N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.11

Current through Register Vol. 46, No. 36, September 4, 2024

Section 1-2.11 - Corporations not subject to tax

Tax Law, sections 3, 8, 13, 209(4), (9), (10) and (12)

(a) A corporation that is subject to any of the following taxes is not subject to tax under article 9-A:

(1) transportation and transmission corporations and associations subject to tax under sections 183 and 184;

(2) farmers, fruit growers and other like agricultural corporations organized and operated on a cooperative basis subject to tax under section 185 for tax years prior to January 1, 2018;

(3) continuing section 186 taxpayers subject to tax under former section 186 as it was in effect on December 31, 1999;

(4) insurance corporations subject to the franchise taxes on insurance corporations imposed by article 33, including health maintenance organizations required to obtain a certificate of authority under article 44 of the Public Health Law;

(5) cooperative corporations described in subdivision 1 or 2 of section 77 of the Cooperative Corporations Law;

(6) captive REITs included in a combined report under article 33; and

(7) captive RICs included in a combined report under article 33.

(b) The following corporations are exempt from taxation under article 9-A:

(1) limited-profit housing companies organized pursuant to article 2 of the Private Housing Finance Law;

(2) limited-dividend housing companies organized pursuant to article 4 of the Private Housing Finance Law;

(3) any trust company organized under a law of New York State, all of the stock of which is owned by not less than 20 savings banks organized under a law of New York State;

(4) the Urban Development Corporation and subsidiary corporations of the Urban Development Corporation. A corporation is deemed a subsidiary of the Urban Development Corporation whenever and so long as:

(i) more than one half of any voting shares of the subsidiary are owned or held by the Urban Development Corporation; or

(ii) a majority of the subsidiary's directors, trustees or members are designees of the Urban Development Corporation;

(5) domestic corporations exclusively engaged in the operation of one or more vessels in foreign commerce.

(i) The domestic corporation must operate the vessels regardless of whether it owns them or has leased them from another person or corporation. "Operation of the vessels" means the direction and supervision of the crew and of the actual movements or routes of the vessels. The commissioner generally deems the furnishing of the crew as the operation of the vessel.

(ii) A domestic corporation exclusively engaged in the operation of vessels in foreign commerce remains exempt where (a) it has investments in other domestic corporations exclusively engaged in the operation of vessels in foreign commerce or (b) average investments (other than investments in a domestic corporation qualifying for this exemption) are minimal in comparison to overall activities. Generally, where other investments are 10% or less of average total assets, these investments will be considered minimal.

(iii) A domestic corporation engaged in other activities (except as described in subparagraph (ii) of this paragraph) is not exempt. A domestic corporation is not exempt if it acts as an agent for others by selling tickets, purchasing supplies and services, providing services for others, or operating any other business (e.g., a restaurant).

(6) corporations organized other t h an for profit th a t do not have stock, or shares or certificates for stock or for shares, and that are operated on a nonprofit basis, no part of the net earnings of which inures to the benefit of any officer, director, or member, including not-for-profit corporations and religious corporations.

(i) A corporation organized other than for profit, as described in this paragraph, that is exempt from Federal income taxation pursuant to IRC section 501(a), will be presumed to be exempt from tax under article 9-A. If a corporation organized other than for profit is denied exemption from taxation under the IRC, such corporation will be presumed to be subject to tax under article 9-A.

(ii) The determination of the Internal Revenue Service, denying or revoking exemption from Federal taxation under the IRC, will ordinarily be followed.

(7) certain DISCs. A DISC will be exempt from taxation under article 9-A for any taxable year in which it:

(i) received more than 5% of its gross receipts from the sale of inventory or other property that it purchased from its stockholders; or

(ii) received more than 5% of its gross rentals from the rental of property that it purchased or rented from its stockholders; or

(iii) received more than 5% of its total receipts, other than from sales and rentals, from its stockholders.

(8) trusts that are not conducting a business (passive trusts). Where the functions of a trustee are only to hold property and to collect and distribute income, the trust is not subject to tax under article 9-A. The power to sell, invest and reinvest must be clearly and expressly limited. For example, a power to sell stock and reinvest the proceeds if the bid price of the stock drops below a certain level will not make the trust taxable;

(9) an industrial development agency created pursuant to article 18-A of the General Municipal Law;

(10) housing development fund companies organized pursuant to the provisions of article 11 of the Private Housing Finance Law;

(11) an entity that is treated for Federal income tax purposes as a real estate mortgage investment conduit (REMIC);

(12) an organization described in paragraph (2) or (25) of IRC section 501(c);

(13) redevelopment companies organized pursuant to article 5 of the Private Housing Finance Law;

(14) a qualified subchapter S subsidiary (QSSS) corporation, provided it meets the requirements for exemption under article 9-A;

(15) a qualified settlement fund under IRC section 468B, or an entity that is treated as such for Federal purposes, or a grantor trust, either of which is used for Nazi reparations;

(16) farmers, fruit growers and other like agricultural corporations organized and operated on a cooperative basis for the purposes expressed in and as provided under the Cooperative Corporations Law, whether or not such corporations have capital stock.

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.11

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023