Charter Communications Inc., formerly known as Time Warner Cable Inc., lost an appeal1 to the New York Division of Tax Appeals in its petition to file as a Qualified Emerging Technology Company (QETC) on a combined filing basis. Charter Communications, Inc. (“Charter”) is an affiliated group of companies headquartered in Charlotte, North Carolina, providing high-speed data, video, and digital voice services throughout the country. During 2012–2014, Charter filed combined New York corporate franchise tax returns calculating the tax liability at the reduced tax rate available to QETCs under Tax Law § 210(1)(a)(vi). This statute provides for a reduced franchise tax rate for “qualified New York manufacturers,” providing in part that a QETC would qualify as a “qualified New York manufacturer” eligible for the reduced tax rate.
Under audit, the Division of Taxation determined that Charter was not qualified to use the reduced tax rate, and Charter filed an appeal. The administrative law judge (ALJ) reviewed the description of the business services provided by Charter in great detail. Although Charter presented sufficient evidence that approximately 97% of its revenue was generated as QETC revenue, the ALJ determined that because all members of the combined group did not have a New York presence, the group did not qualify as a QETC under the statute to use the reduced rate, under either option available.
The statute provides two options to qualify as a New York manufacturer:
- Method One: A manufacturer must have New York property with an adjusted basis of at least $1 million and more than 50% of its revenue from the sale of manufactured goods. A combined group can qualify if the combined group is principally engaged in the required manufacturing activities.
- Method Two: A taxpayer can be a QETC, regardless of the $10 million limitation on product sales imposed on QETCs.
Charter concedes that the group does not qualify under Method One, but on a combined basis under Method Two, the group qualifies as a QETC and is, therefore, eligible for the reduced tax rate.
The ruling determined that under Method Two, as some affiliates are located outside New York, each entity did not qualify. That is, under Method Two, where the statute refers to “a company…,” the ALJ infers that each company must qualify as a QETC, and this is not the case for all affiliates. The ALJ considered that each method contained a separate and distinct test. The ALJ was not convinced that the statute that noted that a combined group could qualify as a New York manufacturer based on the combined attributes of the affiliates (under Method One) also applied to the QETC (under Method Two).
Note that this decision is not precedential and will most likely be appealed.
Ryan has been working with many companies to pursue the QETC benefit provided by the state. Please contact your Ryan representative to discuss how the QETC reduced rate may apply to your business.
1 In the Matter of the Petition of Charter Communications, Inc. and Combined Affiliates, Division of Tax Appeals, DTA No. 829691, December 1, 2022.
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