The New York State Tax Appeals Tribunal held that an electricity generation company was a qualified New York manufacturer for purposes of calculating New York State franchise tax on a corporation’s capital base, even though the company did not qualify for purposes of the entire net income base.
During the period at issue, a New York taxpayer’s franchise tax was generally determined by taking the highest amount calculated under one of four alternative bases, including the entire net income and capital bases. For purposes of the capital base, a taxpayer was a “qualified New York manufacturer” only if it was a manufacturer, defined as a taxpayer “principally engaged in the production of goods by manufacturing, processing, assembling,” or certain other activities. The Division contended that the taxpayer was not a manufacturer because electricity generation is not a qualifying activity. However, the Tribunal pointed out that the statutory definition of a manufacturer for calculating the entire net income base expressly excluded activities related to “the generation and distribution of electricity” from the qualifying activities. But the statutory definition for the capital base contained no such language. As a result, the Tribunal held that “the clear and unambiguous language of the capital base paragraph leads to the conclusion that petitioner is a manufacturer.”
The Division also argued that, even if the taxpayer is a manufacturer, it cannot be a “qualified” New York manufacturer because its electricity-generating property is excluded under N.Y. Tax Law § 210(12)(b)(i)(A) (an Investment Tax Credit provision). Following statutory analysis, the Tribunal concluded that the Investment Tax Credit electricity exclusion does not impact that aspect of the qualified New York manufacturer definition. Thus, the Tribunal concluded that the taxpayer was a qualified New York manufacturer for purposes of the capital base and was subject to the $350,000 cap on tax calculated on the capital base.