides that the term "corporation" includes
any business conducted by a trustee or trustees wherein interest or ownership is
evidenced by certificate or other written instrument.
Section 1-2.3(b)(2) of the Business Corporation Franchise Tax Regulations
as amended on June 25, 1990 provides that:
a business conducted by a trustee or trustees in which interest or
ownership is evidenced by certificate or other written instrument
includes, but is not limited to, an association commonly 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 of the Tax Law. The
mere investment of funds and the collection of income therefrom,
with incidental replacement of securities and reinvestment of funds,
does not constitute the conduct of a business in the case of a
business conducted by a trustee or trustees.
Herein, the activities of the trustee of Master Trust do not constitute the
conduct of a business as contemplated by section 208.1 of the Tax Law and section
1-2.3 of the Business Corporation Franchise Tax Regulations. Accordingly, Master
Trust is not deemed to be a corporation for purposes of Article 9-A and is not
subject to the tax imposed by such Article.
Issue 2 - New York State and New York City Personal Income Tax
The question presented is whether the Master Trust is a grantor trust and
if it is, is it exempt from New York State Personal Income Tax under Article 22
of the Tax Law, and New York City Personal Income Tax authorized under Article
30 of the Tax Law.
Section 601(g) of the Tax Law provides that an association, trust or other
unincorporated organization which is taxable as a corporation for federal income
tax purposes shall not be subject to tax under Article 22 of the Tax Law.

-4­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

Master Trust is not treated as a grantor trust for federal income tax
purposes. Master Trust is a nuclear decommissioning reserve fund under section
468A of the IRC and pursuant to such section, Master Trust is treated as a
corporation and is taxed at the highest corporate rate on its modified gross
income.
Since section 601(g) of the Tax Law provides that a trust taxed as a
corporation for federal income tax purposes is not subject to personal income
tax, Master Trust is not subject to tax under Article 22 of the Tax Law and New
York City Personal Income Tax authorized under Article 30 of the Tax Law.
Section 607(a) of the Tax Law provides that any term used in Article 22 of
the Tax Law shall have the same meaning as used in a comparable context in the
laws of the United States relating to federal income taxes, unless a different
meaning is clearly required. Herein, Master Trust is not considered a grantor
trust, for federal income tax purposes, therefore Master Trust is not a grantor
trust for purposes of Article 22 of the Tax Law.
It should be noted that to the extent this Advisory Opinion differs from
Kansas Gas and Electric Company, Adv Op Comm T&F, TSB-A-87(31)C, this Advisory
Opinion is controlling.
Issue 3 - Gross Receipts Taxes
Petitioners questions regarding the gross receipts taxes are based on the
assumption that Master Trust is a grantor trust and Con Edison is held to be the
grantor. Since the Master Trust is not treated as a grantor trust, Petitioners
questions are answered on the basis that Con Edison is not the grantor of a
grantor trust.
Sections 186 and 186-b
Petitioners raise the following questions:
(a) Is Con Edison required to include currently the earnings of the Master
Trust in its gross earnings for purposes of sections 186 and 186-b of the Tax
Law?
No. Since the Master Trust is not treated as a grantor trust, the current
earnings of the Master Trust are not gross earnings of Con Edison.
(b) Are such earnings includible currently in Con Edison's gross earnings
even though they will not be distributed until the year 2006?
Since the answer in (a) is no, this question is not relevant.
(c) If the earnings of the Master Trust are derived from United States
Treasury obligations, bank demand or time deposits and various state and local
tax exempt municipal bonds, none of which represent any New York State or local

-5­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

investments, are such earnings considered to be from sources outside New York
State and thus excludible currently from Con Edison's gross earnings?
Since the answer in (a) is no, this question is not relevant.
(d) If a portion of these earnings represents capital gains from the sales
of non-New York State and local sources, are these capital gains includible
currently in Con Edison's gross earnings?
Since the answer in (a) is no, this question is not relevant.
(e) Is the final distribution of earnings from the Master Trust to Con
Edison includible in the gross earnings of Con Edison?
Yes. The distribution of earnings from the Master Trust is includible in
gross earnings of Con Edison in the taxable year of distribution or deemed
distribution.
(f) To the extent the final distribution represents a return of the
original contributions made by Con Edison to the Master Trust, is such
distribution subject to section 186 and 186-b taxes?
No. The return of the original contributions is the return of employed
capital not the gross earnings from the employment of capital.
(g) To the extent such earnings were taxed to Con Edison when earned by the
Master Trust, are such earnings subject to tax at the time of final distribution?
The earnings are not taxed to Con Edison when earned by the Master Trust;
therefore, Con Edison includes in its gross earnings for the year of
distribution, all earnings included in the distribution.
(h) To the extent such earnings were not subject to tax when earned by the
Master Trust because the earnings were from sources outside New York State, the
earnings were derived from obligations of the United States, or the earnings were
not distributed to Con Edison as earned, will such earnings be subject to section
186 and 186-b taxes when they are finally distributed to Con Edison?
When section 186 was enacted, it provided for a franchise tax on various
types of utility companies measured by their "gross earnings from all sources
within this state" In 1907, the Legislature amended section 186 by providing a
statutory definition of gross earnings.
Gross earnings is defined as "all
receipts from the employment of capital without any deduction."
The definition of gross earnings was added to overcome the effect of a 1906
New York State Appellate Division Decision that held that in order to arrive at
taxable "gross earnings", the cost of raw materials used in producing the utility
service had to be deducted from the company's gross receipts. (See People ex rel
Brooklyn Union Gas Co. v Morgan, 114 App Div 266, affd 195 NY 616). "The basis

