New York Advisory Opinion TSB-A-10(8)C: Does a foreign equipment seller owe Article 9-A tax, and if installation/training push it past PL 86-272, is it taxed only on those receipts?

Plain-English summary

A foreign corporation that sells testing equipment to R&D departments wanted to know its New York tax exposure if it began selling to a New York customer. It bills equipment, installation, and training separately, with installation and training making up only 1-2% of an invoice. It asked: (A) tax if it only sells equipment; (B) tax if it also installs and trains in New York; and (C) how the tax would be computed.

The Department's answers:
- (A) Selling only: Protected by Public Law 86-272. If the only New York activity is solicitation of orders for tangible personal property, with approval and shipment from outside New York, the corporation is not subject to Article 9-A tax. Three conditions must hold: the product is solely tangible personal property; activity is limited to solicitation; orders are approved/rejected outside New York.
- (B) Adding installation, training, or service calls: These go beyond solicitation (20 NYCRR 1-3.4(b)(9)(v) lists installing/repairing products and post-delivery technical advice as disqualifying), so the corporation loses PL 86-272 protection and becomes taxable.
- (C) Computing the tax: Critically, PL 86-272 gives no partial exemption. The corporation's question -- is it taxed "only on the installation/training portion" or "the total invoice" -- the answer is neither. New York does not use separate accounting. Once taxable, the corporation computes tax under the four bases of Tax Law section 210 and apportions its entire business income to New York using the business allocation percentage (New York business receipts over total business receipts).

What this means for you

Out-of-state sellers considering New York service work

Adding even a small amount of in-state installation, training, or repair (here just 1-2% of invoices) can flip you from fully protected to fully taxable. There is no "tax only the service slice" middle ground -- losing PL 86-272 exposes all your apportioned New York business income.

Accountants and tax professionals

Model the cliff effect before sending technicians into New York. Once nexus attaches, liability is driven by the business allocation percentage applied to entire net income, not by separately accounting for the disqualifying activity.

Common questions

Q: Does shipping equipment to New York customers create franchise-tax nexus?
A: Not if the only New York activity is soliciting orders that are approved and shipped from outside New York -- PL 86-272 protects sales of tangible personal property.

Q: If installation makes me taxable, am I taxed only on the installation receipts?
A: No. PL 86-272 provides no partial exemption; once taxable, all of your business income is apportioned to New York via the business allocation percentage.

Citations and references

• Tax Law § 209.1 (imposition; doing business, employing capital, owning/leasing property, or maintaining an office)
• Public Law 86-272 (federal protection for solicitation of orders for tangible personal property)
• Tax Law § 210.1 (four tax bases); Tax Law § 210.3(a)(10) (business allocation percentage; receipts factor)
• 20 NYCRR 1-3.4(b)(9) (solicitation defined; activities beyond solicitation are not de minimis if they create a nontrivial connection)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a10_8c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(8)C
Corporation Tax
June 25, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C090827A

The Department received a petition from name redacted (“Petitioner”) relating to the New York
corporate franchise tax. Petitioner asks whether sales of products and services to customers within
New York State would subject it to New York State corporate taxes. If it is subject to tax in New York,
Petitioner asks whether the tax is based on all the New York receipts, or just the portion of the receipts
attributable to those activities that subjected the corporation to taxation in New York State.
We conclude that if Petitioner sells and ships its products from name of state redacted State to a
customer in New York State, it will not be subject to the Article 9-A corporate franchise tax if its
activities in New York State fall within the exception created by Public Law 86-272. If Petitioner’s only
activity in the state is solicitation of orders for tangible personal property, it will meet this standard and
therefore not be subject to New York corporate franchise tax.
If, in addition to selling and shipping its products to New York customers, Petitioner also sends
its employees or agents to New York to perform installation, training, and repairs, it will no longer
qualify for the exemption under Public Law 86-272. Therefore, Petitioner will be subject to Article 9-A
corporate franchise tax.
If Petitioner is required to pay New York Article 9-A corporate franchise tax, the tax will be
calculated according to the apportionment method described in the statute.
Facts
Petitioner is a name of state redacted corporation that sells testing equipment used by R&D
departments of corporations, governments, and universities. It does not currently do any business within
New York State. Petitioner bills its customers separately for sales of equipment, installation, and training.
Generally, the amount Petitioner bills its customers for installation and training services makes up about
1-2% of its total invoices for testing systems.
While Petitioner does not currently do any business within New York State, the corporation has a
potential customer in New York and would like to determine its exposure to tax liability if the customer
chooses to purchase Petitioner’s testing systems.
Analysis
A. Will Petitioner be subject to Article 9-A corporate franchise tax if its activity in the state is
limited to selling equipment to New York customers?
Every foreign corporation that does business, employs capital, owns or leases property in a
corporate or organized capacity, or maintains an office in New York State (whether or not the corporation
has been authorized by the Department of State) is subject to tax under Article 9-A of the Tax Law and

