New York: The Other Shoe Drops in Bausch & Lomb

New York's Corporate Franchise Tax provides generally that entire net income (ENI) "shall not include: income, gains and losses from subsidiary capital. A subsidiary is any corporation of which over 50 percent of the number of voting shares is owned by the taxpayer corporation. New York corporate taxpayers and their advisors have operated, for decades, under the assumption that gains from the sale of subsidiaries are not taxable and losses are not deductible. Turns out, this is not the law. In December of 2007, the New York Tax Appeals Tribunal, in Bausch & Lomb, allowed a parent corporation to deduct a loss on the sale of its subsidiary's stock, because the parent and the subsidiary filed on a combined basis. This decision not only overturned the long-standing position of the New York State Department of Taxation and Finance (the "Department"), it came as a major surprise to many.