Can New York force out-of-state fur subsidiaries to collect tax when they share a brand and owners with New York stores?

Plain-English summary

Harfred Operating Corporation and its parent, The Fur Vault, Inc., retail fur garments in New York and New Jersey. They planned to move the New Jersey business into two new Delaware corporations — X and Y — owned by The Fur Vault. X and Y would sell only in New Jersey; because New York is close by, many customers would be New York residents, and on request X and Y would ship by common carrier. The petition asked whether X and Y must collect New York sales or use tax. As in the Department's companion opinions, this turned on nexus and vendor status.

Issue 1 — Nexus (alter ego FOUND).

• On the bare sales facts, no nexus. X and Y would have no New York stores or offices; sales would be made in New Jersey with delivery by common carrier — the classic no-nexus pattern (National Bellas Hess; Miller Brothers).
• But the affiliates' New York nexus is imputed here. New York disregards separate corporate form where a parent or affiliate so dominates and controls a company that it is the other's alter ego. Viewing the totality of the circumstances, the Department found X and Y would be alter egos of their New York affiliate (Harfred) and parent (The Fur Vault):
  • Same directors and officers, with compensation paid by the parent (reimbursed pro rata);
  • The companies would be formed specifically to make New Jersey sales to New York residents and avoid collecting New York tax — using reorganization as a "cloak" for tax avoidance;
  • All the stock owned by The Fur Vault; significant overlap of administration and personnel;
  • Decisively, all held out to the public as one entity — "Fred the Furrier's Fur Vault." Having presented themselves as one business, X and Y should be estopped from claiming separateness to avoid tax.
• Conclusion: allowing X and Y to avoid collection would produce "injustice and inequitable consequences," so there is sufficient New York nexus to compel them to collect.

Issue 2 — Vendor status. Because X and Y are alter egos of vendors (Harfred and The Fur Vault, which maintain New York places of business), X and Y are also treated as maintaining a New York place of business under 20 NYCRR 526.10(c) and are "vendors" (§ 1101(b)(8)) that must collect and remit New York tax.

What this means for you

Spinning a border-state store into a separate company won't dodge New York tax if it's really the same business. New York will look through the corporate form when out-of-state affiliates are dominated and controlled by a New York parent — especially a structure built to sell to New York residents while avoiding collection.

Sharing one public brand is powerful evidence of alter ego. The single most damaging fact here was that all the stores operated under one name, "Fred the Furrier's Fur Vault." Holding yourself out to the public as one business makes it very hard to argue you're separate companies for tax purposes.

Compare the outcomes across the trio. In TSB-A-86(37)S (Spencer Gifts), genuinely separate operations (separate inventories, bank accounts, marketing, arm's-length dealings) defeated alter-ego nexus. In TSB-A-86(38)S (Levitz), the facts were undeveloped and the question left open. Here, shared management and one public identity produced a finding of nexus. Note too that the constitutional nexus standard has since changed (Quill, Wayfair) — treat this as guidance on New York's alter-ego reasoning, not the current threshold.

Common questions

Q: We're moving our out-of-state stores into a new company. Will it avoid New York collection?
A: Not if the new company is the alter ego of a New York parent or affiliate. Shared owners, management, and especially a shared public brand can give it New York nexus and vendor status.

Q: We ship into New York only by common carrier. Isn't that no-nexus?
A: On its own, yes. But an affiliate's New York presence can be imputed to you if you're its alter ego — which was decisive here.

Q: What tipped this case toward nexus?
A: Common directors/officers, parent-paid compensation, a structure designed to sell to New York residents while avoiding tax, and all entities marketed to the public as one business ("Fred the Furrier's Fur Vault").