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must file a corporate tax return and pay the franchise tax imposed by that article. Tax Law § 209(1); see
NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE PUBLICATION 20: TAX GUIDE FOR NEW
BUSINESSES (“Pub-20”) (October 2007) 8-9.
Each corporation subject to tax under Article 9-A of the Tax Law computes a tax on four
different measures: a tax measured by the entire net income base, a tax measured by the capital base, a tax
measured by the minimum taxable income base, and a tax measured by the fixed dollar minimum. The
corporation pays the highest computed tax, plus a tax on the subsidiary capital base, if applicable. Tax
Law § 210.1; see Pub-20 at 10.
However, an exception exists under Public Law 86-272, as described in Section 1-3.2(a)(3) of the
Article 9-A Regulations. Foreign corporations are exempt from corporate franchise tax if their employees’
and representatives’ activity is “. . . 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.” 20 NYCRR 1-3.4(b)(9)(iv).
Approval or rejection of the orders must take place outside the state. 20 NYCRR 1-3.4(b)(9)(i).
In order to meet these criteria for exemption, Petitioner must satisfy three separate conditions.
First, the testing systems sold by Petitioner to New York customers must consist solely of tangible
personal property. Second, Petitioner must restrict its activity in New York to the solicitation of orders.
Finally, the orders Petitioner solicits in New York must be approved or rejected outside of New York
State. If Petitioner’s sale of testing equipment to its customer in New York meets these conditions,
Petitioner will not be subject to corporate franchise tax under Article 9-A.
B. Will Petitioner be subject to Article 9-A corporate franchise tax if, in addition to selling
equipment to New York customers, it also provides installation and training services to its
New York customers that have purchased this equipment?
If its activities in New York State go beyond the solicitation of orders, a corporation will be
subject to tax in New York State unless such activities are de minimis. 20 NYCRR 1-3.4(b)(9)(v).
“Activities will not be considered de minimis if such activities establish a nontrivial additional connection
with New York State. . . . Examples of activities which go beyond the solicitation of orders include: (a)
making repairs to or installing the corporation’s products. . . [and] (f) giving technical advice on the use
of the corporation’s products after the products have been delivered to the customer.” Id.
The activities contemplated by Petitioner, namely, installation, training, and service calls, clearly
fall within those that would subject a foreign corporation to tax. Therefore, if Petitioner sends its
employees or agents to New York to provide installation and training for the testing systems it has sold
after the systems have been delivered to a customer, or if it sends its employees or agents to New York to
perform service calls on equipment, the corporation will be subject to Article 9-A corporate franchise tax.
C. If Petitioner is subject to Article 9-A corporate franchise tax, how will its tax liability be
calculated?
A corporation subject to tax under Article 9-A must calculate its tax under each of four bases set
forth in Tax Law § 210, and is liable for the highest amount. 20 NYCRR 3-1.2.

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The entire net income base is the portion of the taxpayer’s entire net income that is allocated to
New York. 20 NYCRR 3-2.1(a). A taxpayer’s entire net income is divided into business income and
investment income. 20 NYCRR 3-2.1(b). Business income is allocated to New York by a business
allocation percentage (“BAP”). Id. The business allocation percentage is a fraction, the numerator of
which is the taxpayer’s business receipts within New York for the reporting period, and the denominator
of which is the taxpayer’s business receipts within and without New York for the reporting period. Tax
Law § 210.3(a)(10); 20 NYCRR 4-4.1(a). Investment income is allocated to New York by an investment
allocation percentage. Tax Law § 210.3(b).
The minimum taxable income base, another of the four bases within Tax Law § 210, uses the
taxpayer’s entire net income as a starting point. Tax Law § 208.8-B (a). The final base, the fixed dollar
minimum, is only used when the amount calculated under the other three bases is less than $5,000. Tax
Law §210.1(d). The fixed dollar minimum varies based on the taxpayer’s total gross payroll. Id.
It appears from the facts presented, and we will assume for the purposes of this advisory opinion,
that Petitioner has no capital assets in New York and no subsidiaries. Based on this assumption, the
remaining two bases – the capital base and the subsidiary capital base – would not be applicable to
Petitioner. We will also assume that the taxpayer’s tax based on entire net income exceeds $5,000, and
therefore the fixed dollar minimum is also inapplicable. Because the minimum taxable income base and
the entire net income base are both determined by calculating the taxpayer’s entire net income as a
starting point, the following discussion of how the taxpayer’s activities in New York affect its tax liability
is relevant regardless of whether the taxpayer must ultimately pay on the minimum taxable income base
or the entire net income base.
When calculating the BAP that is used to determine entire net income, the taxpayer must include
all receipts from sales of tangible personal property shipped to New York State, all receipts from services
performed in New York State, and all other business receipts “earned” in New York State within the
numerator. 20 NYCRR 4-4.1. Public Law 86-272 does not provide for any partial exemption for those
activities that would be exempt if they were the only activities the taxpayer engaged in within the state. 20
NYCRR 1-3.4(b)(9)(iv)-(v). If a taxpayer is not exempt from taxation under Public Law 86-272, it is
subject to tax on all its activities. See 20 NYCRR 1-3.2(a)(2); also see 20 NYCRR 1-3.2(f)(5)-(6). Its
liability to New York State is based on its business allocation percentage, a fraction that uses the
taxpayer’s total receipts within and without the state as its denominator.
Therefore, the correct answer to petitioner’s question as to whether its corporation tax liability
would be “only on the installation, training, or service portion of the invoice” or “for the total invoiced to
customers in New York State” is neither. New York State does not use a separate accounting system,
which “involves identifying all items of income and costs that are related to the taxpayer’s activities
within the taxing state and constructing a statewide net income from these items.” 1 HELLERSTEIN &
HELLERSTEIN 3d ¶ 8.03 (3d ed. 2000).
As a result, Petitioner’s corporate franchise tax liability will not be based solely on its invoices to
New York customers. By multiplying its total business income by its BAP, Petitioner will arrive at the
amount of business income that is attributed to New York. Total entire net income attributable to
New York is the sum of a taxpayer’s allocated business income and its allocated investment income.
In conclusion, Petitioner will be subject to Article 9-A corporate franchise tax if its activities in
New York State exceed the exemption for the exclusive solicitation of orders provided for in Public Law
86-272. If Petitioner is subject to the corporate franchise tax, all of Petitioner’s business receipts

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allocated to New York will be included in the numerator of its business allocation percentage, and used to
calculate the share of its entire net income that is apportioned to New York to calculate the corporation’s
tax liability.

DATED: June 25, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel
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.