- Charter Communications, Inc. (“Charter”) filed returns treating the combined group of which it was a member as a “qualified emerging technology company” under New York State law.
- Qualified emerging technology companies are afforded a preferential tax rate.
- The Appellate Division upheld the decision of the Tax Appeals Tribunal in denying Charter the benefit of being treated as a qualified emerging technology company.
Background
Charter is a member of a combined group of companies filing a New York State tax return. It provides communications services, including video, high speed data, and digital voice services to both residential and commercial customers. It filed combined returns for 2012-2014 indicating it met the definition of a “qualified emerging technology company” under New York State law.
Qualified Emerging Technology Companies
“Qualified emerging technology companies” are afforded preferential treatment under the franchise tax. During the periods at issue, qualified emerging technology companies were a subset of qualified manufacturers that were allowed a reduced tax rate. The term is defined with reference to N.Y. Pub. Auth. Law § 3102(e)(1)(c) as those located in New York State principally engaged in certain qualified businesses whose gross receipts are below a certain threshold. “Principally engaged” means that greater than fifty percent of the gross receipts of the enterprise are attributable to those qualified activities. Regardless of the dollar threshold in the Public Authority law, New York Tax Law § 210, during the periods in question, provided that qualified emerging technology companies were entitled to a reduced tax rate.
Definition of Taxpayer
Some, but not all, of the members of the Charter combined New York group, were in New York. The critical issue facing the court was whether the statutory requirement that companies be in New York is applied to each member of the combined group or the combined group as a whole.
Forvis Mazars Insight: These are issues that often arise with respect to unitary or combined groups when statutory references are to taxpayers.
The Court’s Analysis
The court began its analysis by determining the appropriate standard in interpreting the statute in question. New York law provides for deference to an administrative agency’s interpretation of a law when the interpretation or application of a statute involves reliance on “…the special competence of the agency …” which the agency is presumed to have developed in administering the statute. Absent these special circumstances, where the question is one of pure statutory interpretation, the court is obligated to proceed without deference. The Appellate Division concluded that this was a matter of pure statutory interpretation; therefore, no deference to the Tax Appeals Tribunal was required.
Turning to the statute itself, the court found that the statutory language of New York Tax Law § 210 for the years at issue considered and specifically identified the tests that a combined group needed to meet to be considered a “qualified New York manufacturer.” Those tests were: principally engaging in certain delineated activities; owning property principally used for that purpose in New York State; and a minimum adjusted basis for such property used in New York State.
The court noted that the legislature offered no such guidance with respect to the definition of a “qualified emerging technology company” as contained in New York Public Authorities Law § 3102-e. Rather, the references in that section of the statute were to a company rather than a combined group. This led the Appellate Division to conclude that, based upon the plain language of the statute, a combined group can only meet this definition if each corporation meets the definition.
The court rejected Charter’s interpretation as inconsistent with the intent of the New York State Emerging Industry Jobs Act which added the language to the statute. Further, it rejected the solution offered by Charter whereby it would afford the corporation/taxpayers located in New York State the reduced rate as being inconsistent with combined reporting and would distort the group’s economic activity in New York State. Finally, it rejected Charter’s contention that this treatment violated the dormant Commerce Clause by discriminating against out-of-state companies.
Forvis Mazars Insight: The decision highlights the importance of carefully parsing statutory language in determining appropriate tax treatment. It also reinforces the importance of understanding state level deference rules in statutory construction, an issue recently considered by the Supreme Court at the federal level in Loper Bright Enterprises v. Raimondo.
How Forvis Mazars Can Help
Forvis Mazars can help you construe the statutes that affect your tax positions and understand the risks and opportunities attendant to the statutory language.