Is an out-of-state ready-mix concrete seller that delivers to New York in its own trucks protected by Public Law 86-272?

Plain-English summary

A Pennsylvania ready-mix concrete company sold 15-22% of its output to New York customers. Its only New York activity was a telephone listing (its Pennsylvania number/address, listed in two adjoining New York directories) and delivering concrete in its own mixer trucks. Orders were taken at the Pennsylvania office; the concrete was completely mixed in Pennsylvania (central-mixed) before transport; during delivery the drum rotated slowly only to keep the concrete fluid, not to mix it; the driver merely unloaded.

The Department drew the key line between central-mixed and transit-mixed concrete:

• Central-mixed (this case): the concrete is produced at the plant; the truck's slow rotation just keeps it usable during transport. That rotation is a separate, distinct activity from production. So the company's New York activities (a phone listing and delivery) do not exceed solicitation, and it is protected by Public Law 86-272 -- not subject to Article 9-A.
• Transit-mixed (the warning): if the trucks produce the concrete by mixing it in transit in New York or at the delivery site (following the B.R. DeWitt line), that is producing goods in New York -- doing business beyond solicitation, not de minimis -- and the company would be subject to Article 9-A.

What this means for you

Delivery in your own trucks can still be protected solicitation

Public Law 86-272 protects an out-of-state seller whose only New York activity is soliciting orders and delivering the goods -- even in the seller's own vehicles. A local phone listing pointing to your out-of-state office does not break protection.

Producing the product in-state breaks protection

The danger is production, not delivery. Transit-mixing concrete (mixing it in the truck during New York transport or at the site) is producing goods in New York -- doing business beyond solicitation, and not de minimis. Central-mixing at your plant, with the drum only agitating to keep the product fluid, is not production.

Know which process you run

The same trucks can be on either side of the line. Document whether your product is plant-produced (central-mixed) or produced in transit (transit-mixed); that single fact decides whether you keep Public Law 86-272 protection in New York.

Common questions

Q: Does delivering concrete in the seller's own trucks break Public Law 86-272 protection?
A: No, where the concrete is central-mixed (produced at the plant) and the truck rotation only keeps it fluid. That is delivery, which stays within protected solicitation.

Q: What if the concrete is transit-mixed?
A: Then the trucks produce the concrete in New York. Producing goods in New York is doing business beyond solicitation and not de minimis, so the seller is subject to Article 9-A.

Q: Does a New York telephone listing matter?
A: Not by itself here -- the listing pointed to the seller's out-of-state office, and combined with delivery it did not exceed solicitation.

Citations and references

Statutes, regulations, and authorities:
- Public Law 86-272 (15 USC sections 381-384) (interstate solicitation immunity)
- Tax Law section 209.1 (Article 9-A franchise tax)
- Business Corporation Franchise Tax Regulations section 1-3.4(b)(9) (Public Law 86-272 exemption; activities beyond solicitation)
- Business Corporation Franchise Tax Regulations section 1-3.2(b) (doing business; production of goods in New York)
- B.R. DeWitt, Inc., Tax App Trib (Sept. 19, 1991); Matter of DeWitt Concrete Corp.
- TSB-A-05(3)C (Mar. 10, 2005)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a05_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(3)C
Corporation Tax
March 10, 2005

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

PETITION NO. C030904C

On September 4, 2003, a Petition for Advisory Opinion was received from Masters RMC,
Inc., P.O. Box 25, Main Street, Kingsley, Pennsylvania 18826-0025. Petitioner, Masters RMC,
Inc., submitted additional information pertaining to the Petition on November 2, 2004.
The issue raised by Petitioner is whether its activities in New York State are protected by
Public Law 86-272, and Petitioner is exempt from franchise tax under Article 9-A of the Tax
Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated in Pennsylvania on January 1, 1998, and engages in sales of
ready mix concrete. The sales of Petitioner to New York customers for taxable years 1998
through 2002 were between 15% and 22% of total sales per year.
Petitioner has a telephone listing in the local Hancock and Deposit, New York telephone
directories. The telephone listing is the telephone number and address of Petitioner’s facilities in
Pennsylvania. Petitioner has a telephone listing in the New York directories because these
directories cover the areas adjoining Pennsylvania where Petitioner conducts its business. The
closest Pennsylvania local telephone directory would be Honesdale, Pennsylvania which is out of
Petitioner’s business area.
The telephone orders for ready mix concrete are called into Petitioner’s office in
Pennsylvania. No purchase order is issued. Petitioner states that the ready mix concrete is
completely mixed at its facilities in Pennsylvania before it is transported to the customer’s
location. The concrete is transported and delivered to customers via Petitioner’s own concrete
mixer trucks and drivers. During the transportation, the mixer drum rotates at a minimum rate to
keep the concrete from setting before delivery. However, Petitioner states that the concrete is
not transit mixed during transportation and delivery. At the delivery site, the driver unloads the
ready mix concrete and does not perform any other services.
Other than the delivery of orders to New York customers, Petitioner has no other contact
with New York State. Petitioner does not have any offices, warehouses, showrooms or other
business locations in New York State, and it does not conduct any other business in New York.
Other than the delivery of concrete to New York customers, Petitioner does not own, lease or
rent real or tangible personal property in New York State. It does not obtain or execute contracts
in New York State.