Citations and references

Constitutional and statutory basis:

• U.S. Const. Commerce Clause (Art. I, § 8) and Fourteenth Amendment Due Process Clause — a "definite link, some minimum connection" is required before a state can compel collection
• Tax Law § 1131(1) — every vendor must collect the tax; § 1101(b)(8) — definition of "vendor"; § 1101(a) — "person" includes a combination of corporations
• 20 NYCRR 526.10(c), (e) — an out-of-state seller with a New York place of business, directly or through a subsidiary, is a vendor

Key decisions cited:

• National Bellas Hess, Inc. v. Illinois, 386 US 753; Miller Brothers Co. v. Maryland, 347 US 340 — common-carrier delivery alone is insufficient nexus
• Franklin Mint Corp. v. Tully, 94 AD2d 877, aff'd 61 NY2d 980; CIT Fin. Services v. Director, Div. of Taxation; Lincoln Center v. State Tax Commission, 113 Misc. 2d 329 — alter-ego / affiliate nexus and vendor status

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_28s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(28)S
Sales Tax
July 18, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S850318A

On March 18, 1985, a Petition for Advisory Opinion was received from Harfred Operating
Corporation, 350 Seventh Avenue, New York, New York 10001.
The issue raised is whether wholly-owned subsidiaries, X and Y to be created by Petitioner
and its parent corporation, The Fur Vault, Inc. ("The Fur Vault") will be required to collect and remit
New York State sales or use taxes. In order to make this determination, two issues must be
addressed: (1) whether such subsidiaries will have sufficient nexus with New York State to satisfy
the Due Process and Commerce Clauses of the United States Constitution and (2) if there will be
sufficient nexus, whether such subsidiaries will be "vendors" as that term is defined by the New York
State Sales and Use Tax Law and therefore required to collect New York State sales or use tax on
sales made to New York residents.
Petitioner, a Delaware corporation, is a wholly-owned subsidiary of The Fur Vault, a holding
company incorporated in Delaware, and is engaged in the retail merchandising of fur garments in
New York and New Jersey. The Fur Vault is also doing business in New York.
Petitioner intends to transfer to X Corporation, a newly formed Delaware corporation, all of
its assets and liabilities relating to its New Jersey operations for X stock which stock will then be
distributed to The Fur Vault. The Fur Vault also intends to form Y Corporation, a Delaware
corporation, which will also be engaged in the retail merchandising of fur garments in New Jersey.
Afterward, The Fur Vault will own directly 100% of the stock of Harfred, X and Y.
The directors and officers of X, Y and Petitioner will be the same individuals. All
compensation to directors and officers will be paid by The Fur Vault, subject to reimbursement by
X, Y and Petitioner for their respective shares. The administrative offices of X and Y will be located
in New Jersey. Credit applications will be processed, finance agreements will be prepared and
submitted, and collections will be made and deposited, in New Jersey. X and Y will engage The Fur
Vault or Petitioner, at an arms length rate, to compile and audit its books and records. The Fur
Vault's and Petitioner's administrative offices are located in New York City.
Y will operate retail stores throughout the State of New Jersey. X will lease space, and
operate a fur garment department (hereafter also referred to as X's "store"), in Alexander's Paramus,
New Jersey store. Petitioner will continue to lease space and operate a fur garment department in
Alexander's New York stores. (Each Alexander's store is a separate corporation.) X's and
Petitioner's fur garment departments will have the same tradename: "Fred TheFurrier's Fur Vault."

