Press Room

June 25, 2012

Freda and Zemsky Published in State Tax Notes Today

After almost five years since the imposition of the much heralded change to New York’s combined reporting law, the question arises whether things have actually changed. In several critical areas, it may be that the new statutory regime contains word changes but in effect leave much of the predecessor regulatory regime in place.

The statute, section 211.4 of the Tax Law, was enacted amid much fanfare that the great degree of subjectivity especially regarding the distortion requirement was replaced by a bright-line substantial intercorporate transactions test. Then-Gov. Eliot Spitzer proclaimed that the revised law would greatly reduce litigation, which in the past sapped the Department of Taxation and Finance’s resources. Certainty regarding the application of the law would greatly reduce litigation. Moreover, because New York was essentially a separate reporting jurisdiction, the rare departures into unitary taxation would be well established by the amendments. Yet as we shall see, soft distortion, and with it significant subjectivity and discretion, remain in place. Legal certainty is illusory, and the exercise of unitary taxation has become problematic. The result of all that is that a regulation was replaced by a statute that operates as if nothing has changed. Before we compare the previous and successor rules, a brief foray into each legal framework is warranted…

Raymond J. Freda and Kenneth T. Zemsky are Managing Directors in WTAS' New York office.

State Tax Notes Today June 25, 2012