Is a dissolved corporation that merely holds record title to New York real property as a nominee, and is otherwise inactive, subject to Article 9-A tax?

Plain-English summary

Li'l Cricket Enterprises, Inc., a domestic corporation dissolved by proclamation in March 1979, turned out to be the record title owner of a Howard Beach property -- though the Li'l Cricket Marina partnership had always believed it owned the property, paid the real estate taxes and water/sewer charges, and operated and controlled it. Li'l Cricket Enterprises never operated, managed, or controlled the property, had no bank account, made no payments, held no shareholder meetings, and had no directors/officers. It asked whether it (1) held the property as a nominee, (2) was doing business under section 209.3, and (3) was subject to Article 9-A tax.

The Department held:

• A dissolved corporation that is merely a record title holder of New York real property as nominee for others, and is otherwise inactive, is not conducting business under section 209.3 (citing a long line of opinions such as Perlinda Realty).
• Li'l Cricket Enterprises exercised its franchise and was subject to Article 9-A franchise tax from incorporation until its 1979 dissolution.
• After the March 27, 1979 dissolution, it was inactive and merely held title as nominee, so it was not doing business and not subject to Article 9-A tax.

What this means for you

A dormant nominee title-holder is not "doing business"

A corporation that is dissolved and does nothing but sit on record title to property for someone else -- no operations, no bank account, no payments -- is not conducting business under section 209.3 and owes no Article 9-A tax for those years.

Substance over the deed

Even though the deed named the corporation as owner, the partnership actually paid the taxes and ran the property. The Department looked at who really operated the property, not the paper title.

Pre-dissolution years are different

The corporation was taxable for the years it was incorporated and exercising its franchise before the 1979 dissolution. The no-tax conclusion applies only to the post-dissolution, nominee-only period.

Common questions

Q: Does holding record title to New York property make a dissolved corporation taxable? A: No, not if it merely holds title as a nominee and is otherwise inactive -- it is not doing business under section 209.3.

Q: Why did the partnership's role matter?
A: Because the partnership actually paid the taxes and operated the property, the corporation was a dormant nominee, not the operator.

Q: Was the corporation ever taxable?
A: Yes -- for the years it was incorporated and exercising its franchise before its 1979 dissolution, but not afterward.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 209.1 (franchise tax; exercising corporate franchise)
• Tax Law section 209.3 (dissolved corporation; doing business)
• Perlinda Realty, Inc., TSB-A-99(5)C (Jan. 29, 1999)
• Li'l Cricket Enterprises, Inc., TSB-A-02(15)C (Sept. 13, 2002)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a02_15c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(15)C
Corporation Tax
September 13, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C020523A

On May 23, 2002, a Petition for Advisory Opinion was received from Li’l Cricket Enterprises, Inc., c/o Barbara Amuso, 88-07 156th Avenue, Howard Beach, New York 11414. The issues raised by Petitioner, Li’l Cricket Enterprises, Inc., are whether (1) it held real property as a nominee for a partnership, as described below, (2) it was conducting business in New York pursuant to section 209.3 of the Tax Law, and (3) it is subject to tax under Article 9-A of the Tax Law. Petitioner submits the following facts as the basis for this Advisory Opinion. Barbara Amuso is the principal partner of Li’l Cricket Marina, the (“Partnership”). Until recently, Ms. Amuso believed that the Partnership was the title owner of property located at 164-49 Cross Bay Boulevard, Howard Beach, New York, identified as Block 14207, Lot 105 in Queens County, New York (“Property”). In anticipation of obtaining a mortgage for the Property or restructuring the Partnership, Ms. Amuso obtained a title search for the Property which indicated that Petitioner is the record owner of the Property continuously since November 22, 1974. Petitioner, a domestic corporation, was dissolved by proclamation of the Secretary of State on March 27, 1979. Petitioner states that the Partnership, not Petitioner, has paid the real estate taxes and water and sewer charges for the Property. Petitioner also states that at no time did Petitioner operate, manage or control the Property, nor did Petitioner ever maintain a bank account or make any payment of any kind in respect to the Property. Petitioner further states that Petitioner has been treated by the Partnership as a nullity, a nonexisting entity which never owned, controlled, managed or was involved with the operation of the Property. There were no meetings of the shareholders of Petitioner, and no directors or officers of Petitioner have ever been elected or appointed. Lastly, Petitioner states that the Partnership has always held itself out as the owner of the Property, paying all expenses including real estate taxes, notwithstanding the fact that the deed indicates that the dormant nominee, Petitioner, is the grantee and owner of the Property. Law and Regulations Section 209.1 of the Tax Law imposes, annually, a franchise tax on every corporation “For the privilege of exercising its corporate franchise, or of doing business, or of employing capital, or