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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All sales will be made on the premises of the various stores. No stores operated by X or Y will be
located in New York. No mail order sales will be solicited. Due to the proximity of New York to
New Jersey, many of X's and Y's customers will be New York residents. On request, X and Y will
ship the purchased items by common carrier (possibly, United Parcel Service) to the customer. No
deliveries will be made in trucks owned or controlled by X or Y.
X's, Y's and Petitioner's operations will be conducted independently of each other. Separate
books and records will be kept; separate warehouse facilities will be maintained at each store's
location; and each corporation will employ its own sales personnel.
The corporations will utilize joint advertising in newspapers and on television. In the
advertisements, the stores owned by X, Y and Petitioner will all be designated as "Fred the Furrier's
Fur Vaults" with their locations separately listed.
Although one of X's departments will be located in Alexander's Paramus, New Jersey store,
X's inventory will not be included in Alexander's catalogues or any advertising mailings made by
Alexander's. X will not be affiliated with Alexander's, except in the capacity as a lessee. To the
extent that X or Y engages in direct mail advertising into New York State, the mailings will originate
(printed and mailed) outside of New York.
ISSUE 1 - Nexus
A state can require an out-of-state seller to collect the state's sales or use tax only when there
is a sufficient nexus between the seller and the taxing state, as required by the Commerce Clause of
the United States Constitution (Art. I, 8, cl. 3) and the Due Process Clause of the Fourteenth
Amendment to the United States Constitution. National Geographic Society v. California Board of
Equalization, 430 US 551.
The test to determine whether a particular state exaction violates the Commerce Clause by
invading the exclusive authority of Congress to regulate trade between the states, and the test to
determine whether a state has complied with the requirements of due process in this area, are similar.
National Bellas Hess, Inc. v. Department of Revenue, 386 US 753. "[T]he relevant constitutional
test to establish the requisite nexus for requiring an out-of-state seller to collect and pay the use tax
is not whether the duty to collect the use tax relates to the seller's activities carried on within the
State, but simply whether the facts demonstrate some definite link, some minimum connection,
between [the State and] the person it seeks to tax." National Geographic Society v. California Board
of Equalization, 430 US at 561.
Activities in a state that have been found to be constitutionally sufficient to establish nexus
to require an out-of-state corporation to collect state taxes include the operation of retail stores of
the corporation in the state, Nelson v. Sears, Roebuck and Co., 312 US 359; Nelson v. Montgomery
Ward, 312 US 373; the presence of traveling salesmen in the state, General Trading Co. v. Tax

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Commission, 322 US 335; and the presence of independent contractors or agents of the corporation
in that state, Scripto, Inc. v. Carson, 362 US 207. In the most recent United States Supreme Court
opinion on the issue of nexus for use tax collection purposes, National Geographic Society v.
California Board of Equalization, supra, the corporation, National Geographic, operated two offices
in the state. Although the activities in those offices were unrelated to the corporation's mail order
activities, the Court held that it was permissible to impose the administrative burden of collecting
use taxes on National Geographic. Since the two California offices, regardless of the nature of their
activities, had the advantage of the same services, e.g., fire and police protection, as they would have
had had their activities included assistance to the mail order operations that generated the use taxes,
there was a definite link between National Geographic and the State of California.
Activities in a state that have been held insufficient to establish the necessary nexus to
impose the duty to collect use taxes include mail order sales where delivery of the goods was made
from out-of-state by common carrier or United States mail, National Bellas Hess, Inc. v. Illinois,
supra, and over the counter sales made in a bordering state to state residents with only occasional
deliveries being made into that state, Miller Brothers Co. v. Maryland, 347 US 340. In both these
cases, the Court found that the requisite relationship between the state and the out-of-state seller was
lacking.
To determine whether there will be sufficient nexus for New York State to impose a
requirement to collect use taxes on X and Y, it is necessary first to determine whether there will be
some relationship or minimum connection between X and Y and New York State. Under the facts
presented here, X and Y will not operate directly in New York State, nor will they have any offices
in this state. Their sales will be made in New Jersey. Deliveries to New York will be made by
common carrier. Under the holdings of the National Bellas Hess and Miller Brothers cases cited
above, on these facts alone X and Y will not be required to collect tax. However, Petitioner and The
Fur Vault, the parent corporation of X, Y and Petitioner, have nexus with New York because they
are doing business in New York State. The question thus becomes whether the presence in New
York of a parent or an affiliated corporation, e.g., another corporation such as Petitioner owned by
a common parent, will be sufficient to establish nexus for X and Y with New York.*
As a general rule, corporations are treated as separate legal entities, Rapid Transit Subway
Const. Co. v. City of New York, 259 NY 472, and the presence of a parent corporation in one state
does not require a finding of presence in that state for its wholly-owned subsidiary. However, under

*This opinion will assume that no agency relationship exists between X and Y and any of
their affiliated corporations. If an agency relationship did exist, it might establish that there was a
definite nexus between the State and X and Y. Taca International Airline S.A. v. Rolls Royce of
England Ltd., 15 NY2d 97; Frummer v. Hilton Hotels International Inc., 19 NY2d 533; see also
McCray, "Overturning Bellas Hess," 1985 Brigham Young Univ. L. Rev. 265, 287.

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certain circumstances in order to prevent fraud or injustice, the corporate structure will be disre­
garded and the separate entity rule discarded. Astrocom Electronics, Inc. v. Lafayette Radio
Electronics Corp, 63 AD2d 765; Giblin v. Murphy, 97 AD2d 668; Berkey v. Third Ave. Railway
Co., 244 NY 84. In Nelson v. Sears, Roebuck and Co., supra the Supreme Court held that the
departmentalization of the corporation's operations (i.e., the mail order and retail stores operations
were separately administered) did not preclude the finding of sufficient nexus. In New York, there
has been a "steady movement towards holding that in determining whether a corporation has engaged
in activities in the state it is immaterial whether these are conducted through a branch or through a
subsidiary corporation" Boryk v. de Haviland Aircraft Co., 341 F2d 666, 668. In certain cases, this
concept should be applied to corporate reorganizations. It would be unjust to permit a corporation
to use a corporate reorganization as a cloak for the evasion of its tax obligations.
The status of the subsidiary as a separate entity should be ignored in situations where the
parent so dominates and controls the affairs of the subsidiary that the subsidiary is an instrumentality
of the parent. Coastal States Trading, Inc. v. Zenith Navigation SA, 446 F. Supp. 330; Fiur Co. v.
Ataka & Co., 71 AD2d 370. In such situations, the subsidiary should be considered to be the alter
ego of the parent. See, Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., Inc.,
30 NY2d 34.
While "New York law in this area is hardly as clear as a mountain lake in springtime,"
Brunswick Corp. v. Waxman, 599 F2d 34, 35, in order to invoke this alter ego doctrine, the parent
corporation must dominate the finances, policy and business practices of the controlled corporation.
Fisser v. International Bank, 282 F2d 231. Indicia such as common officers and directors, common
offices and telephone numbers between corporate entities, are relevant but are not sufficient by
themselves to show that one corporation is the alter ego of another. Consideration must also be
given to factors such as the degree of overlap of personnel, the amount of business discretion
displayed by the corporations, whether the entities operate independently of each other, whether the
parent corporation owns all or most of the stock of the subsidiary and whether the parent corporation
causes the incorporation of the subsidiary. United States Barite Corp. v. M. V. Haris, 534 F. Supp.
328; Ioviero v. CIGA Hotels, Inc., 101 AD2d 852; Lincoln Center v. State Tax Commission, 113
Misc. 2d 329; Worldwide Carriers, Ltd. v. Aris Steamship Co., 301 F Supp 64. Also significant is
whether the corporations trade under their own names and whether they hold themselves out to the
public as separate and distinct businesses. Mangan v. Terminal Transportation System, Inc., 247 AD
853; Matter of Sbarro Holding, Inc., 111 Misc. 2d 910, aff'd 91 AD2d 613; Matter of Typhoon
Industries, Inc., 6 BR 886; see, also, Plainview Realty v. Board of Managers, 86 Misc. 2d 515; Henn
and Alexander, Laws of Corporations and Other Business Enterprises 3d Ed. (1983), pp. 354-356.
Note that while many of the cases relating to this alter ego doctrine concern parent and subsidiary
corporations, this same reasoning should be applicable to affiliated corporations, i.e., corporations
owned by a common parent. CIT Fin. Services Consumer Discount Co. v. Director, Div. of
Taxation, 4 N.J. Tax 349, CCH 201-026; Frummer v. Hilton Hotels, Inc., 19 NY2d 533; Matter of
Bowen Transports, Inc., 551 F2d 171.

