New York Advisory Opinion TSB-A-13(6)C: Was an out-of-state remote seller whose employees made limited-purpose trips to New York (inspirational shopping, trade shows, vendor meetings) doing business and subject to Article 9-A franchise tax?
Plain-English summary
An out-of-state catalog and Internet retailer of women's apparel sold nationwide entirely through interstate commerce — orders accepted and fulfilled outside New York, shipped by common carrier — with no New York stores, offices, property, inventory, employees, or sales agents. It had even terminated its New York "web affiliate" click-through links by May 2008. Its only New York presence was occasional employee travel: about nine or ten trips a year, six to eight employees for two or three days, for "inspirational shopping," attending (not exhibiting at) trade shows, and meeting potential merchandise vendors — never soliciting sales or serving customers. It asked whether it was doing business in New York for 2009–2011.
The Department concluded, on those facts, that it was not. The company didn't employ capital, own/lease property, or maintain an office in New York, so only "doing business" (Tax Law § 209.1; 20 NYCRR 1-3.2(b)) was at issue, decided on the facts — the nature, continuity, frequency and regularity of in-state activity. Calling it "a close question," the Department found the limited purpose and short duration of the trips did not rise to doing business. Important caveat: the conclusion assumed the company had no in-state sales solicitation. Mere solicitation can be protected by Public Law 86-272 (15 U.S.C. 381-384), but if the company combined protected solicitation with the non-solicitation trips described, it would fall outside that protection and would be doing business.
What this means for you
Out-of-state remote sellers
Sporadic, limited-purpose employee visits — buying trips, trade-show attendance, vendor meetings — may not amount to doing business, but the margin is thin. Adding sales solicitation changes the calculus: solicitation alone can be shielded by Public Law 86-272, yet pairing it with other in-state activity (like the trips here) can forfeit that shield and create nexus. Contrast this with companies whose in-state employees actually make or deliver sales, which are doing business.
Accountants and tax professionals
This is a facts-and-circumstances determination "best done on audit." Track the purpose, frequency and duration of every in-state employee trip, and watch the Public Law 86-272 line carefully — non-solicitation activity layered on top of solicitation defeats the protection (20 NYCRR 1-3.4(b)(9)(v)).
Common questions
Q: Do occasional employee trips to New York create franchise-tax nexus?
A: Not necessarily. Limited-purpose, short trips for shopping, trade shows, or vendor meetings may not amount to doing business — but it is a close, fact-specific question.
Q: How does Public Law 86-272 fit in?
A: Mere solicitation of orders for tangible goods (accepted and shipped from outside the state) is protected. But combining solicitation with other in-state activity can forfeit the protection.
Q: Can my company rely on this opinion?
A: No. It binds the Department only as to this petitioner and these exact facts, and warns the result could change if other facts exist.
Citations and references
- Tax Law § 209.1 (franchise tax for doing business, employing capital, owning/leasing property, or maintaining an office in New York)
- 20 NYCRR 1-3.2(b) (definition of "doing business" and the factors); 20 NYCRR 1-3.4(b)(9)(v)
- Public Law 86-272 (15 U.S.C. 381-384) (protection limited to solicitation of orders for tangible personal property); TSB-M-96(3)C
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2013.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a13_6c.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-13(6)C
Corporation Tax
April 11, 2013
Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C120126A
The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted (“Petitioner X”) and name redacted (“Petitioner Y”), address redacted.
Petitioners ask whether Petitioner X is “doing business” in New York and therefore is subject to
the franchise tax imposed by Article 9-A of the Tax Law for the tax years during the period
January 1, 2009 through September 19, 2011, when Petitioner X was acquired by Petitioner Y
(“years at issue”). Based on the facts provided, we conclude that Petitioner X was not doing
business in New York during the years at issue and therefore was not subject to tax under Article
9-A for those years.
Facts
Petitioner X is a name of State redacted corporation with its headquarters and principal
place of business in name of State redacted. Petitioner X sells women’s apparel, accessories and
footwear to customers nationwide by catalog or via its Internet website. Petitioner X does not
currently own or operate retail stores in any state and has not operated any in New York since at
least 2002. Since at least January 1, 2009 Petitioner X has conducted its business exclusively
through interstate commerce and has had no place of business outside name of State redacted.
Petitioner X’s Catalog and Internet Operations
Petitioner conducted its business as described below during the years at issue.
Petitioner X is a traditional remote seller. Petitioner X solicited sales by sending
catalogs, e-mails and other direct solicitations to prospective customers nationwide, including
customers in New York. Petitioner X also advertised in national media, but none of these
advertisements was targeted specifically to New York residents.
Customers ordered
merchandise from Petitioner X by calling the company’s “800” number or, in some limited
cases, by mail or fax. Petitioner X accepted all orders in name of State redacted. Petitioner X
fulfilled all orders from points outside New York. Petitioner X shipped all merchandise to
customers by common carrier or the United States Postal Service.
