An out-of-state company leases trucks WITHOUT drivers and merely drives them through New York on the highways (paying highway use tax) -- does that make it a 'transportation business' subject to New York's Article 9 franchise tax on trucking companies, or could it instead owe Article 9-A tax if it also leases trucks TO New York customers?

Plain-English summary

Larsen Leasing, Ltd. is an Illinois company principally engaged in leasing trucks WITHOUT drivers. It has no New York office, business premises, or telephone; it isn't incorporated in New York; and its only New York connection is using New York highways (for which it pays highway use tax and holds the required license) as its leased trucks pass through the state. Larsen asked whether it's subject to New York's Article 9 franchise tax on transportation and transmission corporations (sections 183/184), which applies to foreign corporations "principally engaged in the conduct of a trucking business" or a "transportation business."

The Department drew a sharp line based on prior case law and its own precedent: leasing vehicles WITH drivers has been held to constitute the conduct of a transportation business (Curran Funeral Service Co. v. Graves, 1939), triggering sections 183/184. But where more than 50% of a company's receipts come from leasing trucks WITHOUT drivers, the company is functioning as a truck LEASING business, not a transportation business, and falls instead under the Department's own Bucciero Contracting precedent (TSB-A-81(5)C) as an Article 9-A taxpayer, not an Article 9 one. Since Larsen is principally engaged in leasing trucks without drivers, it is NOT subject to sections 183/184.

But that doesn't mean Larsen owes NO New York tax. Article 9-A imposes its own franchise tax on foreign corporations for the privilege of doing business, employing capital, owning/leasing property, or maintaining an office in New York (section 209.1) -- and the Business Corporation Franchise Tax regulations specifically identify LEASING personal property within New York as a taxable activity, even for a company with no New York office (20 NYCRR 1-3.2(f)(5) gives the specific example of a foreign corporation leasing automobiles to New York customers with no in-state office). So the real question becomes whether Larsen leases its trucks TO customers located IN New York: if it does, it's subject to Article 9-A tax on that basis; if its trucks merely transit New York highways without any New York-based lessees, it isn't subject to Article 9-A either.

What this means for you

Out-of-state truck/vehicle leasing companies operating in New York

Whether you owe New York's trucking-specific franchise tax (sections 183/184) turns entirely on whether you lease WITH or WITHOUT drivers -- more than 50% without-driver receipts keeps you out of that tax. But that's not the end of the analysis: leasing property (including vehicles) to customers actually located in New York independently triggers the general Article 9-A franchise tax, even with zero New York physical presence otherwise. Merely paying highway use tax and driving through New York does not, by itself, create either kind of liability.

Distinguishing "transportation business" from "leasing business" for multi-state operators

The same underlying activity (leasing vehicles) can be taxed under two entirely different Tax Law articles depending on whether drivers are included and where your lessees are located -- map out both tests separately rather than assuming one determination resolves your full New York exposure.

Common questions

Q: Does leasing trucks WITHOUT drivers make a company subject to New York's Article 9 trucking franchise tax?
A: No -- that tax reaches companies principally engaged in transportation businesses, which the Department (following prior case law) reserves for leasing WITH drivers; over 50% without-driver leasing receipts puts a company outside sections 183/184.

Q: If a company avoids the Article 9 trucking tax, is it automatically off the hook for all New York corporate tax?
A: No -- it could still owe the general Article 9-A franchise tax if it leases trucks to customers located in New York, since leasing property within the state is an independently taxable activity even without a New York office.

Q: Does merely driving trucks through New York on the highways (paying highway use tax) create Article 9-A liability?
A: No -- by itself, using New York highways under a highway use tax license doesn't trigger Article 9-A; what matters is whether the company leases property TO New York-based customers.

Q: Can another leasing company rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other leasing companies, even with similar without-driver truck-leasing operations.

Citations and references

Statutes and regulations:

• Tax Law §§ 183, 184, § 209.1
• 20 NYCRR 1-3.2(c), (d), (f)(5)
• People ex rel. Peter J. Curran Funeral Service Co. v. Graves, 257 App. Div. 888 (1939)
• Joseph Bucciero Contracting, Inc., TSB-A-81(5)C

Related rulings:

• TSB-A-86(13)C -- a companion procedural ruling confirming the Department must consider a taxpayer's own evidence when applying this same "principally engaged" test during an audit

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_11c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (11) C
Corporation Tax
June 6, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C860106A

On January 6, 1986, a Petition for Advisory Opinion was received from Larsen Leasing, Ltd.,
700 Larsen Lane, Bensenville, Illinois 60106.
The issue raised is whether Petitioner is subject to the franchise tax on transportation and
transmission corporations imposed under sections 183 and 184 of Article 9 of the Tax Law.
Petitioner states that it is located in Illinois and is principally engaged in the business of
leasing trucks without drivers. Petitioner also states that:
1.
2.
3.
4.

It transacts no business within New York State.
It has no office or business premises or telephone within New York State.
It is not incorporated in New York State.
It merely uses the highways of New York State for which it pays a highway use tax
and is duly licensed to travel through New York State.

Sections 183 and 184 of the Tax Law impose franchise taxes on every foreign corporation,
joint-stock company or association formed for or principally engaged in the conduct of a trucking
business or formed for or principally engaged in the conduct of a transportation business for the
privilege of doing business, or of employing capital, or of owning or leasing property in New York
State in a corporate or organized capacity, or of maintaining an office in New York State.
It has been held that the leasing of vehicles with drivers is the conduct of a transportation
business subjecting the corporation doing such a business to tax under sections 183 and 184 of the
Tax Law (People ex rel. Peter J. Curran Funeral Service Co. v. Graves, 1939, 257 App. Div. 888,
12 N.Y.S. 2d 153).
It has also been held that if more than 50% of a corporation's receipts are from the leasing
of trucks without drivers, such corporation is not principally engaged in the transportation business
but is functioning as a truck leasing business and would be classified as a corporation subject to tax
under Article 9-A of the Tax Law. Joseph Bucciero Contracting, Inc., Advisory Opinion of the State
Tax Commission, July 23, 1981, TSB-A-81(5)C.
Since Petitioner is principally engaged in the leasing of trucks without drivers, it is not
principally engaged in a transportation or trucking business. Therefore, Petitioner is not subject to
the tax imposed under sections 183 and 184 of Article 9 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-86 (11) C
Corporation Tax
June 6, 1986

However, Petitioner could be subject to the franchise tax imposed under Article 9-A of the Tax Law.
Section 209.1 of Article 9-A of the Tax Law states that the tax is imposed on every foreign
corporation for the privilege of doing business, or of employing capital, or of owning or leasing
property in New York State in a corporate or organized capacity or of maintaining an office in New
York State for all or any part of each of its fiscal or calendar years.
Pursuant to the provisions of subdivisions (c) and (d) of section 1-3.2 of the Business
Corporation Franchise Tax regulations, the leasing of personal property within New York State
constitutes an activity which subjects a foreign corporation to tax. The regulations specify by
example that a foreign corporation that has no office or other place of business in New York State
but leases automobiles to customers in New York State is subject to tax. 20 NYCRR 1-3.2(f)(5)
Accordingly, if Petitioner leases trucks without drivers to New York State customers,
Petitioner is leasing property within New York State and, pursuant to Section 1-3.2 of the Business
Corporation Franchise Tax regulations, Petitioner is subject to the franchise tax imposed by Article
9-A of the Tax Law. Otherwise, Petitioner is not subject to the franchise tax imposed under Article
9-A of the Tax Law.

DATED: June 6, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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