-6­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

of the decision. . .was that, where the tax was limited by the statute to 'gross
earnings', that limitation was too precise to permit the taxation of any
receipts, which could not be classified as earnings, or profits, upon the capital
invested." (People ex rel Westchester Lighting Co. v Gaus, 199 NY 147, 149)
In 1969 the New York State Court of Appeals stated that "the 1907 amendment
[of section 186] did not contemplate a substitution of 'capital' or 'gross
receipts' for 'gross earnings' as the basis for taxation. It merely sought to
include that portion of capital which the Brooklyn Union Gas Co. case [supra]
required to be deducted from 'gross earnings' to arrive at the proper basis. This
is only that portion of 'gross earnings' which represents the 'employment of
capital' to manufacture, distribute and sell various public utility services."
(Matter of Consolidated Edison Co. of NY v State Tax Commission, 24 NY2d 114,
119). In the Consolidated Edison Co. case, the court determined that (assuming
there was no gain on the transactions) the proceeds received by the company for
propertydamage and insurance claims and from the sale of capital assets no longer
employed in its business, consisting of real property, scrap and used machinery,
are amounts realized from the destruction or confiscation of capital, not from
the employment of capital.
Based on legislation and the decisions of the courts, it is determined that
the portion of the distribution from Master Trust that is in excess of Con
Edison's contributions into the Master Trust is the gain or profit derived from
Master Trust. Such gain or profit is a receipt from the employment of capital and
as such, constitutes gross earnings under section 186. If the total distribution
is less than Con Edison's contribution into the Master Trust, the loss may not
be deducted from Con Edison's other earnings.
As previously stated, section 186 of Article 9 imposes a franchise tax
based on gross earnings from all sources within New York State. In this regard,
section 186 is akin to section 184 of Article 9 which imposes a franchise tax on
transportation and transmission corporations based on gross earnings from sources
within New York State.
In American Tel. & Tel. Co. v State Tax Commission, 93 AD2d 66; affd 61 NY
2d 393, it was held that, for purposes of section 183 of Article 9, where
securities in a temporary cash investment account belonged to the parent
telephone company and involved multitudinous purchases and sales, all of which
incurred in New York, and required constant monitoring by the parent company's
treasury department personnel in New York State and the parent telephone company
earned substantial income from it, such account constituted taxable assets of the
parent company employed in New York State. The court also determined that for
purposes of section 184 of Article 9, the State Tax Commission incorrectly
attempted to impose a tax based not on the source of income but on where assets
giving rise to the income were employed. Therefore, the court held that interest
income received by the parent telephone company from obligations of out-of-state
obligors on such temporary investments were not earned from a "source" within New
York State. However, such decision did not determine the source of the gains
realized on the sale of such securities.

-7­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

It is apparent from the American Tel. & Tel. Co. case, (supra, that the
crucial factor in determining the amount of gross earnings from all sources
within New York State is the meaning of "source". The court stated "[c]ommon
words are to be given their commonly understood meaning (Matter of Steinbeck v
Gerosa, 4 NY2d 302, app dsmd 358 US 39).
For purposes of section 186, the gains on the sales of securities are
sourced in New York State when the taxpayer exercises extensive management,
control and utilization of such intangibles in New York State and when such
activity is an integral and substantial part of the taxpayer's business conducted
in New York State.
(see People ex rel Manila Electric R.R. & Lighting
Corporation v Knapp, 229 NY 502; People ex rel Tobacco & Allied Stocks, Inc. v
Graves, 250 App Div 149, affd 277 NY 723; People ex rel Manhattan Silk Co. v
Miller, 125 App Div 296; People ex rel North American Co. v Miller, 90 App Div
560; People ex rel Brooklyn Rapid Transit Co. v Miller, 85 App Div 178, affd 181
NY 582; People ex rel New England Loan Co. v Roberts, 25 App Div 16).
Herein, Con Edison's principal activity is that of a utility company and
in furtherance of such business Con Edison conducts financial activities
including the business of establishing the Master Trust to accumulate funds to
facilitate the eventual decommissioning of its nuclear plants. The Master Trust
is an integral part of Con Edison's total business activities because the sole
purpose of Master Trust is to fund the decommissioning costs associated with Con
Edison's nuclear plants in New York State. Within the confines of section 468A
of the IRC, Con Edison is involved in the management of the assets of the Master
Trust and controls when and to what extent disbursements are made from the Master
Trust. Con Edison's activities with respect to the Master Trust are extensively
conducted in New York State.
Accordingly, for purposes of sections 186 and 186-b of the Tax Law, Con
Edison must include in its "gross earnings from all sources within this state",
the gain or profit derived from Master Trust, that is, the portion of the
distribution from Master Trust that is in excess of the contributions Con Edison
has made into the Master Trust. If the total distribution is less than Con
Edison's contribution, such loss is not deductible from Con Edison's other gross
earnings.
Sections 186-a and 186-c
Petitioners raise the following questions:
(a) Is Con Edison required to include currently in its gross income for
purposes of section 186-a and 186-c of the Tax Law the earnings of the Master
Trust?
No. Since the Master Trust is not treated as a grantor trust, the current
earnings of the Master Trust are not gross earnings of Con Edison.

