A national bank wants to spin off its equipment-leasing activities (conducted within and outside New York) into a new, wholly owned subsidiary, mainly for liability-protection reasons, structured under the federal banking rules that specifically govern bank equipment-leasing subsidiaries. Will that subsidiary qualify as a New York 'banking corporation' taxable under Article 32, and can the bank and the subsidiary file a single consolidated Article 32 return?

Plain-English summary

Golden Pacific National Bank, with its main office and a branch office in New York City, had recently begun entering into equipment-lease transactions as part of its banking business. To protect itself from liabilities that might arise from the leasing side of the business, the bank was considering spinning off the equipment-leasing activity into a new, wholly owned New York subsidiary, to be operated under the specific federal guidelines governing bank equipment-leasing subsidiaries (12 C.F.R. § 7.3400). The subsidiary would lease equipment located both within and outside New York.

The bank asked two related questions: would the new subsidiary itself be taxed as a New York "banking corporation" under Article 32, and could the bank and subsidiary file one consolidated Article 32 return rather than filing separately? Tax Law § 1452(a)(8) treats a corporation as a Article-32 "banking corporation" if 80% or more of its voting stock is owned by a national banking association (among other qualifying owners) and it's principally engaged in a business the bank itself could lawfully conduct -- which a bank-affiliated equipment-leasing subsidiary, organized under the specific federal leasing-subsidiary rules, satisfied. Separately, Tax Law § 1462(f) authorizes the Tax Commission to permit "affiliated" corporations (generally 95%-or-more common ownership under the applicable regulations) taxable under Article 32 to file one consolidated return.

The Department held that because the proposed subsidiary would be entirely owned by Golden Pacific and would conduct a business the bank itself could lawfully conduct, the two corporations satisfied the legal prerequisites for consolidated filing. But as with several other bank-holding-company rulings from this era, the Department was careful to note that satisfying the prerequisites on paper isn't the same as having permission in hand: the bank would still need to formally apply to the Tax Commission for consolidated-filing permission AFTER actually creating the subsidiary, following the application procedure in 20 NYCRR § 37.5 (filed at least 30 days before the relevant return's due date, setting out the corporate organization and control details).

What this means for you

A bank-affiliated leasing subsidiary organized under the federal rules generally qualifies for Article 32 treatment

If your national bank forms a wholly owned equipment-leasing subsidiary under 12 C.F.R. § 7.3400 (or a similar bank-subsidiary framework) to conduct a business the bank could lawfully do itself, expect that subsidiary to be treated as an Article 32 "banking corporation" under § 1452(a)(8) rather than an ordinary Article 9-A taxpayer.

Meeting the consolidated-filing prerequisites doesn't substitute for the actual application

Even where an Advisory Opinion confirms your planned structure would satisfy § 1462(f)'s affiliation and business-type requirements, you still need to formally apply to the Tax Commission after the subsidiary exists, per 20 NYCRR § 37.5's timing and content requirements.

Common questions

Q: Does forming a bank equipment-leasing subsidiary under the federal 12 C.F.R. section 7.3400 rules automatically make it an Article 32 banking corporation?
A: Under this ruling's facts -- a wholly owned subsidiary conducting a business the bank itself could lawfully conduct -- yes, it satisfies Tax Law § 1452(a)(8)'s definition, but the specific facts of ownership and business type still need to be confirmed.

Q: Can we file a consolidated Article 32 return with our new leasing subsidiary right away?
A: Not automatically -- even after confirming you meet the legal prerequisites, you must formally apply to and receive authorization from the Tax Commission after the subsidiary is created, per 20 NYCRR § 37.5.

Citations and references

Statutes and guidance:

• Tax Law § 1462(f)
• Tax Law § 1452(a)(8)
• 20 NYCRR § 37.5

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/h81_14c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(14)C
Corporation Tax
March 5, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C801113B

On November 13, 1980, a Petition for Advisory Opinion was received from
Golden Pacific National Bank, 241 Canal Street, New York, New York 10013.
The issue raised by the Petitioner is whether or not a National Bank may
file a consolidated return under Article 32 of the Tax Law with a wholly-owned
subsidiary that is engaged in the business of leasing equipment located within
and without New York State.
Golden Pacific National Bank is a national banking association organized
and existing under the laws of the United States. The main office and a branch
office are located in New York City. As a part of its banking business, the bank
recently entered into equipment lease transactions. To protect itself from any
liabilities which might arise from the equipment leasing business, the bank is
considering organizing a wholly owned subsidiary corporation under New York Law
which will conduct the bank's equipment leasing business. The equipment leasing
subsidiary would be operated under guidelines set forth in Section 7.3400 of
Title 12, Code of Federal Regulations.
Section 1462(f) of the Tax Law provides that "Corporations which are
affiliated may, if authorized, and shall, if required, by the commission, under
regulations prescribed by the commission, make a consolidated return for the
purpose of this article .... "The applicable regulations of the Tax Commission
provide that two corporations or associations are said to be affiliated if one
owns 95 per cent or more of the outstanding voting stock of the other corporation
or association and that such affiliated corporations, taxable under Article 32
of the Tax Law, may, if authorized by the Tax Commission, file consolidated
returns. Application for such permission must be made to the Tax Commission at
least 30 days prior to the due date for such return. The application is required
to set forth in full the facts relating to the organization of each corporation
and the manner of control exercised by the parent corporation over its subsidiary
or subsidiaries and any other facts indicating that such corporations might be
entitled to file a consolidated return. 20 NYCRR 37.5.
Section 1452(a)(8) of the Tax Law provides that "any corporation eighty
percent or more of whose voting stock is beneficially owned by a corporation or
corporations subject to article three-a of the banking law or registered under
the federal bank holding company act of nineteen hundred fifty-six, as amended,
and which makes a consolidated return under the provisions of subdivision (f) of
section fourteen hundred sixty-two, or by a corporation or corporations subject
to article three of the banking law or by a national banking association or
associations, provided the corporation whose voting stock is so owned is
Principally engaged in business which might be lawfully conducted by a
corporation subject to article three of the banking law or a national banking
association .... "constitutes a "banking corporation" subject to tax under
Article 32 of the Tax Law for the privilege of exercising its franchise or doing
business in New York.

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(14)C
Corporation Tax
March 5, 1981

Inasmuch as the proposed subsidiary will be entirely owned by Petitioner
and will conduct a business which the Petitioner itself could conduct, the two
corporations satisfy the pre-requisites for filing consolidated returns. However,
the appropriate permission must be applied for and received from the Tax
Commission subsequent to the creation of the proposed subsidiary, in accordance
with the regulation provision discussed above.

DATED:

February 11, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau