NY TSB-A-05(14)C Corporation Tax 2005-10-24

Are a New York corporation's commission receipts allocated to New York when its sole shareholder-president never works out of its New York office?

Short answer: No, none of the commission receipts are allocated to New York. A corporation's receipts from compensation for services are allocated to New York if the services are performed there, including by a salesman attached to or working out of its New York office. Here the company's only employee, its president, is never physically present at and does not conduct business out of the New York City office (which is only a mailbox/bookkeeping location), so he is not a salesman attached to that office. Under section 210.3 and Regulations section 4-4.3, none of the commission receipts are allocated to New York.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Fallfield Steel Services Inc., a New York corporation, acts as a commission agent selling foreign suppliers' steel to Midwest customers; it has no New York customers. Its New York City "office" is only a mailbox and bookkeeping location staffed by someone who handles mail, pays bills, and deposits checks. The company also has offices in Berlin and London. Its only employee is its president (a German citizen, English resident), who is never physically present at the New York office and conducts business mostly from Berlin and London, traveling to the U.S. only briefly to visit Midwest customers.

The question was whether the president is a "salesman attached to" the New York office, which would allocate the company's commission/service receipts to New York.

Under section 210.3 and Regulations section 4-4.3, receipts from services are allocated to New York if the services are performed there; commissions are allocated to New York if the underlying services were performed in New York, and services are deemed performed in New York if done by salesmen attached to or working out of a New York office. Because the president is not physically present at and does not conduct business out of the New York office, he is not a salesman attached to it. Therefore none of the company's commission receipts are allocated to New York.

What this means for you

A mailbox office is not where services are performed

Having a New York City address that serves only as a mailbox and bookkeeping location does not, by itself, allocate your service or commission receipts to New York. The receipts factor looks at where the services are actually performed.

"Salesman attached to a New York office"

Commission receipts are deemed earned in New York only if the salesperson is attached to or works out of a New York office. An officer who is never physically present at the office and runs the business from abroad is not attached to it -- so the commissions are not New York receipts.

Document where the work happens

The result turned on facts: the president's physical absence from New York and the office's clerical-only function. Keep records of where your salespeople actually perform services; that is what drives the New York receipts factor under Regulations section 4-4.3.

Common questions

Q: Does a New York mailbox office allocate service receipts to New York?
A: No. Service and commission receipts are allocated based on where the services are performed, not where a clerical/mailbox office sits.

Q: When are commissions deemed earned in New York?
A: When the salesperson is attached to or works out of a New York office. An officer who is never physically present there and works from abroad is not attached to it.

Q: How much of Fallfield's commission income was allocated to New York?
A: None, because its only employee did not perform services in New York or work out of the New York office.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax)
- Tax Law section 210.3 (business allocation percentage; receipts factor)
- Article 9-A Regulations section 4-4.3 (receipts from services; commissions; salesman attached to a New York office)
- Fallfield Steel Services Inc., TSB-A-05(14)C (Oct. 24, 2005)

Source

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(14)C
Corporation Tax
October 24, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C050304B

On March 4, 2005, a Petition for Advisory Opinion was received from Fallfield Steel
Services Inc., c/o Krol & O’Connor, 320 West 81 Street, New York, New York 10024.
Petitioner, Fallfield Steel Services Inc., submitted additional information pertaining to the
Petition on August 9, 2005.
The issue raised by Petitioner is whether its sole shareholder, who is also its president, is
deemed to be a salesman attached to Petitioner’s office in New York City for purposes of
allocating to New York State any of Petitioner’s receipts from compensation for services.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is incorporated in New York State. Petitioner acts as a disclosed or undisclosed
agent of nonaffiliated foreign suppliers of steel to customers located in the Midwest of the
United States. Petitioner has no customers in New York State. Petitioner’s receipts include
receipts from commissions on the sale of steel to businesses in the Midwest.
Petitioner has an office in New York City, which serves as a mailbox and bookkeeping
location. Petitioner states that it engages an individual in New York City to take care of the mail,
pay bills, and deposit checks. Petitioner also has offices in Berlin, Germany, and London,
England. According to Petitioner, its president is its only employee.
One individual is both the sole shareholder and president of Petitioner. He is never
physically present at Petitioner’s New York City office and does not use that office to conduct
business. He is a citizen of Germany and a resident of England. He is in the United States
infrequently, for periods of a few days at a time, for the purpose of visiting Petitioner’s
customers in the Midwest. He mostly conducts Petitioner’s business out of Petitioner’s offices in
Berlin and London.
Applicable law and regulations
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax, and
provides, in part:
For the privilege of exercising its corporate franchise … every domestic …
corporation … shall annually pay a franchise tax, upon the basis of its entire net income
base, or upon such other basis [capital base, minimum taxable income bases or the fixed
dollar minimum] as may be applicable as hereinafter provided, for such fiscal or calendar
year or part thereof….

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Corporation Tax
October 24, 2005

Section 210.3 of the Tax Law provides, in part:
The portion of the entire net income of a taxpayer to be allocated within the state
shall be determined as follows:
(a) multiply its business income by a business allocation percentage to be
determined by
*

(2) ascertaining the percentage which the receipts of the taxpayer … arising
during such period from
*

(B) services performed within the state, …
*

(D) all other business receipts earned within the state, bear to the total amount of
the taxpayer's receipts, similarly computed, arising during such period from all sales of its
… services … whether within or without the state;
Section 4-4.3 of the Article 9-A Regulations contains the provisions for determining
receipts from compensation for services, and provides, in part:
(a) The receipts from services performed in New York State are allocable to
New York State. All receipts from such services are allocated to New York State,
whether the services were performed by employees, agents or subcontractors of the
taxpayer, or by any other persons. It is immaterial where such receipts are payable or
where they are actually received.
(b) Commissions received by a taxpayer are allocated to New York State if the
services for which the commissions were paid were performed in New York State. If the
services for which the commissions were paid were performed for the taxpayer by
salesmen attached to or working out of a New York State office of the taxpayer, the
services will be deemed to have been performed in New York State.
Opinion
Since Petitioner’s president, its only employee, is not physically present at and does not
conduct any business out of Petitioner’s New York City office, Petitioner’s president is not
deemed to be a salesman attached to Petitioner’s office in New York City for purposes of

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Corporation Tax
October 24, 2005

allocating to New York State any of Petitioner’s receipts from compensation for services.
Therefore, pursuant to section 210.3 of the Tax Law and section 4-4.3 of the Article 9-A
Regulations, none of Petitioner’s receipts from compensation for services are allocated to
New York State.

DATED: October 24, 2005

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.