Petitioner X also sold merchandise online through its Internet website. The website was
maintained in name of State redacted, from where all website design, maintenance, and customer
service is provided. All Internet orders were placed online and received, accepted and processed
in name of State redacted. Petitioner X fulfilled all orders from inventory located outside
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New York. Petitioner X shipped all merchandise to customers by common carrier or the United
States Postal Service.
Petitioner X has an online web affiliate linking program, under which various unrelated
third parties place a link to Petitioner X’s website on their own internet website and are paid a
commission for any resulting “click through” sales. By May 31, 2008, Petitioner X terminated
all contracts with New York-based web affiliates. Since then Petitioner X has not paid any
commissions or fees to any New York resident in exchange for website links or referrals.
Petitioner X conducted all of its sales activities from outside New York. Petitioner X had
no stores, offices, or property in New York, and Petitioner X conducted no business operations in
New York. Petitioner X maintained no inventory in New York, and Petitioner X did not rent or
lease tangible personal property to customers in New York. Petitioner X did not deliver goods
in New York in company-owned vehicles, via private carrier, or by any means other than
through the mail or common carrier. Petitioner X did not have any in-state service facilities, nor
did Petitioner X use any third party in New York to perform any activities or provide any
customer service on its behalf. Petitioner X provided all customer service by phone or online
from outside New York, and Petitioner X’s customers made merchandise returns to Petitioner
X’s name of State redacted facility via mail or other interstate means.
Petitioner X did not have any sales representatives, agents, independent contractors, or
other third parties soliciting sales on its behalf in New York, nor did Petitioner X have any
employees in New York (either permanently or on a temporary basis) promoting or soliciting
sales in the state. In fact, Petitioner had no employees in New York, except that, from time to
time, Petitioner X’s employees came to New York on a temporary basis to meet with potential
merchandise vendors as well as to engage in “inspirational shopping” trips to gather information
on fashion trends. In addition, Petitioner X’s employees came to New York from time to time to
attend trade shows (as attendees and not as participants/exhibitors). Petitioner X’s employees
did not meet with customers in New York and none of the visits related to soliciting sales or
distributing products in New York.
Typically, six to eight Petitioner X employees (generally merchandise buyers and/or
creative marketing personnel) traveled to New York for these visits. Each visit lasted
approximately two to three days, and was solely for the purposes previously described. There
were approximately nine to ten such visits annually in each of 2010 and 2011. None of
Petitioner X’s in-state visits involved sales promotion, or any selling activities.
Petitioner X’s Corporate History
During the years at issue, Petitioner X did not have any subsidiaries or affiliates
whatsoever. After Petitioner Y acquired Petitioner X in September, 2011, Petitioner X became a
wholly-owned subsidiary of Petitioner Y.
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Analysis
The Petition asks whether Petitioner X was doing business in the State during the years at
issue. That issue is a highly factual one that requires careful review of all the pertinent facts,
something that is best done on audit. The analysis below assumes the accuracy of the facts in the
Petition as set forth herein. Moreover, that analysis also assumes that there are no other relevant
facts.
Pursuant to section 209.1 of the Tax Law and section 1-3.2(b), (c), (d) and (e) of the
Regulations, a corporation organized outside of New York State is subject to the Business
Corporation Franchise 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. In this case, it appears that Petitioner X did not
employ capital in New York, own or lease property in New York, or maintain an office in the
State. Therefore, in determining whether Petitioner X is subject to tax under Article 9-A of the
Tax Law, the pertinent question is whether Petitioner X is doing business in New York State.
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.
In this case, for the years at issue, on nine or ten occasions annually, six to eight of
Petitioner X’s employees would come into New York and stay for two to three days at a time to
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do “inspirational shopping,” attend, but not participate in, trade shows, and meet with
merchandise vendors. While it is a close question, given the limited purposes and duration
of Petitioner’s employees’ trips into the State, those trips do not rise to the level of “doing
business” in the State for purposes of Tax Law § 209.1 (see Article 9-A Regulations § 1-3.2[b];
TSB-M-96[3]C). Thus, for the years at issue, Petitioner X is not a taxpayer for Article 9-A
purposes. This conclusion assumes that Petitioner had no employees or representatives in the
State soliciting sales on its behalf during the years at issue. Such solicitation activity, by itself,
can fall within the activity protected by Public Law 86-272 (15 U.S.C.A. §§ 381 to 384), which
precludes a State from subjecting a foreign corporation to its net income tax if the corporation’s
activities are limited to solicitation of orders for the sale of tangible personal property by its
employees, representatives, or independent contractors, where the orders are accepted, and
delivery is made from, outside the State. If Petitioner X, however, is engaged in the solicitation
activity described by Public Law 86-272, along with the activity described in the facts herein,
Petitioner X would fall outside the protection of that Public Law and would be considered
to be doing business in New York for purposes of the Article 9-A tax (Article 9-A Regulations
§ 1-3.4[b][9][v]).
If there are other facts relevant to whether Petitioner X is doing business in New York
apart from those set forth above, or if any of the facts set forth are inaccurate, the result of the
“doing business” analysis herein might be different and this Advisory Opinion should not be
relied on for guidance.
DATED: April 11, 2013
NOTE:
/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.