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Applicable law and regulations
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax as follows:
For the privilege of exercising its corporate franchise, or of doing business, or of
employing capital, or 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, every domestic or foreign corporation, except corporations
specified in subdivision four of this section, 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….
Section 1-3.2 of the Business Corporation Franchise Tax Regulations (“Regulations”)
provides, in part:
(b) Foreign corporation – doing business. (1) The term doing business is used in
a comprehensive sense and includes all activities which occupy the time or labor of
people for profit. Regardless of the nature of its activities, every corporation organized
for profit and carrying out any of the purposes of its organization is deemed to be doing
business for the purposes of the tax. In determining whether a corporation is doing
business, it is immaterial whether its activities actually result in a profit or a loss.
(2) Whether a corporation is doing business in New York State is determined by
the facts in each case. Consideration is given to such factors as:
(i) the nature, continuity, frequency, and regularity of the activities of the
corporation in New York State;
(ii) the purposes for which the corporation was organized;
(iii) the location of its offices and other places of business;
(iv) the employment in New York State of agents, officers and employees; and
(v) the location of the actual seat of management or control of the corporation.
(c) Foreign corporation – employing capital. The term employing capital is used
in a comprehensive sense. Any of a large variety of uses, which may overlap other
activities, may give rise to taxable status. In general, the use of assets in maintaining or
aiding the corporate enterprise or activity in New York State will make the corporation
subject to tax. Employing capital includes such activities as:
(1) maintaining stockpiles of raw materials or inventories; or

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(2) owning materials and equipment assembled for construction.
(d) Foreign corporation – owning or leasing property. The 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. Also,
consigning property to New York State may create taxable status if the consignor retains
title to the consigned property.
(e) Foreign corporation – maintaining an office. A foreign corporation which
maintains an office in New York State is engaged in an activity which makes it subject to
tax. An office is any area, enclosure or facility which is used in the regular course of the
corporate business. A salesperson's home, a hotel room, or a trailer used on a
construction job site may constitute an office.
However, section 1-3.4(b)(9) of the Regulations provides for an exemption from taxation
under Article 9-A for corporations which are exempt pursuant to the provisions of Public Law
86-272 (15 USCA §§ 381-384) and provides, in part:
(i) A foreign corporation whose income is derived from interstate commerce is
not subject to tax under article 9-A of the Tax Law if the activities of the corporation in
New York State are limited to either, or both of the following:
(a) the solicitation of orders by employees or representatives in New York
State for sales of tangible personal property and the orders are sent outside
New York State for approval or rejection; and if approved, are filled by shipment
or delivery from a point outside New York State; and
(b) the solicitation of orders for sales of tangible personal property by
employees or representatives in New York State in the name of or for the benefit
of a prospective customer of such corporation if the customer’s orders to the
corporation are sent outside the State for approval or rejection; and, if approved,
are filled by shipment or delivery from a point outside New York State.
*

*

*

(iv) In order to be exempt by virtue of Public Law 86-272, the activities in
New York State of employees or representatives must be limited to the solicitation of
orders. The solicitation of orders includes offering tangible personal property for sale or
pursuing offers for the purchase of tangible personal property and those ancillary
activities, other than maintaining an office, that serve no independent business function
apart from their connection to the solicitation of orders. Examples of activities performed

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by such employees or representatives in New York State that are entirely ancillary to the
solicitation of orders include:
(a) the use of free samples and other promotional materials in connection
with the solicitation of orders;
(b) passing product inquiries and complaints to the corporation’s home
office;
(c) using autos furnished by the corporation;
(d) advising customers on the display of the corporation’s products and
furnishing and setting up display racks;
(e) recruitment, training and evaluation of sales representatives;
(f) use of hotels and homes for sales-related meetings;
(g) intervention in credit disputes;
(h) use of space at the salesperson’s home solely for the salesperson’s
convenience....
(i) participating in a trade show or shows, provided that participation is for
not more than 14 days, or part thereof, in the aggregate during the corporation’s
taxable year for Federal income tax purposes....
(v) Activities in New York State beyond the solicitation of orders will subject a
corporation to tax in New York State unless such activities are de minimis. Activities
will not be considered de minimis if such activities establish a nontrivial additional
connection with New York State. Solicitation activities do not include those activities
that the corporation would have reason to engage in apart from the solicitation of orders
but chooses to allocate to its New York State sales force. In determining whether a
corporation’s activities exceed the solicitation of orders, all of the corporation's activities
in New York State will be considered. Examples of activities which go beyond the
solicitation of orders include:
(a) making repairs to or installing the corporation’s products;
(b) making credit investigations;
(c) collecting delinquent accounts;

