Justice Edward Spain
Xerox’s 2001 amended franchise tax returns for 1997 through 1999 sought to treat certain fixed purchase option leases and equipment equity plans as “other securities” for purposes of Tax Law §208(5)’s definition of “investment capital,” thus reclassifying interest income thereunder as “investment income” under §208(6) instead of “business income.” Reversing a law judge, the Tax Appeals Tribunal denied Xerox’s requested refunds, finding the income from the subject finance agreements not “investment income” under §208(6) because the agreements were not “stocks, bonds [or] other securities.” Third Department confirmed, agreeing with the tribunal that the subject agreements were basic sale or lease agreements with Xerox’s governmental customers that were not sold in the open market or a recognized exchange or designated as an investment vehicle. The agreements were not recognized by investors as securities, nor did they bear any similarity to stocks and bonds. Nor did the subject agreements qualify as “debt instruments” for purposes of 20 NYCRR 3-3.2(c)(2). Xerox did not show them issued by any governmental entity within the meaning of §3-3.2(c)(2) or that they should be considered debts of Xerox’s governmental customers.
