Is an out-of-state corporation whose only New York activity is a researcher it hired to work at a New York university subject to New York Article 9-A franchise tax?

Plain-English summary

A North Carolina corporation received a research grant tied to a university in Troy, New York. It hired a researcher (taken on from that university) who keeps working at the university doing the same research. The corporation had no other New York presence -- no office, no other employees, no New York property, no partnership interests.

It asked whether this single research arrangement makes it subject to New York's Article 9-A franchise tax.

The Department's answer turns entirely on whether the researcher is an employee or an independent contractor:

• If the researcher is the corporation's employee, that person's work in Troy is "doing business" in New York under Regulations section 1-3.2(b). The corporation is then subject to Article 9-A tax for the period the employee performs research in New York and must file an annual franchise tax report.
• If the researcher is an independent contractor, the research activity is not doing business by the corporation, and the corporation is not subject to Article 9-A.

The Department did not decide which the researcher was -- that employee-vs-contractor question was outside the opinion's scope.

What this means for you

Out-of-state companies funding New York research

A single worker in New York can create franchise-tax nexus -- the test is doing business, which is read broadly. Even one employee performing services in New York (here, research) is enough, even with no office or property. Compare Quantum Resources (temporary employees at a client site) and Project Technology (employees teaching seminars in New York).

The employee/contractor line is decisive

If the same person is engaged as a genuine independent contractor, their New York activity is not attributed to your corporation for the doing-business test. Worker classification therefore directly drives whether you have a New York filing obligation. Document the relationship carefully; misclassification cuts both ways.

Accountants and advisers

The Department will not resolve worker status in an advisory opinion -- it is a facts-and-circumstances question. Resolve classification first (federal common-law factors, contracts, control), then apply the doing-business rule.

Common questions

Q: Does one researcher in New York create franchise-tax nexus?
A: Yes, if the researcher is the corporation's employee. One employee performing services in New York is "doing business" under Regulations section 1-3.2(b), even with no office or property.

Q: What if the researcher is an independent contractor?
A: Then the corporation is not doing business in New York through that person and is not subject to Article 9-A tax.

Q: Did the Department decide whether this researcher was an employee?
A: No. That classification question was outside the scope of the advisory opinion; the taxpayer must determine it.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax; doing business, employing capital, owning/leasing property, maintaining an office)
- Business Corporation Franchise Tax Regulations section 1-3.2(b) (when a foreign corporation is doing business in New York)
- Quantum Resources Corporation, TSB-A-91(2)C
- Project Technology, Inc., TSB-A-89(13)C
- Ion Technologies, Inc., TSB-A-05(6)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_6c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(6)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. C041020B

On October 20, 2004, a Petition for Advisory Opinion was received from Ion
Technologies, Inc., 131 Wing Haven Circle, Winston-Salem, North Carolina 27106-6250.
The issue raised by Petitioner, Ion Technologies, Inc., 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 North Carolina corporation. It received a grant for research with a
university in Troy, New York. The grant allowed Petitioner to hire a researcher in the third
quarter of 2004. The researcher was hired by Petitioner from the university in Troy, and the
individual continues to work at the university performing the same research he worked on before
Petitioner hired him.
Petitioner states that other than the research conducted in New York, Petitioner does not
perform any services in New York, do business in New York, maintain an office or other place
of business in New York, lease any real or personal property in New York, have assets in
New York, participate in any partnership, limited liability company, limited liability partnership
or joint venture in New York, or have any officers or employees performing any activities in
New York.
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, on a report which shall be filed,
except as hereinafter provided, on or before the fifteenth day of March next succeeding
the close of each such year, or, in the case of a corporation which reports on the basis of a

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fiscal year, within two and one-half months after the close of such fiscal year, and shall
be paid as hereinafter provided.
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
(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

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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.
Opinion
The Tax Department has determined that where a foreign corporation’s only presence in
New York was the temporary employees placed by the foreign corporation at a client’s facilities,
which employees provided clerical and technical services using the client’s equipment and
supplies under the client’s supervision, the foreign corporation was doing business in New York.
Quantum Resources Corporation, Adv Op Comm T&F, January 18, 1991, TSB-A-91(2)C.
Also, a foreign corporation was determined to be doing business in New York when its
employees taught software development seminars conducted in New York even though the
corporation did not employ capital or own or lease property in New York and did not maintain
an office in New York. Project Technology, Inc., Adv Op Comm T&F, November 6, 1989,
TSB-A-89(13)C.
Petitioner states that it has received a grant for research with a university in Troy,
New York and has hired an individual from the university to perform the research for Petitioner
at the university in Troy, New York. Assuming the individual is Petitioner’s employee, this
activity by Petitioner’s employee in Troy, New York constitutes doing business as described in
section 1-3.2(b) of the Regulations. See Quantum Resources, supra, and Project Technology,
supra. Accordingly, pursuant to section 209.1 of the Tax Law, Petitioner is subject to franchise
tax under Article 9-A of the Tax Law for the period that its employee is performing research in
New York, and Petitioner must file an annual franchise tax report and pay the tax due as
determined under such Article 9-A.
It should be noted that if the individual who is performing research for Petitioner is an
independent contractor, the research activities of such individual in New York will not constitute
doing business on the part of Petitioner in New York under section 1-3.2(b) of the Regulations.
In that case, Petitioner will not be subject to franchise tax under Article 9-A of the Tax Law.

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However, the determination of whether such individual is an employee of Petitioner is not within
the scope of this Advisory Opinion.

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.