Income/Franchise:
New York: Tribunal Affirms that Single-Purpose Investment Entity is Excludable from Affiliates’ Combined Return

Decision No. 829540, N.Y. Tax App. Trib. (1/23/25). Affirming a 2023 administrative law judge (ALJ) ruling [see Determination DTA No. 829540, N.Y. Div. of Tax App., ALJ Div. (7/27/23), and State Tax Matters, Issue 2023-32, for more details on the 2023 ALJ ruling in this case], the New York State Tax Appeals Tribunal (Tribunal) held that an Article 9-A corporate franchise tax combined filing group (the “taxpayer”) could exclude an affiliated single-purpose investment entity (the “subsidiary”) from its combined return during the prior tax years at issue (i.e., for the tax years ended June 30, 2008, and June 30, 2009), because the facts showed:

1. A lack of substantial intercorporate transactions between the taxpayer and subsidiary;
2. The taxpayer and subsidiary were not engaged in a unitary business; and
3. The subsidiary’s inclusion would result in distortion.

Under the facts, the subsidiary was formed to hold only one asset (i.e., a 50% partnership interest in a Pennsylvania partnership that owned a Pennsylvania shopping mall) and was neither a New York business nor did it do business in New York. Furthermore, all other parties related to the Pennsylvania shopping mall were located and acted outside New York. The Tribunal also noted that any oversight exercised by members of the taxpayer’s group over the subsidiary was minimal and “the occasional oversight that a parent gives to any investment in a subsidiary does not support a finding of a unitary business.” Accordingly, the Tribunal agreed that the New York Division of Taxation’s determination to include the subsidiary in the taxpayer’s combined returns for the years at issue was improper. Please contact us with any questions.