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TSB-A-02(15)C
Corporation Tax
September 13, 2002

of owning or leasing property in this state in a corporate or organized capacity, or of maintaining an office in this state, for all or any part of each of its fiscal or calendar years....” Section 2-3.1(a) of the Business Corporation Franchise Tax Regulations provides that “The franchise tax is imposed for all or any part of each taxable year during which a taxpayer exercises its corporate franchise... Accordingly, every taxpayer is required to pay a tax measured by entire net income (or other applicable basis) up to the date on which it ceases to possess a franchise if a domestic corporation....” Section 2-3.1(b) of the Business Corporation Franchise Tax Regulations provides that “A domestic corporation may cease to posses a franchise as a result of its dissolution....” Section 209.3 of the Tax Law provides “... A dissolved corporation which continues to conduct business shall also be subject to tax imposed by this article.” Section 1-2.4(c) of the Business Corporation Franchise Tax Regulations provides that “The term taxpayer also includes a corporation which continues to do business after it has been dissolved by the filing of a certificate of dissolution, by proclamation or otherwise. A dissolved corporation, the activities of which are limited to the liquidation of its business and affairs, the disposition of its assets (other than in the regular course of business), and the distribution of the proceeds, is not taxable under article 9-A of the Tax Law.” Opinion A dissolved corporation that is merely a record title holder of real property located in New York State as nominee for the benefit of others, and is otherwise inactive, is not conducting business in New York State as contemplated by section 209.3 of the Tax Law. Perlinda Realty, Inc., Adv Op Comm T&F, January 29, 1999, TSB-A-99(5)C; N.D.M. Autos, Inc., Adv Op Comm T&F, January 26, 1999, TSB-A-99(4)C; Rubin Brothers Holding Company, Adv Op Comm T&F, December 4, 1997, TSB-A-97(27)C; W.R.H.R.E Corp., Adv Op Comm T&F, March 3, 1995, TSB-A-95(4)C; Highmount Medical Building Inc., Adv Op Comm T&F, May 7, 1991, TSB-A-91(12)C; Harold S. Sommers, Adv Op Comm T&F, March 15, 1990, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., Adv Op Comm T&F, September 1, 1988, TSB-A-88(19)C; Eugene Strasser, Adv Op Comm T&F, September 1, 1988, TSB-A-88(18)C. Accordingly, pursuant to section 209.1 of the Tax Law, Petitioner exercised its franchise from the date of Petitioner’s incorporation until its dissolution by proclamation on March 27, 1979, and was subject to the franchise tax imposed by Article 9-A for those taxable years during which Petitioner was incorporated. However, after its dissolution by proclamation, Petitioner was inactive. The Partnership believed itself to be the title owner of the Property. The Partnership has paid the real estate taxes and water and sewer charges for the Property, and has been operating, managing and controlling the

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TSB-A-02(15)C
Corporation Tax
September 13, 2002

property. Petitioner did not operate, manage or control the Property, nor did it have a bank account or make any payments of any kind with respect to the Property. Therefore, Petitioner was merely holding property as nominee for the benefit of others, and after its dissolution on March 27, 1979, Petitioner has not conducted business in New York State pursuant to section 209.3 of the Tax Law. Accordingly, Petitioner was not subject to tax under Article 9-A of the Tax Law after it was dissolved by proclamation on March 27, 1979.

DATED: September 13, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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