Canco, which carries on a freight transportation business in Canada and the U.S., is subject to New York State franchise tax, which generally corresponds to the highest of the following amounts:
(a) A tax at a fixed percentage of the "Entire net income base" (established using its taxable income determined under US federal tax rules multiplied by a business apportionment factor, based on the relative distance traveled in the State's territory);
(b) A tax on the "Capital base" (its average net worth in a year multiplied by the business apportionment factor);
(c) A tax at a fixed percentage of "Minimum taxable income";
(d) A fixed amount determined for the year based on different parameters.
CRA indicated that the franchise tax would qualify as an income tax only if its amount was calculated based on (a) above, given that “the method of calculating the ‘Entire net income base’ substantially resembles the income and profits taxes imposed under Part I of the Act,” but that:
any other method of determining the New York State tax could not give rise to a claim for an FTC pursuant to subsection 126 (2). In those circumstances, the amount of tax paid by a taxpayer could be deductible against the taxpayer’s business income, depending on the nature of the payment and the applicable provisions of the Act.