Is a foreign corporation that holds New York real property for investment subject to the Article 9-A franchise tax?

Plain-English summary

Grapemount -- a foreign corporation -- asked whether it is subject to the Article 9-A franchise tax. It holds real property in New York for investment purposes.

The Department held it is subject to Article 9-A:

• Under section 209.1 and 20 NYCRR 1-3.2(d), a foreign corporation that owns real property in New York is exercising a taxable privilege -- owning property in the state subjects it to the franchise tax even if that is its only New York activity.
• Because Grapemount holds real property in New York for investment, it is subject to tax under Article 9-A for all years it holds that property, and must file a franchise tax return for each taxable year it holds it.

What this means for you

Owning New York real property is a taxable activity

A foreign corporation does not need an office, employees, or active operations to owe the Article 9-A franchise tax -- owning real property in New York (here, for investment) is itself enough under section 209.1 and 20 NYCRR 1-3.2(d).

File every year you hold the property

The obligation runs for each taxable year the corporation holds the New York real property -- a continuing filing duty, not a one-time event.

Contrast with a dissolved bare-title holder

An active corporation holding real property for investment is taxable. That differs from a dissolved, inactive corporation holding bare record title as a nominee, which is not doing business under section 209.3 (see TSB-A-00(3)C/Red Rose Farm, TSB-A-00(12)C/Freund).

Common questions

Q: Is a foreign corporation taxed in New York just for owning real property here?
A: Yes. Owning New York real property (including for investment) subjects it to the Article 9-A franchise tax under section 209.1 and 20 NYCRR 1-3.2(d).

Q: How long must it file?
A: For each taxable year during which it holds the New York real property.

Q: How is this different from the dissolved-nominee cases?
A: Those involve a dissolved, inactive corporation holding bare record title -- not doing business under section 209.3. An active investment holder is taxable.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax; owning or leasing property in New York)
- 20 NYCRR 1-3.2(d) (owning real property in New York as a taxable activity)
- Grapemount, TSB-A-00(11)C (Jan. 2000)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a00_11c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(11)C
Corporation Tax
April 24, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C000125A

On January 25, 2000, a Petition for Advisory Opinion was received from Grapemount
Corporation, N.V., c/o Yoshizaki & Sklar, LLP, 250 West 57th Street, Suite 1723, New York, New
York 10107.
The issue raised by Petitioner, is whether it is subject to franchise tax under Article 9-A of
the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a corporation incorporated under the laws of Delaware. Petitioner received two
parcels of real estate as a capital contribution from a shareholder. One property is located in New
York State (original value $169,000) and the other is located in California (original value $156,000).
These two properties have been held for investment purposes only (not depreciable assets). The
properties have never been rented nor used for business.
Petitioner has never conducted any business, and has never had any employees. The assets
of Petitioner total $640,412 and consist of $17,109 cash in banks, $298,303 loans receivable and
$325,000 in the two property investments.
Discussion
Section 209.1 of the Tax Law imposes, annually, a franchise tax on every corporation for the
privilege of exercising its franchise, or of doing business, or of employing capital, or of owning or
leasing property in New York State in a corporate or organized capacity, or of maintaining an office
in New York State for all or any part of each of its fiscal or calendar years.
Section 1-3.2(d) of the Article 9-A Regulations provides that:
[t]he owning or leasing of real or personal property within New York State
constitutes an activity which subjects a foreign corporation to tax. Property owned
by or held for the taxpayer in New York State, whether or not used in the taxpayer’s
business, is sufficient to make the corporation subject to tax. Property held, stored
or warehoused in New York State creates taxable status. Property held as a nominee
for the benefit of others creates taxable status....

-2­
TSB-A-00(11)C
Corporation Tax
April 24, 2000

Pursuant to section 209.1 of the Tax Law and section 1-3.2(d) of the Article 9-A Regulations,
the ownership of real or tangible personal property located in New York State is sufficient to make
a corporation subject to the franchise tax imposed under Article 9-A of the Tax Law even though the
corporation is not deemed to be doing business in New York State.
In this case, Petitioner does not conduct business in New York and does not have any
employees in New York, and it is not deemed to be doing business in New York. However,
Petitioner does hold real property in New York for investment purposes. Accordingly, pursuant to
section 209.1 of the Tax Law and section 1-3.2(d) of the Article 9-A Regulations, Petitioner is
subject to tax under Article 9-A of the Tax Law for all years its holds real property in New York
State, and must file a franchise tax return for each taxable year that it holds such real property.

DATED: April 24, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.