A manufacturer's representative with its only office in New York earns commissions on sales of a New York manufacturer's goods, some of which are ultimately shipped to customers outside New York. For purposes of the Article 9-A receipts factor, are those commissions allocated entirely to New York, or only allocated based on where the underlying goods end up?

Plain-English summary

Carroll McIntosh Metro Sales, Inc. was a manufacturer's representative for a New York high-fidelity equipment maker, earning commissions on sales of the manufacturer's goods. Its sole office was in New York, but the goods it helped sell were shipped to customers both inside and outside the state. The question was how to allocate those commissions on Petitioner's Article 9-A franchise tax return: entirely to New York, or split based on where the goods ultimately went.

Article 9-A allocates entire net income using a formula built around a receipts factor -- New York receipts over total receipts. The regulation governing service receipts, 20 NYCRR § 4-4.3, sources commissions to wherever the underlying SERVICES were performed, not to wherever any related goods are shipped. Critically, the regulation deems services performed in New York whenever the taxpayer's salesmen work out of a New York office -- even if, as the regulation's own Example 2 illustrates, a specific order was taken elsewhere (e.g., in New Jersey) and the goods shipped directly from an out-of-state manufacturer.

Because Petitioner's only office was in New York, all of its commission income was deemed earned through New York-based services, and the Department held it was entirely allocable to New York -- the destination of the goods sold was irrelevant.

What this means for you

For sales-commission income, look at where your salespeople work, not where goods ship

If you're a manufacturer's representative, sales agent, or similar commission-based intermediary, your New York franchise-tax receipts factor turns on where your sales staff is based, not on the geography of your customers or the goods you help sell.

A single New York office can pull in ALL of your commission income

Having your sole (or only relevant) office in New York is enough to source 100% of your commission receipts there under this rule -- there's no proportional split based on out-of-state shipments once the servicing office is New York-based.

Common questions

Q: If some of the goods I help sell ship to out-of-state customers, can I allocate part of my commission outside New York?
A: Not under this rule -- what matters is where your sales services were performed (i.e., where your salesmen are based), not where the goods end up.

Q: What if my salesperson takes an order while physically outside New York?
A: Per 20 NYCRR § 4-4.3's own example, the service is still deemed performed in New York if the salesperson works out of a New York office, even if a particular order happened to be taken elsewhere.

Citations and references

Statutes and guidance:

• Tax Law § 210.3
• 20 NYCRR § 4-4.3

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_6c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (6) C
Corporation Tax
November 25, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C810924A

On September 24, 1981 a Petition for Advisory Opinion was received from Carroll McIntosh
Metro Sales, Inc., 81-47 261st Street, Floral Park, New York 11004.
Petitioner inquires as to the proper method of allocating certain receipts in the nature of
commissions on sales of tangible personal property, under Article 9-A of the Tax Law (Franchise
Tax on Business Corporations).
Petitioner, whose sole office is in New York, is a manufacturer's representative for a New
York State manufacturer of high fidelity equipment. Petitioner is paid commissions on sales of
goods made to the manufacturer's customers. The goods are ultimately shipped to customers both
within and without New York State.
Section 210.3 of the Tax Law, contained in Article 9-A, provides for the allocation of entire
net income on a formulary basis. The formula employed utilizes a receipts factor the numerator of
which is comprised of various types of receipts attributable ("allocated") to New York, and the
denominator of which consists of the total amount of the taxpayer's receipts of the same types.
Section 4-4.3 of the Franchise Tax Regulations provides, in pertinent part, that:
"(a) The receipts from services performed in New York State are allocable to New York
State. All receipts from such services are allocated to New York State, whether the services
were performed by employees, agents or subcontractors of the taxpayer, or by any other
persons. It is immaterial where such receipts are payable or where they are actually received.
(b) Commissions received by a taxpayer are allocated to New York State if the services for
which the commissions were paid were performed in New York State. If the services for
which the commissions were paid were performed by the taxpayer or by salesmen attached
to or working out of a New York State office of the taxpayer, the taxpayer's services will be
deemed to have been performed in New York State.
Example 2:

A taxpayer is a New York State sales agent of a Pennsylvania manufacturer.
A salesman working out of the New York State office of the taxpayer
received an order in New Jersey. The order was forwarded to the
Pennsylvania manufacturer which accepted it, filled it and shipped it direct
to the customer. The taxpayer's commission is allocated to New York
State...” 20 NYCRR 4-4.3.

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

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

-2­
TSB-A-81 (6) C
Corporation Tax
November 25, 1981

In this instance, the sole office of the Petitioner is in New York. Accordingly, all
commissions earned by the taxpayer are allocable to New York, irrespective of the ultimate
destination of the goods sold.

DATED: November 24, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau