A foreign holding company owns 100% of two operating subsidiaries based in New York City, but has no employees, office, property, or bank accounts of its own in New York, doesn't lend to or guarantee loans for its subsidiaries, and is run entirely by non-resident directors from abroad. Its only New York-resident officer is an unpaid, powerless secretary, and its books and records happen to be kept in New York City by outside lawyers and accountants. Does any of this create New York franchise tax nexus for the parent holding company itself?

Plain-English summary

Noga Holding (USA), Inc. ("Noga"), a Delaware corporation wholly owned by a non-U.S. parent, owns 100% of the stock of two other Delaware corporations -- Noga Commodities (Overseas) Inc. and Noga Realty Inc. -- both of which actually do business and have their principal offices in New York City. Noga itself engages in no active business in New York beyond holding that stock: it doesn't lend money to its subsidiaries or guarantee their loans, has no New York employees or owned/leased property, keeps its bank accounts and tangible assets entirely outside New York, and has no telephone listing, building directory, or address here. All of Noga's business decisions are made by its non-resident alien President and directors from an office outside the United States; each subsidiary runs its own operations through its own officers.

Noga has five directors, all non-resident aliens abroad. Its only officers are that same non-resident President and a New York-resident Secretary -- an attorney at the law firm representing Noga, elected purely to facilitate corporate paperwork, unpaid, and possessing no corporate or decision-making authority. Because Noga's tax returns and internal administrative matters are handled in New York City by its own lawyers, accountants, and personnel employed by its subsidiaries, Noga's books and records happen to be kept in New York City as a practical matter.

Tax Law § 209.1 taxes foreign corporations doing business, employing capital, owning/leasing property, or maintaining an office in New York, assessed under a six-factor "doing business" test (nature/frequency of NY activities vs. elsewhere, purpose vs. NY activities, office locations, NY-derived income, NY employment of agents/officers, and location of actual management/control). But § 209.2 specifically provides that a foreign corporation is NOT deemed to be doing business merely because of (d) maintaining an office through non-employee officers/directors, or (e) keeping books/records in the state where they aren't kept by the corporation's own employees -- both of which describe Noga's situation exactly. And under the long-standing general rule (People ex rel. Manila El. R.R. & L. Co. v. Knapp and its progeny), a pure holding company confined to owning and holding securities, receiving and distributing the resulting income, and maintaining its own corporate status is not "doing business" in New York even in the presence of isolated supportive acts or overlapping officers/directors between parent and subsidiary -- UNLESS the parent goes further, such as by lending to or guaranteeing loans for the subsidiaries, or directly coordinating/supervising their operations (Proctor & Gamble Co. v. Newton; Edwards v. Chile Copper Co.). None of those "added features" of direct control appeared in Noga's facts. The Department therefore concluded Noga's activities do not create New York nexus, and it is not subject to the Article 9-A franchise tax.

What this means for you

Foreign holding companies with New York-based operating subsidiaries

A pure stock-holding parent generally will NOT create its own New York franchise tax nexus merely because its subsidiaries operate here, even where an unpaid non-employee officer resides in New York or the parent's books and records happen to be kept in-state by outside professionals -- Tax Law § 209.2 specifically carves out both situations. The key risk factors to avoid are lending to or guaranteeing subsidiary debt, and directly coordinating or supervising subsidiary operations (rather than leaving them fully autonomous).

Overlapping officers/directors alone won't defeat holding-company treatment

Some overlap between parent and subsidiary officers or directors, and isolated acts supportive of the subsidiaries, are tolerated under the general rule -- what matters is whether the parent has gone further and effectively operates the subsidiaries' business itself through its own agents, leaving them "no autonomy."

Common questions

Q: Does a foreign parent create New York nexus just because its wholly owned subsidiaries do business here?
A: Not by itself -- a pure holding company confined to owning stock and receiving/distributing the resulting income generally isn't "doing business" in New York, even with some overlapping officers or isolated supportive acts.

Q: Does having an unpaid, powerless officer who happens to live in New York create nexus?
A: No -- Tax Law § 209.2(d) specifically excuses maintaining an office through non-employee officers or directors, so long as the corporation isn't otherwise doing business, employing capital, or owning/leasing property in New York.

Q: What WOULD push a holding company into New York nexus?
A: Lending to or guaranteeing loans for its subsidiaries, or directly coordinating/supervising the subsidiaries' business operations through the parent's own agents -- either of these "added features" can convert a passive holding company into one doing business in New York.

Q: Can another foreign holding company with a similar passive structure rely on this Opinion?
A: No. It binds the Department only as to Noga's own facts and can't be relied upon by other taxpayers, even those with an apparently identical ownership and management structure.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 209.1; § 209.2(d), (e), (f)
• 20 NYCRR 1-3.2(b)(1), (2)
• People ex rel. Manila El. R.R. & L. Co. v. Knapp, 229 N.Y. 502
• People ex rel. Butterick Co. v. Gilchrist, 213 App. Div. 533, aff'd 241 N.Y. 591
• People ex rel. The Edison Light and Power Installation Co. v. Kelsey, 101 App. Div. 205
• Proctor & Gamble Co. v. Newton, 289 F. 1013
• Edwards v. Chile Copper Co., 274 U.S. 718; Phillips v. International Salt Co., 274 U.S. 718

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a81_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (10) C
Corporation Tax
December 15, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C810420C

