New York Codes, Rules and Regulations
Title 20 - DEPARTMENT OF TAXATION AND FINANCE
Chapter I - Franchise and Certain Business Taxes
Subchapter C - Franchise Taxes On Insurance Corporations
Part 32 - COMBINED RETURNS
Section 32.9 - Examples

Unless otherwise provided, assume the following facts for all examples: Corporation A owns all of the stock of corporations B, C, D, E, F, G, H, I, L, M, N, O, P, Q, and R. All of the corporations are calendar year taxpayers for Federal income tax purposes. Corporation I is taxable under article 9-A. Corporations B and C are taxable under sections 1501 and 1502 of article 33. All remaining corporations would be subject to tax under sections 1501 and 1502 of article 33 if they had nexus with New York. None of the corporations are taxable under section 1502-a. Only Corporation D is a corporation organized under the laws of a country other than the United States. To the extent that the conclusion of the example is filing on a separate basis, it is assumed that the Commissioner did not find that a combined report would be required to properly reflect tax liability as a result of inter-company transactions or some agreement, understanding or arrangement or transaction.

Example 1: 90 percent of B's receipts are from D. Therefore, there are substantial intercorporate transactions between B and D. B and D are a tentative combined group and must file a combined return.

Example 2: B's receipts are: 22 percent from A, 20 percent from C, 30 percent from D, 10 percent from E and the rest are from unrelated entities. 40 percent of C's expenses are to B. No other substantial intercorporate transactions occur between the corporations. Since there is no tentative combined group among the related corporations, corporations B and C file on a separate basis.

Example 3: 90 percent of B's receipts are from D and 100 percent of D's receipts are from E. D is an alien corporation. There are substantial intercorporate transactions between B and D, and D and E. B, D and E must file a combined return.

Example 4: A is the only taxpayer and 50 percent of A's receipts are from B, with another 4 percent from E. 30 percent of E's expenditures are to A and 20 percent to D. C has no transactions with anyone in the group. 50 percent of D's receipts are from A. 50 percent of F's receipts are from A. 100 percent of H's receipts are from F. 100 percent of R's receipts are from H. 20 percent of B's receipts are from L, 20 percent from M, and 20 percent from N. 100 percent of L's receipts are from M. 100 percent of M's receipts are from N. 40 percent of O's receipts are from R and 30 percent are from D. 60 percent of P's receipts are from O. 80 percent of L's expenditures are to Q. All of these corporations are in the step 1 group of related corporations because they meet the stock ownership test. The step 2 tentative combined group consists of A, B, D, and F. As a result of step 3, H is added to the tentative combined group. As a result of step 4, R is added to the tentative combined group. As described in step 5, L, M, N and Q is an unattached related group and O and P is an unattached related group. Corporations O and P are added to the tentative group pursuant to step 6 because 70 percent of O's receipts are from R and D. The step 6 tentative combined group is A, B, D, F, H, R, O and P. The corporations in the unattached unrelated group of L, M, N and Q are all added to the tentative combined group pursuant to step 7 because B has substantial intercorporate transactions with the unattached related group of L, M, N and Q. The step 7 tentative combined group is A, B, D, F, H, R, O, P, L, M, N and Q. Pursuant to step 8, E is added to the step 7 tentative combined group because 30 percent of its expenditures are from A and 20 percent are from D. The step 9 tentative combined group is the same as the step 8 tentative combined group. Since no corporations will be excluded from the step 9 tentative combined group pursuant to step 10, the group of corporations that must file a combined return are A, B, D, F, H, R, O, P, L, M, N, Q and E.

Example 5: A's only activity is to receive dividends from its wholly owned subsidiaries. B sells stocks, C sells municipal bonds and D sells corporate bonds. B, C and D each have their own employees. However, the employees of one corporation are authorized to and do sell extensively the securities sold by the other corporations. 80 percent of the receipts of B, 70 percent of the receipts of C and 60 percent of the receipts of D are generated by sales made by the common pool of employees of B, C, and D. All three corporations carry on their activities at or using common facilities. Because there are substantial intercorporate transactions using common facilities and employees among B, C and D, they are a combined group and must file a combined return. A is not included in the combined group because it has no substantial intercorporate transactions with a related corporation.

Example 6: 90 percent of B's receipts are from I and 100 percent of I's receipts are from E. C has no transactions with anyone in the group. I is taxable under article 9-A. There are substantial intercorporate transactions between B and I, and I and E. B, I and E are a tentative combined group. However, since I is taxable under another franchise tax imposed by the Tax Law, it cannot be included in a combined return. Therefore, B and E must file a combined return. C files on a separate basis.

Example 7: A, B, C, D, and E are parties to an intercompany reinsurance pooling agreement. In accordance with the terms and conditions of this agreement, the member companies cede 100% of their direct and assumed business to Company A, the lead company pool participant. In turn, each pool participant assumes their percentage share of the pooled business ceded from Company A. The capital stock requirement is met but substantial intercorporate transactions are absent. However, the Commissioner deems a combined report including A. B, C, D and E is necessary to properly reflect tax liability because of inter-company agreements between the corporations.