IN THE MATTER OF THE UNIMAX CORPORATION, APPELLANT, v. TAX APPEALS TRIBUNAL
OF THE STATE OF NEW YORK ET AL., RESPONDENTS.
79 N.Y.2d 139, 589 N.E.2d 358, 581 N.Y.S.2d 135 (1992).
February 18, 1992
3 No. 23
Decided February 18, 1992
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This opinion is uncorrected and subject to revision before publication
in the New York Reports.
Arthur L. Liman, for Appellant.
Denise A. Hartman, for Respondents.
BELLACOSA, J.:
This Article 78 proceeding challenges a franchise tax deficiency
assessment. Petitioner-taxpayer, The Unimax Corporation (Unimax),
contends that an audit guideline of the New York State Department of
Taxation and Finance (Department) implementing Tax Law § 208(9)(b)(6)
is arbitrary and capricious. Unimax also argues that the guideline is
a rule or regulation which was not formally promulgated in accordance
with the requirements of the State Constitution, article IV, § 8.
The tax statute is designed "to prevent a parent corporation from
obtaining a double tax benefit by taking a deduction for interest
payments on loans incurred for directly or indirectly financing
investments in subsidiaries while at the same time the parent's income
derived from such investments is tax free" (Matter of F.W. Woolworth
Co. v State Tax Comm., 126 AD2d 876, 877, affd on App Div 71 NY2d
907). The implementing audit guideline allows a parent corporation to
offset loans to a subsidiary by loans to the parent from that
subsidiary, on a subsidiary-by-subsidiary basis, to an amount not less
than zero. This is allowed as part of the calculation of the amount of
third-party interest expense indirectly attributable to subsidiary
capital. The guideline explicitly prohibits a parent corporation from
aggregating all its loans to subsidiaries and offsetting them with
aggregate loans from the subsidiaries to the parent -- the "netting"
approach urged by Unimax.
We conclude that the limited subsidiary-by-subsidiary offset analysis
in the guideline is not inconsistent with the statute, does not
frustrate its purpose, and represents a rational implementation of the
discretion explicitly reposed in the Department by Tax Law
SNIPPETS:
IN THE MATTER OF THE UNIMAX CORPORATION, APPELLANT, v. TAX APPEALS TRIBUNAL
OF THE STATE OF NEW YORK ET AL., RESPONDENTS.
This Article 78 proceeding challenges a franchise tax deficiency assessment.
Petitioner-taxpayer, The Unimax Corporation, contends that an audit guideline of the New York
Unimax also argues that the guideline is a rule or regulation which was not formally
The tax statute is designed "to prevent a parent corporation from obtaining a double tax
The implementing audit guideline allows a parent corporation to offset loans to a subsidiary
The guideline explicitly prohibits a parent corporation from aggregating all its loans to
We conclude that the limited subsidiary-by-subsidiary offset analysis in the guideline is not
We therefore affirm the judgment of the Appellate Division dismissing the petition and
Unimax deducted the full amount of its third-party interest expenses from its "entire net
The Administrative Law Judge agreed with Unimax's theory, noting that nothing in the Tax Law
The next move was Unimax's article 78 proceeding in the Appellate Division, Third Department,
The majority concluded that Unimax's aggregate, netting-of-loans theory was contrary to Tax
Thus, unless the statute requires an aggregate offset of loans from a parent corporation to
& Community Renewal, 75 NY2d 206, 213, quoting Kurcsics v Merchants Mut.
Thus, the assertion of the Administrative Law Judge heavily relied upon by the dissenters
The Department's subsidiary-by-subsidiary approach, moreover, does not contravene the
To be sure, Unimax's subsidiaries could have advanced funds directly to each other rather
we have considered Unimax's constitutional challenge to the Department's promulgation of the
The majority never addresses the only question in the case: whether the additional and
Also, a corporation, as under federal law, may deduct interest expenses incurred from
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