On April 20, 1981 a Petition for Advisory Opinion was received from Noga Holding (USA),
Inc., 306 South State Street, Dover, Delaware.
The issue raised is whether Petitioner's proposed activities will render it subject to the
Franchise Tax on Business Corporations imposed under Article 9-A of the Tax Law.
Petitioner describes its proposed activities as follows: Noga Holding (USA), Inc., ("Noga"),
a Delaware corporation wholly owned by a non-U.S, corporation, owns 100% of the stock of two
other Delaware corporations, Noga Commodities (Overseas) Inc. and Noga Realty Inc., both of
which are engaged in business in New York City and have their principal offices in New York City.
Noga does not and will not engage in any active business in New York City other than the holding
of the stock of its subsidiaries. Noga does not plan to make loans to its subsidiaries or to guarantee
loans obtained by its subsidiaries. Ail of Petitioner's business operations are managed and controlled
by its non-resident alien President and directors from its office outside of the U.S. Petitioner has no
employees or property (either owned or leased) in New York. All of its tangible assets are located
outside New York, as are its bank accounts, and it maintains no office in New York. In addition,
Petitioner has no telephone listing, building directory listing, or other form of address in New York.
Finally, all of the operations of Petitioner's subsidiaries are conducted by each subsidiary's own
officers.
Noga presently has five directors, all of which are nonresident aliens residing in a foreign
country. The officers of Noga consist of a President, who is one of the nonresident alien directors,
and the New York resident Secretary. Both officers function in a non-paying capacity. The
Secretary is an attorney associated with the law firm which represents Noga, and this individual was
elected as Secretary solely to facilitate corporate documentation. The Secretary, who is not
compensated by Petitioner for serving in such office, has no corporate or decision-making powers.
Petitioner will have all of its tax returns and internal administrative matters managed in New York
City by its New York lawyers and accountants and by personnel employed by Noga's subsidiaries.
For this reason, Noga will keep all of its books and records in New York City.
Article 9-A of the Tax Law imposes a tax on foreign corporations for "the privilege 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 . . . " Tax Law, §209.1. The Franchise
Tax Regulations, noting that the term "doing business" is used in the statute in a comprehensive
sense, provides that ". . . 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" imposed under

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (10) C
Corporation Tax
December 15, 1981
Article 9-A. 20 NYCRR §1-3.2(b)(1). Whether it is doing business in New York is a matter to be
determined on a case by case basis, giving consideration to the following factors:
"(i) the nature, continuity, frequency, and regularity of the activities of the corporation in
New York State, compared with the nature, continuity, frequency, and regularity of its
activities elsewhere;
(ii) the purposes for which the corporation was organized, compared with its activities in
New York State;
(iii) the location of its offices and other places of business;
(iv) the income of the corporation and the portion thereof derived from activities in New
York State;
(v) the employment in New York State of agents, officers and employees; and
(vi) the location of the actual seat of management or control of the corporation" 20
NYCRR§1-3.2(b)(2).
Section 209.2 of the Tax Law provides that a "foreign corporation shall not be deemed to be
doing business, employing capital. . .in this state, for purposes of this article, by reason of. . .(d)
the maintenance of an office in this state by one or more officers or directors of the corporation who
are not employees of the corporation if the corporation otherwise is not doing business in this state,
and does not employ capital or own or lease property in this state, or (e) the keeping of books or
records of a corporation in this state if such books or records are not kept by employees of such
corporation and such corporation does not otherwise do business, employ capital, own or lease
property or maintain an office in this state or (f) any combination of the foregoing activities."
As a general rule, a holding company, incorporated in another state, whose activities (with
respect to New York) are confined to the owning and holding of securities of a corporation or
corporations engaged in doing business in New York and the receipt and distribution of income
derived therefrom, as well as activities aimed merely at maintaining its status as such, such as acts
of internal management, will not be held to be doing business or employing capital in New York so
as to subject it to the Franchise Tax on Business Corporations imposed under Article 9-A of the Tax
Law. This will hold even in the presence of isolated actions supportive of the activities of its New
York subsidiaries, as well as in the presence of an overlapping of officers and directors. People ex
rel. Manila El. R.R. & L. Co. v. Knapp, 229 N.Y.502; People ex rel Butterick Co. v. Gilchrist, 213
App. Div. 533, aff'd 241 N.Y. 591; People ex rel. The Edison Light and Power Installation Co. v.
Kelsey, 101 App. Div. 205; Proctor & Gamble Co. v.Newton, 289 F. 1013. However, such
conclusion would not apply to a holding company which, in addition to the activities described
above, substantially assisted its New York subsidiaries, as through loans or guarantees of loans, or
by the coordination or supervision of their business activities. See in this regard Edwards v. Chile
Copper Co., 274 US 718; Phillips v. International Salt Co., 274 U.S. 718 Thus, as was stated in

-3­
TSB-A-81 (10) C
Corporation Tax
December 15, 1981
Proctor & Gamble Co. v. Newton, supra, while the general rule is as stated above, "...when there are
added features in the relations of the two companies, from which it is apparent that the subsidiary
is not left with any autonomy, but the parent is directly operating the business by its own agents and
officers, the rule is different." Id., at 1016. The presence of such "added features" of direct control
does not appear in Petitioner's statement of facts.
Based on all of the foregoing considerations, the proposed activities of Petitioner as described
above would not constitute the doing of business, the employment of capital, the owning or leasing
of property in New York in a corporate or organized capacity, nor the maintenance of an office in
New York, within the meaning and intent of section 209 of the Tax Law and, accordingly, Petitioner
would thus not be subject to the Franchise Tax on Business Corporations imposed under Article 9-A
of the Tax Law.

DATED: December 14, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau