New York Department of Revenue vs. Quality Markets of America
Frasier, C. E., Jewell, J. J. & Mankin, J. A. (2013). New York Department of Revenue vs. Quality Markets of America. Journal of the International Academy for Case Studies, 19(5), 47-58.
12 Pages Posted: 27 Nov 2012 Last revised: 20 Jul 2018
In this instructional case, Quality Markets of America (QMA), a large and successful company, is being audited by the New York State Department of Revenue over its calculation of the state’s franchise tax. QMA has historically borrowed a substantial amount of money from its subsidiaries. The state tax regulations indicate that undercapitalized firms must treat debt from affiliated parties, such as subsidiaries, similar to equity for the purposes of franchise tax calculations. QMA does not consider itself to be undercapitalized, while the state does – thus leading to differing interpretations on how the firm should compute its franchise tax obligations. This case explores a wide variety of issues around the franchise tax, capital adequacy, and the state’s ability to influence firms’ capital structures through the tax code and regulations.
Keywords: franchise tax, debt, equity, capital adequacy, capital structure
JEL Classification: K34, G32
Suggested Citation: Suggested Citation