Is a corporation that owns trucks and leases them to a related transportation company taxed as a transportation corporation itself, or as an ordinary Article 9-A business corporation -- when the petitioner's own factual statements about who controls and drives the equipment contradict each other?

Plain-English summary

Micro Leasing, Inc. owns tractors and trailers that it leases entirely to Sheehan Carriers, Inc., a related corporation engaged in the transportation business. It asked the Department whether IT (the leasing company, not the carrier) is taxed as a transportation corporation under Sections 183-184, or as an ordinary business corporation under Article 9-A.

The Department was unusually candid that "the facts in this case cannot be determined by this office with any degree of certainty." Petitioner's own submissions were internally contradictory on two key points: (1) Petitioner stated it exercises NO control over the leased equipment, but ALSO stated that all of Sheehan Carriers' operating and management activities are actually conducted by Petitioner in Sheehan's name; and (2) Petitioner stated it does NOT provide drivers with its trucks, but IN OTHER DOCUMENTS stated it DOES supply drivers, and separately took federal wage deductions described as payments to "drivers (who are) leased with the trucks."

Rather than resolve the contradiction, the Department set out both branches of the analysis, citing McAllister Brothers, Inc. v. Bates (a corporation that leased out its vessels to a related company, relinquishing supervision and control and retaining only rental collection, was NOT a transportation corporation but an Article 9-A taxpayer): if Petitioner truly relinquished control of the equipment and doesn't supply drivers, it's a passive lessor under Article 9-A; but if it also supplies drivers AND is actively engaged in operating and managing Sheehan Carriers, it IS principally engaged in a transportation business and falls under Sections 183-184 instead.

What this means for you

Equipment-leasing entities affiliated with a transportation company

Passively leasing vehicles to a related carrier, with no control over the equipment and no drivers supplied, generally keeps you an Article 9-A taxpayer under the McAllister Brothers rule. But providing drivers AND actively running the operating side of the affiliated carrier's business can flip you into transportation-corporation status under Sections 183-184 -- even though you're nominally just a "leasing company."

Corporate groups structuring an equipment-owning affiliate

Keep your factual story straight and consistent across all filings and correspondence with the Department. This Petitioner's contradictory statements about control and drivers meant the Department couldn't give it a definitive answer, leaving the classification (and downstream tax consequences) unresolved pending an audit-stage factual determination.

Common questions

Q: Does simply owning and leasing out trucks make a company a "transportation corporation"?
A: Not necessarily -- per McAllister Brothers, a company that leases out equipment while relinquishing supervision/control and merely collects rentals is an Article 9-A taxpayer, not a transportation corporation.

Q: What tips the balance toward transportation-corporation status for a leasing company?
A: Supplying drivers along with the leased equipment, and being actively involved in operating and managing the affiliated carrier's business, rather than being a passive lessor.

Q: Why didn't the Department just answer the question directly?
A: Because Petitioner's own factual submissions directly contradicted each other on both the control and drivers issues, so the Department could only lay out the conditional test rather than apply it to a settled set of facts.

Q: Can another equipment-leasing affiliate rely on this Opinion?
A: No. It binds the Department only as to Petitioner's own (here, unresolved) facts and cannot be relied upon by other taxpayers, even in a similar leasing arrangement -- see also TSB-A-85(4)C (ambulance company) and TSB-A-85(19)C (freight forwarder) for the same doctrine applied to clearer fact patterns.

Citations and references

Statutes and cases:

• Tax Law § 183, § 184 (transportation corporation franchise tax)
• Tax Law § 209.4 (mutual exclusivity of §§ 183-186 and Article 9-A)
• McAllister Brothers, Inc. v. Bates, 272 App. Div. 511, 72 N.Y.S.2d 532 (1947)

Related rulings:

• TSB-A-85(4)C -- Metropolitan Ambulance, same §§183-184/Article 9-A doctrine, decided the same day
• TSB-A-85(19)C -- freight forwarder classification, same doctrine
• TSB-A-83(7)C -- another instance of the Department declining to give a single definitive answer, there because the apportionment question was inherently fact-intensive and under Audit rather than because of contradictory facts

Date note: The document header and sign-off line both read "April 29, 1985" -- no discrepancy here.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (3)C
Corporation Tax
April 29, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C830714A

On July 14, 1983, a Petition for Advisory Opinion was received from Micro Leasing, Inc.,
62 Lime Kiln Road, Suffern, New York 10901.
At issue is whether Petitioner is taxable as a transportation company under sections 183 and
184 of Article 9 of the Tax Law, or as a general business corporation under Article 9-A of the Tax
Law.
The facts in this case cannot be determined by this office with any degree of certainty.
Petitioner owns tractors and trailers, all of which it leases to Sheehan Carriers, Inc., a related
corporation which is engaged in a transportation business. Petitioner has stated that it exercises no
control over the use of the leased equipment. However, it has also stated that all operating and
management activities of Sheehan Carriers, Inc. are actually conducted by the Petitioner in the name
of Sheehan Carriers, Inc.
Additionally, Petitioner has stated that it does not provide drivers with its trucks. However,
in other documents, Petitioner has stated that it does supply drivers with its trucks. Petitioner also
has stated that it pays the wages of the employees of Sheehan Carriers, Inc. but does so only in its
capacity as the agent for Sheehan Carriers, Inc. However, Petitioner also has stated that deductions
for employees' wages taken by the Petitioner on its federal return represent wages paid by the
Petitioner to "drivers (who are) leased with the trucks".
Sections 183 and 184 of the Tax Law impose franchise taxes on every corporation formed
for or principally engaged in a trensportation or transmission business.
Article 9-A of the Tax Law imposes a franchise tax on general business corporations.
However, section 209.4 of Article 9-A provides that the tax imposed under Article 9-A shall not be
imposed on a corporation engaged in a transportation business and subject to tax under sections 183
and 184 of the Tax Law.
It has been held in McAllister Brothers, Inc. v. Bates (1947) 272 App. Div. 511, 72 NYS 2d
532, that a corporation which leases out it vessels to a related corporation whereby it parted with the
supervision and control of the vessels it owned, retaining only the title to the vessels and whereby
its only business activity was the collection of the rentals for the vessel was not a transportation
corporation subject to tax under sections 183 and 184 of the Tax Law but was instead subject to tax
under Article 9-A of the Tax Law.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85 (3)C
Corporation Tax
April 29, 1985

Accordingly, if Petitioner is principally engaged in the business of owning tractors and
trailers which it leases to Sheehan Carriers, Inc. whereby it has relinquished supervision and control
of such vehicles and whereby it does not supply drivers for such vehicles, then Petitioner is not
engaged in a transportation business and is not subject to the taxes imposed under sections 183 and
184 of the Tax Law but is, instead, subject to tax under Article 9-A of the Tax Law.
However, if in addition to leasing the vehicles in question, Petitioner provides drivers for
such vehicles and is actively engaged in the operation and management of Sheehan Carriers, Inc.,
it must be concluded that Petitioner is principally engaged in a transportation business and is subject
to the taxes imposed under sections 183 and 184 of the Tax Law.

DATED: April 29, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.