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If the affairs of a subsidiary or affiliated corporation are so dominated and controlled by its
parent or affiliate that the dominated and controlled corporation is the alter ego of the other, then the
nexus of one with New York State for tax jurisdiction purposes will provide sufficient nexus with
New York State for the other. CIT Fin. Services Consumer Discount Co. v. Director, Div. of
Taxation, supra; Minnesota Tribune Co. v. Commissioner of Taxation, 37 NW2d 737; Franklin Mint
Corp. v. Tully, 94 AD2d 877, aff'd, 61 NY2d 980. (Other cases supporting a finding of nexus
premised on a parent/subsidiary relationship include Aldens, Inc. v. Tully, 49 NY2d 525; Reader's
Digest Association, Inc. v. Mahin, 44 Ill. 2d 354, 255 NE2d 458, appeal dismissed, 399 US 919;
Appeal of Dresser Industries, Inc., California State Board of Equalization, CCH 400-485. See
Barber, "Piercing the Corporate Veil," 17 Williamette L. Rev. 371, 397.)
Viewing the totality of the circumstances presented in this Petition, X and Y will be operating
as the alter egos of their New York affiliate, Petitioner, and their New York parent, The Fur Vault.
They would be incorporated by Petitioner and The Fur Vault as a means to make sales in New Jersey
to New York residents in order to avoid collecting New York tax. All the stock of these corporations
would be owned by The Fur Vault. There would be a significant degree of overlap of administration
and personnel. Further, X, Y and the Petitioner would be held out to the public as one entity, i.e.,
"Fred the Furrier's Fur Vault". Having held themselves out to the public as one entity, X and Y
should be stopped from claiming that they are separate entities for purposes of avoiding sales or use
taxes. Permitting X and Y to avoid the collection of New York State sales or use taxes would clearly
produce injustice and inequitable consequences and, accordingly, under the facts there is sufficient
nexus with New York to compel X and Y to collect New York State sales or use taxes.
ISSUE 2 - Status as a Vendor
In addition to establishing the constitutionally required nexus with New York, in order to
compel a corporation to collect New York State tax, it must also be determined that such corporation
is subject to the provisions of the New York State Sales and Use Tax Law. Section 1131 of the Tax
Law requires, in pertinent part, that every vendor of tangible personal property or services is required
to collect sales and use taxes imposed under Article 28. Tax Law 1131(1). The term "vendor" is
defined under section 1101(b)(8) to include among others
"(A) A person making sales of tangible personal property or services,
the receipts from which are taxed by this article;
(B) A person maintaining a place of business in the state and making
sales, whether at such place of business or elsewhere, to persons
within the state of tangible personal property or services, the use of
which is taxed by this article;" Tax Law, 1101(b)(8)(i)(A) and (B).
The term person includes a corporation or combination of corporations. Tax Law, 1101(a).

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If the affairs of a subsidiary or affiliated corporation are dominated and controlled by its
parent or other affiliate to such a degree that it will be considered the alter ego of the parent or
affiliated corporation and the parent or affiliated corporation qualifies as a "vendor", then the new
corporation will also be considered a "vendor". Lincoln Center v State Tax Commission, 113 Misc.
2d 329.
Section 526.10 of the Sales and Use Regulations expounds upon the activities that bring a
person within the definition of "vendor". Section 526.10(e)(1) specifically concerns interstate
vendors and provides that a person outside New York is required to collect tax on tangible personal
property delivered in New York if that person:
(1) makes sales to persons within the state, and
(2) either (a) solicits such sales in New York as
defined in Regulation section 526.10(d), or
(b) maintains a place of business in New York as defined
in Regulation section 526.10(c). 20 NYCRR
526.10(e)(1)
Section 526.10(c) provides that a vendor shall be considered to maintain a place of business in the
state if he, directly or through a subsidiary, has a store, salesroom, sampleroom, showroom,
distribution center, warehouse, service center, factory, credit and collection office, administration
office or research facility in the state. 20 NYCRR 526.10(c). Petitioner and its parent corporation,
The Fur Vault, each maintain a place of business in New York and clearly qualify as vendors. 20
NYCRR 526.10(a)(2); 526.10(c). Consequently, X and Y, determined to be the alter egos of their
parent corporation and Petitioner, will, as a result of that relationship, be considered to be
maintaining a place of business in New York and qualify as vendors under this section of the
Regulations. As vendors, X and Y will be required to collect and remit tax.

DATED: July 18, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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