-8­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

(b) Are such earnings currently includible in gross income even though they
will not be distributed until the year 2006?
Since the answer in (a) is no, this question is not relevant.
(c) If the earnings of the Master Trust are interest and dividends derived
from United States Treasury obligations, bank demand or time deposits and various
state and local tax exempt municipal bonds, none of which represent any New York
State or local investments, are such earnings considered to be from sources
outside New York State and thus excludible currently from gross income?
Since the answer in (a) is no, this question is not relevant.
(d) If the Master Trust sells United States Government obligations and nonNew York State and local bonds and derives a profit from the sale, are such
profits includible in the gross income of Con Edison even though the Master Trust
can not distribute such profits currently to Con Edison?
Since the answer in (a) is no, this question is not relevant.
(e) Is the final distribution of earnings from the Master Trust to Con
Edison includible in the gross income of Con Edison?
Yes. The distribution of earnings from the Master Trust is includible in
the gross income of Con Edison in the taxable year of distribution or deemed
distribution.
(f) To the extent the final distribution represents a return of the
original contributions made by Con Edison to the Master Trust, is such
distribution subject to section 186-a and 186-c taxes?
No. The final distribution is not a receipt from a sale made or service
rendered, therefore, only the gain or profit is subject to tax. The return of the
original contributions is not subject to tax.
(g) To the extent such earnings were taxed to Con Edison when earned by the
Master Trust, are such earnings subject to section 186-a and 186-c taxes at the
time of final distribution?
The earnings are not taxed to Con Edison when earned by the Master Trust,
therefore, Con Edison includes in its gross income for the year of distribution
the profit included in such distribution.
(h) To the extent such earnings were not subject to tax when earned by the
Master Trust because the earnings were from sources outside New York State, the
earnings were derived from obligations of United States, or the earnings were not
distributed to Con Edison as earned, will such earnings be subject to section
186-a and 186-c taxes when they are finally distributed to Con Edison?

-9­

TSB-A-90 (24) C
Corporation Tax
TSB-A-90 (12) I
Income Tax
November 30, 1990

Section 186-a provides a tax on the furnishing of utility services that is
equal to three percent of the gross income of a utility that is subject to the
supervision of the New York State Department of Public Service. Gross income, as
defined in section lS6-a2(c) of the Tax Law, consists of the following elements:
1.

receipts from any sale made or service rendered for ultimate
consumption or use by the purchaser in New York State;

2.

profits from the sale of securities;

3.

profits from the sale of real property;

4.

profit from
inventory);

5.

receipts from interest, dividends, and royalties, derived from
sources within New York State; and

6.

profits from any transaction (except sales for resale and
rentals) within New York State whatsoever.

the

sale

of

personal

property

(other

than

The Master Trust is an integral part of Con Edison's total business
activities because the sole purpose of Master Trust is to fund the
decommissioning costs associated with Con Edison's nuclear plants in New York
State. Within the confines of section 468A of the IRC, Con Edison is involved in
the management of the assets of the Master Trust and controls when and to what
extent disbursements are made from the Master Trust. Con Edison's activities
with respect to the Master Trust are extensively conducted in New York State.
Therefore, for purposes of section 186-a and 186-c of the Tax Law, the
distribution that Con Edison received from Master Trust falls in the category of
"profits from any transaction within New York State whatsoever". The amount of
the distribution that constitutes gross income within New York State is the gain
or profit derived from the Master Trust, that is, the portion of the distribution
that is in excess of Con Edison's contributions into the Master Trust. If the
total distribution is less than Con Edison's contributions, the loss may not be
deducted from Con Edison's other gross income.

DATED: November 30, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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