NY TSB-A-15(2)C Corporation Tax 2015-03-17

New York Advisory Opinion TSB-A-15(2)C: Is a corporation dissolved by proclamation that merely holds title to land as an inactive nominee still subject to Article 9-A franchise tax after dissolution?

Short answer: The corporation was subject to Article 9-A franchise tax from its incorporation through its dissolution by proclamation, but not after dissolution, because afterward it merely held title to land as an inactive nominee and was not doing business in New York.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A corporation ("Company 1") was formed in 1983 only to hold title to a parcel of Brooklyn land used by a related landscaping business ("Company 2"). Company 1 never had an EIN, bank account, income, books, or meetings; Company 2 paid all expenses and kept all income. Company 1 was dissolved by proclamation in 1988 (Tax Law § 203-a) for not filing returns, and has been inactive since, though still the record title holder. The question: is it subject to Article 9-A franchise tax after dissolution?

The Department drew a line at the dissolution date. Tax Law § 209.1 imposes the franchise tax for, among other things, owning property or doing business in New York, so Company 1 was a taxpayer from incorporation in 1983 through its 1988 dissolution. Tax Law § 209.3 keeps a dissolved corporation taxable only if it continues to conduct business; a dissolved corporation merely winding up, or here merely holding bare legal title as an inactive nominee for others' benefit, is not doing business. Title-holding by an inactive nominee is not an employment of capital (following TSB-A-02(15)C). So after dissolution Company 1 owed no Article 9-A tax.

What this means for you

Dormant and title-holding corporations

Holding nothing but bare legal title to real estate as an inactive nominee — no income, no operations, no management — does not by itself make a dissolved corporation a franchise taxpayer. But the protection runs from dissolution forward; an active corporation owning property in New York is taxable while it holds its franchise, even if a related entity runs the actual business.

Accountants and tax professionals

The pivot is Tax Law § 209.3: post-dissolution liability depends on whether the corporation continues to conduct business. Document inactivity (no bank account, income, books, or operations) to support nominee/winding-up treatment. Liability for the pre-dissolution years is unaffected.

Common questions

Q: Does a dissolved corporation still owe franchise tax?
A: Only if it continues to conduct business. One merely winding up or holding bare title as an inactive nominee does not.

Q: What about the years before dissolution?
A: It remained subject to Article 9-A from incorporation through the date of dissolution by proclamation.

Q: Can my corporation rely on this opinion?
A: No. It binds the Department only as to this petitioner and these facts.

Citations and references

Tax Law § 209.1 (franchise tax for exercising the franchise, doing business, or owning/leasing property in New York)
Tax Law § 209.3 (a dissolved corporation that continues to conduct business remains taxable)
Tax Law § 203-a (dissolution by proclamation for non-filing); Tax Law § 217
20 NYCRR 1-2.4(c) (dissolved corporation limited to winding up is not taxable); TSB-A-02(15)C; TSB-A-09(4)C

Source

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(2)C
Corporation Tax
March 17, 2015

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C130322A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED (“Petitioner”). Petitioner
asks whether a New York corporation is subject to franchise tax under Article 9-A of the Tax
Law subsequent to its dissolution by proclamation.
We conclude that the corporation was subject to franchise tax before but not after its
dissolution.
Facts
Petitioner is the sole incorporator of REDACTED. (“Company 1”), which was
incorporated on July 5, 1983 for the purpose of purchasing a parcel of real property in Brooklyn,
New York (the “Land”). Petitioner also operates a landscaping business on the Land under a
separate business entity (“Company 2”). After the purchase of the Land, Company 1 played no
role in the landscaping business other than holding title to the Land. Company 2 paid all
expenses, including mortgage payments, real estate taxes, water and sewer charges and insurance
and utilities. Company 2 received all income from the landscaping business and no money was
paid to Company 1. Company 1 did not obtain a federal identification number and did not file
New York franchise tax returns or pay New York franchise tax. Company 1 did not operate,
manage or control the property. Company 1 did not have a checking account and did not make
any payments related to the Land. Company 1 received no rental or other income and did not
keep any books or records. Company 1 did not have shareholder or director meetings. On June
15, 1988, Company 1 was dissolved by proclamation under Tax Law § 203-a. Company 1 has
been inactive since its dissolution, although it is still the record owner of the Land. Petitioner
has asked whether Company 1 is subject to franchise tax under Article 9-A of the Tax Law
subsequent to its dissolution by proclamation.
Analysis
Tax Law § 209.1 imposes a franchise tax on every corporation for the privilege of
exercising its corporate franchise, or of doing business, or of employing capital, or of owning or
leasing property in New York in a corporate or organized capacity, or of maintaining an office in
New York for all or any part of each of its fiscal or calendar years. A corporation that fails to
file its annual tax reports for two consecutive years may be dissolved by proclamation of the
Secretary of State (Tax Law §§ 203-a, 217.)

-2-

TSB-A-15(2)C
Sales Tax
March 17, 2015

20 NYCRR § 2-3.1 provides that every domestic corporation is required to pay a tax
measured by entire net income (or other applicable basis) up to the date on which it ceases to
possess a franchise. Tax Law § 209.3 provides that a dissolved corporation which continues to
conduct business shall be subject to tax under Article 9-A of the Tax Law. 20 NYCRR § 12.4(c) provides further that, where the activities of a dissolved corporation are limited to the
liquidation of its business and affairs, the disposition of its assets (other than in the regular
course of business), and the distribution of the proceeds, the dissolved corporation is not subject
to tax under Article 9-A.
In TSB-A-02(15)(C), the Department reviewed the issue of whether a dissolved, inactive
corporation that is merely a record title of real property located in New York, as a nominee for
others, is considered to be doing business and concluded that it was not. Title holding was not
considered to be an employment of capital when the holder is an inactive nominee corporation.
A dissolved corporation that is merely a record title holder of real property located in New York,
as nominee for the benefit of others, and is otherwise inactive, is not conducting business in New
York State as contemplated by Tax Law § 209.3. See also TSB-A-09(4)C; TSB-A-99(5)C; TSBA-99(4)C; TSB-A-95(4)C.
Accordingly, pursuant to Tax Law § 209.1, Company 1 is subject to the franchise tax
imposed by Article 9-A for the taxable years during which Company 1 was incorporated
beginning in July, 1983 through its dissolution by proclamation in 1988. After its dissolution,
Company 1 is merely holding property as nominee for the benefit of others and is not conducting
business in New York pursuant to Tax Law § 209.3. Therefore, Company 1 is not subject to tax
under Article 9-A for taxable years after it was dissolved.
DATED: March 17, 2015

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.