Raytheon Company (“Raytheon”) failed to convince the New York Division of Tax Appeals1 that its combined group of affiliated defense contractor companies qualified for preferential tax treatment allowed to certain manufacturers. Raytheon had filed for corporate tax refunds for 2010 to 2013 arguing that the corporation was entitled to reduced tax rates available to eligible qualified New York manufacturers. Qualified manufacturers were taxed at a reduced rate of 6.5% rather than 7.1% during 2010 through 2013. For 2014 and 2015, the rate was reduced to 0%. The administrative law judge (ALJ) agreed with the Department of Taxation and Finance (“the Department”) that Raytheon’s combined group did not qualify under any of the categories described in the statute. Raytheon did not conduct the required $1 million of manufacturing within the state and therefore did not qualify for the reduced tax rate for any of the years at issue.
When the Department denied Raytheon’s refund claims because there were insufficient manufacturing activities in New York, Raytheon then argued that the requirement to manufacture within the state violated the Commerce Clause of the Constitution. The ALJ determined that it did not have the jurisdiction to address the constitutional claims, lacking jurisdiction to consider the facial validity of statutes.
Finally, Raytheon argued alternatively that it was a qualified manufacturer because it was a qualified emerging technology company (QETC). Unfortunately for Raytheon, the ALJ found that the preferential rate for QETCs applied to the “taxpayer” not the group. This conclusion fails to consider the findings in the Disney case,2 where the court found that “[c]ombined reporting treats the unitary business as a single, taxable entity, thus the net income of the combined group forms the basis for calculation of the percentage of income taxable by the state.” This decision is in line with another ALJ’s previous decision in Charter Communications3 on the qualifications for a QETC.
For more information as to the application of the QETC and manufacturing rates in New York, please reach out to the Ryan New York tax experts listed below.
1 In re Raytheon Co., N.Y. Div. Tax App., DTA No. 829739, March 16, 2023.
2 Matter of Disney Enterprises, Inc. v. Tax Appeals Tribunal of State of N.Y., 40 AD3d 49, affirmed (March 25, 2008).
3 Including In the Matter of the Petition of Charter Communications, Inc. and Combined Affiliates, N.Y. Div. Tax App., DTA No. 829691, December 1, 2022.
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