New York ALJ Denies QETC Franchise Tax Rate for Combined Group

In a significant New York corporate franchise tax decision, a New York administrative law judge (ALJ) recently held that a combined reporting group was not entitled to claim the reduced qualified emerging technology company (QETC) tax rate unless each corporation in the combined group independently satisfies the QETC requirements. In Matter of Fidelity National Information Services Inc.,¹  the ALJ sustained the Division of Taxation’s denial of the taxpayer’s claimed and requested QETC rates for 2015, 2016, and 2017, rejecting the taxpayer’s argument that the combined group should be treated as a single corporation for determining QETC eligibility.

Background 

The taxpayer, Fidelity National Information Services Inc. (FIS) and subsidiaries (collectively, FIS Group), is an affiliated group of U.S. entities. The FIS Group, a publicly traded Fortune 500 company, is a global leader in financial services technology with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Headquartered in Florida, the FIS Group does business in various states, including New York.

The FIS Group filed combined New York general business corporation franchise tax returns and Metropolitan Transportation Authority surcharge tax returns for the 2015 through 2017 tax years. The group used the standard corporate franchise tax rates for 2015 (7.1%) and 2016 (6.5%), applied the reduced QETC rate of 5.5% for 2017, and later asserted it also qualified for the reduced rates of 5.7% for 2015 and 5.5% for 2016.  

During audit, the New York Division of Taxation concluded that although the group’s technology-related activities exceeded the statutory threshold on a combined basis, the group did not qualify because not all members independently met the statutory definition of a QETC. That position resulted in a notice of deficiency and denial of the taxpayer’s refund claim. At hearing, the record showed little dispute that the group’s products and services were heavily technology-based and that more than 50% of the group’s activities involved qualifying emerging technologies. The dispute instead turned on a legal question: Whether QETC status is determined at the combined group level or separately for each taxable corporation in the group.

ALJ’s Analysis

The ALJ denied the Division’s motion for summary determination because factual disputes remained in the record but ruled for the Division on the merits. The ALJ concluded that New York’s combined reporting rules do not transform the combined group into a single taxpayer for purposes of qualifying for the reduced QETC rate. Instead, the combined reporting provisions govern how tax is computed, while QETC eligibility remains tied to the statutory definition of the terms “taxpayer” and “corporation” under article 9-A.² 

Critically, the ALJ relied on Matter of Charter Communications³ and the appellate court’s affirmance, treating that authority as controlling even though Charter involved earlier years. The ALJ found that the 2015 corporate tax reform did not redefine the word “taxpayer” in a way that altered the entity-level qualification analysis. She also rejected the taxpayer’s legislative history argument that the legislature’s removal of proposed language expressly requiring each member of a combined group to qualify demonstrated a contrary intent. According to the ALJ, the enacted statute already compelled that result.

Alternative Relief Rejected

The taxpayer also argued that if QETC qualification must be tested member by member, New York should allow the group to be divided so that qualifying members could still benefit from the reduced rate. The ALJ rejected that position, concluding the taxpayer’s audit correspondence did not amount to a valid discretionary adjustment request. She also noted that in any event, New York law does not provide a mechanism to correct alleged distortion in the tax rate in that manner.

This aspect of the ruling might be just as important as the principal holding. Taxpayers often look to discretionary adjustment, subgrouping, or distortion concepts to preserve tax benefits in a combined reporting environment. The opinion suggests those approaches could have little traction if the dispute concerns eligibility for a preferential rate rather than computation of the tax base.

Why This Matters

For combined filers, the practical takeaway is straightforward: Even one nonqualifying member could taint the entire group’s eligibility for the QETC rate. That risk exists even when the group’s overall business profile is overwhelmingly technology-driven and would appear to satisfy the substantive policy goals behind the statute. The decision therefore heightens the importance of reviewing whether New York incentives, preferential rates, and special classifications apply at the combined-group level or must be established for each included corporation.

Taxpayers with historic or current QETC positions should revisit their filing methods, evaluate whether each combined member can independently support QETC status, and assess whether any exposure exists for prior periods. Businesses involved in mergers, acquisitions, or internal restructuring should also consider whether the addition of nonqualifying entities to a New York combined group could unintentionally eliminate access to favorable rate treatment.

References

¹ Matter of Fidelity National Information Services Inc. and Subsidiaries, No. 850502 (N.Y. Div. Tax App. 2026).

² N.Y. Tax Law § 208(1)(a); N.Y. Tax Law § 208(2).

³ Matter of Charter Communications, Inc. v New York State Tax Appeals Trib., No. 244 AD3d 1634 (3d Dept 2025).