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(d) taking inventory of the corporation’s products for customers or
prospective customers;
(e) replacing the corporation’s stale or damaged products;
(f) giving technical advice on the use of the corporation’s products after
the products have been delivered to the customer.
(vi) Maintaining an office ... in New York State will make a corporation taxable....
Opinion
Pursuant to section 1-3.4(b)(9) of the Regulations, a corporation is not subject to
franchise tax in New York State if it is exempt pursuant to the provisions of Public Law 86-272
(15 USCA §§381–384). To be exempt pursuant to Public Law 86-272, a corporation’s activities
in New York State must be either (a) limited to the solicitation of orders in New York State by
employees or representatives for sales of tangible personal property, or be entirely ancillary to
such solicitation of orders, or (b) if the activities exceed the solicitation of orders, the activities
must be considered to be de minimis. In addition, the orders must be sent outside New York
State for approval or rejection; and if approved, must be filled by shipment or delivery from a
point outside New York State.
In this case, Petitioner solicits sales of its ready mix concrete in New York State through
a telephone listing for its Pennsylvania office in two New York telephone directories. When
Petitioner’s customers call the telephone number listed in the New York directories, the
telephone is answered at Petitioner’s office in Pennsylvania by Petitioner’s employees who take
the sales orders. The ready mix concrete is transported and delivered to a customer’s location in
New York State by Petitioner’s own vehicles and drivers. At the delivery site, the driver unloads
the concrete but does not perform any other services.
One method of producing ready mix concrete is called transit mixed. Under this method,
the raw materials for making the concrete are loaded into a concrete truck mixer, and
the concrete is produced by the rotation of the truck mixer at a medium or fast speed while
in transit to the delivery location. At the time of delivery, the concrete is completely mixed. See
the National Ready Mix Concrete Association Web site (www.nrmca.org/aboutconcrete/
howproduced.asp). Truck mixers that transit mix concrete are considered to be used in the
production of the ready mix concrete. See B.R. DeWitt, Inc., Tax App Trib, September 19, 1991,
No. 806601; B. R. DeWitt, Inc., Dec St Tax Commn, May 23, 1980, TSB-H-80(14)C; Matter of
DeWitt Concrete Corp, Dec St Tax Commn, November 16, 1977.
If the production of the concrete occurs at a facility prior to loading into the truck mixer,
the process is called central mixed. With central mixed concrete, the truck mixer is used as an
agitating haul unit that rotates at a very low speed to keep the concrete from hardening during
transportation and delivery. See the National Ready Mix Concrete Association Web site

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(www.nrmca.org/aboutconcrete/howproduced.asp). In this case, the rotation of the truck mixer
is not used in the production process, but rather keeps the concrete that was produced at the plant
in a fluid condition while transporting for delivery.
In this case, Petitioner states that the ready mix concrete it produces is completely mixed
at its facilities in Pennsylvania, i.e., central mixed, before being transported and delivered to a
customer’s location in New York State by Petitioner’s own vehicles and drivers. During
transportation, the truck mixer rotates the concrete at a very slow speed to keep the concrete in a
usable fluid condition for delivery. However, such mixer rotation to agitate the concrete to keep
from hardening during transportation to the delivery site is a separate and distinct activity from
the concrete production process. The present case, therefore, may be distinguished from the B.R.
DeWitt decisions cited above, and from DeWitt Concrete, supra, since those cases involved
transit mix concrete that was produced by the truck mixer in transit to the delivery location.
In the present case, Petitioner’s activities in New York State consist of having a
telephone listing in a New York telephone directory and the delivery of the concrete produced at
Petitioner’s Pennsylvania facility. Such activities do not exceed the solicitation of orders for
purposes of Public Law 86-272 and section 1-3.4(b)(9) of the Regulations. Therefore,
Petitioner’s activities are protected under the provisions of Public Law 86-272 and section
1-3.4(b)(9) of the Regulations, and Petitioner is not subject to tax pursuant to section 209.1 of the
Tax Law.
However, if Petitioner’s vehicles that deliver the ready mix concrete to New York
customers are truck mixers that transit mix the concrete during transportation in New York or at
a delivery site in New York, following B.R. DeWitt, Inc., supra, Petitioner’s activities in
New York State would include the production of goods in New York. The production of goods
in New York constitutes doing business in New York under section 209.1 of the Tax Law and
section 1-3.2(b) of the Regulations. Under these circumstances, Petitioner’s production of goods
in New York would exceed the mere solicitation of orders under section 1-3.4(b)(9) of the
Regulations, and would not be considered to be de minimis under such section. In such case,
Petitioner’s activities would not be protected under the provisions of Public Law 86-272 and
section 1-3.4(b)(9) of the Regulations, and Petitioner would be subject to tax pursuant to section
209.1 of the Tax Law.

DATED: March 10, 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.