APPELLATE DIVISION HOLDS THAT BANK MUST APPLY NOLS IN YEAR IT WAS TAXED ON NON-INCOME BASE -

The Appellate Division has held that a taxpayer was required to use its net operating loss (“NOL”) carryforward to decrease its entire net income (“ENI”) in a year in which its bank tax liability was not measured by its ENI under former Article 32. Toronto Dominion Holdings (U.S.A.), Inc. v. Tax Appeals Trib. No. 523475, 2018 NY Slip Op. 04402 (3d Dep’t, June 14, 2018). The decision affirms the holding of the New York State Tax Appeals Tribunal, which had overturned a determination of the ALJ, who had held that the taxpayer was not required to use any portion of its NOL to reduce its income if its income was already low enough to cause it to be subject to taxation on an alternative base.

During tax years 2005 through 2007, Toronto Dominion Holdings (U.S.A.), Inc., successor-in-interest to TD Holdings II, Inc., (“TD Holdings”), was subject to the New York State bank tax under former Article 32 and filed New York bank tax returns. In 2005, TD Holdings reported a loss of approximately $12 million for federal income tax purposes and a loss of approximately $9 million for New York bank tax purposes. In 2006, TD Holdings claimed almost $4 million of its 2005 federal NOL carryforward on its federal return, but did not claim any of its 2005 New York NOL for bank tax purposes, because its 2006 ENI was low enough that the alternative tax on assets was the applicable tax base. In 2007, TD Holdings claimed the remainder of its 2005 federal NOL carryforward on its federal return and claimed the remainder of its 2005 New York NOL carryforward on its New York bank tax return. On audit, the Department required TD Holdings to use its available New York NOL carryforward to offset its ENI in 2006 even though it was not taxed on the ENI base in that year.