New York State Franchise Tax Changes for Utility and TTD Companies
Rebhun, Brian J., The CPA Journal
THE REGULATIONS NOW ALLOW THE OFFSET OF INCOME from profitable companies with current and net operating losses of other members of a group.
The New York State Department of Taxation and Finance issued a Technical Services Bureau memorandom [TSB-M-00(04)(C)] on December 19, 2000, to explain the corporate tax law changes for certain utility companies. Previously, utility and TTD (transportation, transmission, or distribution of gas, electricity, or steam) corporations were taxed under separate statutes for New York State corporation tax purposes (N.Y. Tax law sections 186, 183, and 184, respectively).
The notice explains that the New York State corporate tax responsibilities of certain utility corporations became subject to the general corporation tax (Article 9-A) on January 1, 2000. Historically, in New York, utility companies were subject to a tax on gross earnings received from the employment of capital plus a tax on dividends (N.Y. Tax Law section 186). TTD companies were taxed on the net value of capital stock as well as the gross earnings received from conducting busi ness in New York. Now, utility and TID companies are subject to the general corporation tax based on the traditional three-factor formula of property, payroll, and receipts, with receipts double weighted.
Filing changes. Utility and TTD corporations that reported on a fiscal year must file a short-period general corporation tax return for the period beginning on January 1, 2000, and ending on the date their fiscal year ends for federal income tax purposes. Fiscal year taxpayers must use 1999 forms (CT-3, CT3-A, CT-3-S, or CT-3-S-A) and file the returns 2 1/2 months after the end of the fiscal year. Calendar year taxpayers will file general corporation tax returns for the 2000 calendar year using 2000 forms, now available.
Combined reporting. Previously, utility and TTD companies could not file a combined report with related entities that filed under the state's general corporation tax laws. Now, the regulations provide the benefits of combined reporting to utility and TTD corporations that meet the unitary business, capital stock, and distortion conditions. This change allows the offset of income from profitable companies with current and net operating losses of other members of a group and, in some cases, a reduction in the overall allocation of income to New York by aggregating apportionment data across entities.
For tax years ending on or after December 31, 1997, the corporation tax regulations have been amended to remove the necessity for prior permission to file on a combined basis. Instead, a group of corporations wishing to file on a combined basis must provide a combined filer statement (CT-51) and certain other information with its combined franchise tax return.
Exception, Taxpayers considered to be "continuing section 186 taxpayers" will remain subject to the utility tax unless they make an irrevocable election by filing a general corporation tax return on the date or extended date the return is due.
TTD corporations. Under the new rules, TTD corporations must file a final transportation and transmission corporation franchise tax return on capital stock (form CT-183) and a transportation and transmission corporation franchise tax return on gross earnings (form CT-184). Also, if the corporation is subject to the metropolitan transportation business tax surcharge (MTA surcharge), a final transportation and transmission MTA surcharge return (forms CT-183-M and CT-184-M) was due on March 15, 2000, covering the 1999 year.
NOLs. Utility and TTD corporations may claim a net operating loss (NOL) deduction like other general corporate taxpayers, however, they can only deduct NOLs sustained in years in which they were taxable under the general corporation tax.
New York S corporation elections. Under the new law, utility and TTD companies may elect to be treated as a New York S corporation and receive passthrough tax treatment. …