Is an out-of-state company subject to New York's corporate franchise tax when its only New York activity is delivering equipment it sold, including occasional deliveries in its own truck?

Plain-English summary

A Connecticut party-equipment company (Northeast Tent Productions) sold tents, dance floors, and lighting to customers, some in New York. It had no New York office, no New York employees, no New York phone number, and no property in New York. New York customers found it by referral or yellow-pages ad and called its Connecticut office; the company shipped from its Connecticut warehouse, usually by common carrier but sometimes in its own truck crossing into New York to deliver. It collected New York sales tax and paid New York highway use tax. It asked whether all this made it subject to New York's corporate franchise tax.

The Department said no. A foreign corporation is subject to the Article 9-A franchise tax only if it is doing business, employing capital, owning or leasing property, or maintaining an office in New York (Tax Law § 209.1; 20 NYCRR § 1-3.2(b)-(e)). On these facts, the company's only New York activity was delivering the goods it sold — and that, by itself, is not enough to create franchise-tax nexus. The Department reached that conclusion even though some deliveries were made in the company's own truck rather than by an independent carrier.

What this means for you

Out-of-state sellers shipping into New York

Selling to New York customers and delivering the goods — even occasionally with your own vehicle — does not by itself make you subject to New York's corporate franchise tax, as long as you have no New York office, employees, property, or other in-state business activity. Note this is the franchise tax question; sales-tax collection and highway-use-tax duties are separate and can still apply (the company here collected both).

Businesses evaluating multi-state footprint

The franchise-tax line turns on the § 1-3.2 factors: doing business, employing capital, owning/leasing property, maintaining an office. Mere delivery of your own sold goods doesn't trip any of them. Adding in-state salespeople, inventory, an office, or other regular activity can change the answer.

Accountants and tax professionals

This is a clean delivery-only nexus result. Contrast it with activity that does create nexus — leasing or storing property in New York, maintaining an office (even a salesperson's home held out as an office), or stationing employees here. Keep the delivery activity genuinely incidental to the out-of-state sale.

Common questions

Q: Does delivering goods into New York create franchise-tax nexus?
A: Not on its own. Where the seller's only New York activity is delivering the goods it sold — by carrier or its own truck — it is not doing business in New York for franchise-tax purposes.

Q: Does it matter that the company used its own truck sometimes?
A: The Department reached the same no-nexus conclusion despite occasional own-truck deliveries, because delivery was the company's only New York activity.

Q: Do sales tax and highway use tax still apply?
A: They can. Those are separate from the franchise tax; in this case the seller collected New York sales tax and paid highway use tax even though it owed no franchise tax.

Citations and references

Statutes, regulations, and authorities:
- Tax Law § 209.1 (Article 9-A franchise tax imposition)
- 20 NYCRR § 1-3.2(b) (foreign corporation - doing business)
- 20 NYCRR § 1-3.2(c) (employing capital); § 1-3.2(d) (owning or leasing property); § 1-3.2(e) (maintaining an office)
- Northeast Tent Productions, Inc., TSB-A-07(3)C (May 16, 2007)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a07_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(3)C
Corporation Tax
May 16, 2007

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

PETITION NO. C070313B

On March 13, 2007, a Petition for Advisory Opinion was received from Northeast Tent
Productions, Inc., c/o Keith W. Wofsey, EA, 48 Union Street, Suite 1C, Stamford CT 09606.
Petitioner, Northeast Tent Productions, Inc., provided additional information pertaining to the
Petition on March 15, 2007.
The issue raised by Petitioner is whether it is subject to the franchise tax imposed by
Article 9-A of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is an S corporation for federal income tax purposes organized under the laws of
the state of Connecticut and located in Stamford, Connecticut. Petitioner is engaged in the
business of selling party equipment, including tents, dance floors, and lighting equipment.
Petitioner was not incorporated under the laws of New York State. It does not employ
capital, own or lease property, or maintain an office within New York State. The majority of
Petitioner's business and sales occur within Connecticut. However, Petitioner does sell
equipment to customers within New York State.
Typically, a New York-based customer will hear of Petitioner through either a referral or
a yellow pages advertisement. Petitioner does not have a New York telephone number; Petitioner
only has a Connecticut telephone number. Petitioner does not employ salespeople in New York
State. Once a telephone call is made to Petitioner's home office in Stamford and a sale is made,
Petitioner ships the equipment from its Connecticut warehouse generally using a common carrier
delivery service. On some occasions, Petitioner's truck will leave its Connecticut warehouse and
enter New York State to deliver equipment sold to a customer. Petitioner’s only activity in
New York State is the delivery of equipment to its customers.
Final payment for the equipment is sent to Petitioner’s Connecticut office on the date the
equipment is delivered. Petitioner collects and remits New York State sales and use tax, when
applicable, for any sale within New York State. Petitioner also pays all applicable New York
State highway use taxes.
Applicable law and regulations
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax and
provides, in part, as follows:

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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 (“Article 9-A
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:

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(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
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
Pursuant to section 209.1 of the Tax Law and sections 1-3.2(b), (c), (d), and (e) of the
Article 9-A Regulations, a corporation organized outside of New York State is subject to the tax
imposed under Article 9-A of the Tax Law if the corporation is doing business, employing
capital, owning or leasing property in a corporate or organized capacity, or maintaining an office
in New York State.
Petitioner states that its principal place of business is in Stamford, Connecticut. Petitioner
also states that it does not employ capital, own or lease property, or maintain an office within
New York State and does not employ salespeople in New York State. Petitioner does not have a
New York telephone number, only a Connecticut telephone number. Once a telephone call is
made to Petitioner's office in Stamford and a sale is made, Petitioner ships the equipment from
its Connecticut warehouse generally using a common carrier delivery service. On some
occasions, Petitioner's truck will leave its Connecticut warehouse and enter New York State to
deliver equipment sold to a customer. Petitioner’s only activity in New York State is the delivery
of equipment to its customer.
Based on Petitioner’s activities described in this Opinion, Petitioner is not doing business,
employing capital, owning or leasing property, or maintaining an office in New York State
pursuant to section 209.1 of the Tax Law and as described in sections 1-3.2(b), (c), (d), and (e) of

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the Article 9-A Regulations. Accordingly, Petitioner is not subject to the franchise tax imposed
by Article 9-A of the Tax Law.

DATED: May 16, 2007

NOTE:

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

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.