Is an out-of-state national bank subject to New York's Article 32 bank franchise tax merely because it serves as trustee for a New York industrial development bond, when all its substantive trustee work is performed at its out-of-state headquarters except for a single one-day trip to sign documents and deliver securities in New York?

Plain-English summary

An unnamed out-of-state national bank agreed to serve as trustee for a New York State industrial development bond: a New York corporation planned to acquire equipment guaranteed by a New York county's bond, and asked the bank to act as trustee for the bond indenture. The bank's role, as described, was almost entirely performed outside New York: it signed all the operative documents (the indenture and related paperwork) at its out-of-state headquarters, then had an employee hand-carry those signed documents to New York for a cross-receipt signing; it issued and authenticated the actual bond securities at its out-of-state headquarters, then hand-carried them to New York for delivery to the underwriter; and its ongoing trustee duties (absent a default) were limited to receiving wire-transferred funds from the corporation and wiring them out to bondholders -- all conducted from its out-of-state headquarters. The bank never took title to or physical possession of the financed equipment (except in the unlikely event of default, which the facts stipulated wouldn't happen), had no New York office, employees, or owned/rented property, and its only actual physical presence in New York was a single one-day trip by a bank employee to execute the trust agreement (plus a mandatory registration filing with the New York Banking Department, required for any bank acting as trustee in the state).

The Department confirmed the bank IS a "banking corporation" under the statutory definition, since any national bank doing a banking business anywhere qualifies as one. But being a banking corporation only matters if the bank is also "doing business" in New York -- a separate, fact-specific test looking at the nature, continuity, frequency, and regularity of in-state activities, the corporation's purposes, the location of its offices, whether it employs agents/officers/employees in New York, and where its actual management/control sits. The regulations also specifically carve out certain minimal activities (like occasionally acquiring a security interest in New York property, or occasionally acquiring title through foreclosure) as NOT constituting "doing business," even though they involve some New York contact. Weighing the bank's near-total absence from New York -- no office, no employees, no owned property, and substantive trustee functions (fund receipt/disbursement, document execution) performed entirely out of state -- against the single one-day visit to sign the trust agreement and deliver securities, the Department concluded the bank's activities fall short of "doing business" in New York, so it isn't subject to the Article 32 franchise tax at all.

What this means for you

Out-of-state banks serving as bond trustees or in similar limited fiduciary roles

Serving as trustee for a New York bond issue doesn't automatically create New York franchise tax nexus. If your substantive trustee functions (executing documents, issuing securities, managing funds) are performed entirely at your out-of-state headquarters, and your only New York contact is a brief, occasional visit to sign documents or deliver paperwork, you may fall short of "doing business" in New York even though you're indisputably a "banking corporation" under the statute.

Distinguishing statutory "banking corporation" status from taxable "doing business" status

Being a banking corporation under section 1452(a)(3) and being subject to tax under section 1451 are two separate questions -- the first is almost automatic for any bank; the second requires a genuine factual showing of business activity in New York under the multi-factor test.

Registration requirements versus tax nexus

Registering with the New York Banking Department as required for trustee activity doesn't, by itself, create tax nexus -- the Department's analysis treated the mandatory registration and the one-day signing trip as part of the overall activity assessment, but the OUTCOME still turned on the near-total absence of substantive New York-based operations.

Common questions

Q: Would the answer change if the bank ever actually took possession of the financed equipment (e.g., through default)?
A: The ruling doesn't address that scenario -- the petitioner specifically stipulated that the bank would not acquire New York property through foreclosure or otherwise, and the analysis rests on that stipulation.

Q: Does registering with the NY Banking Department as a trustee create tax nexus by itself?
A: Based on this ruling, no -- the registration requirement was noted as part of the fact pattern but didn't independently tip the balance toward "doing business."

Q: Can another out-of-state bank rely on this specific ruling for its own trustee arrangement?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other banks, even ones with similarly limited New York trustee roles.

Citations and references

Statutes and regulations:

• Tax Law § 1451 (Article 32 franchise tax); § 1452(a)(3) (national bank = banking corporation)
• Franchise Tax on Banking Corporations Regulations § 16-2.7 (doing business factors and safe harbors)
• New York State Banking Law § 131.3 (trustee registration requirement)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_8c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (8) C
Corporation Tax
April 16, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C870127A

On January 27, 1987, a Petition for Advisory Opinion was received from Peat, Marwick,
Mitchell & Co., 345 Park Avenue, New York City, New York 10154.
The issue raised is whether a foreign national banking association that serves as a trustee
for a New York State issuer of industrial development bonds but has no other activity or contacts
with New York State is subject to the franchise tax imposed by Article 32 of the Tax Law.
The facts presented are as follows:
1.

"Bank" is a national banking association whose headquarters and other facilities
are located outside of New York State.

2.

Bank does not operate an office, own or rent real or personal property, maintain
any employees or have any contact with New York State with the exception of
services as a trustee for New York State industrial development bonds as
described in Paragraph 3.

3.

A typical transaction in which the Bank provides trustee services is as follows:
A.

Corporation X, located in New York State, plans to acquire equipment
which will be used exclusively in New York State.

B.

Corporation X issues a debt obligation in an amount sufficient to acquire
the equipment which will be guaranteed by County Y (in New York State)
per an industrial development bond. Corporation X then requests that the
Bank serve as trustee for the indenture. The Bank does not engage in pre­
issuance negotiations in New York State or elsewhere. These debt
obligations would then be acquired by various bondholders such as private
citizens or institutional investors.

C.

The Bank will sign all operative documents including the indenture, at its
out-of-state headquarters. The indenture and other operative documents
will then be hand-delivered by a Bank employee to New York State where
a cross-receipt will be signed.

D.

The securities will be issued and authenticated at the Bank's out-of-state
headquarters and hand-carried to New York State for delivery to the
underwriter, as instructed by the issuer.

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

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

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Corporation Tax
April 16, 1987
E.

County Y will be the legal owner of the equipment until the debt
obligation is paid in full by Corporation X, at which time Corporation X
will become the legal owner of the equipment. The Bank will not become
the owner or take physical possession of the equipment at any time except
in the unlikely event of a default. (Note: For purposes of this Petition,
Petitioner stipulates that the Bank will not acquire any New York property
through foreclosure or otherwise).

F.

In the absence of a default, the Bank's trustee duties will be limited to the
receipt of wire transferred funds from Corporation X and the wire transfer
of funds to the bondholders. All of the Bank's wire transfer and
administrative activities will be conducted at the Bank's headquarters
outside of New York State.

G.

Under Sec. 131.3 of the New York State Banking Law, the Bank must
register with the New York State Banking Department prior to initiation of
trusteeship. Separate trusteeship filings are required by the Banking
Department for each trusteeship. "Blanket" registrations are not permitted.
If legal service to the trustee must be made, service must first be made to
the New York State Department of Banking who in turn will forward such
service to the Bank's out-of-state registered office.

H.

Except as described in Paragraphs D and G, the only contact with New
York State or activity within New York State may be a one-day trip to
New York State by a Bank employee for the execution of the trust
agreement.

Section 1451 of the Tax Law imposes, annually, a franchise tax on banking corporations
for the privilege of doing business in New York State in a corporate or organized capacity.
Section 1452(a)(3) of the Tax Law provides that every national banking association
organized under the authority of the United States which is doing a banking business, anywhere,
is a banking corporation.
Section 16-2.7 of the Franchise Tax on Banking Corporations regulations defines "doing
business" as follows:
(a)
The term "doing business" is used in a comprehensive sense and includes all
activities which occupy the time or labor of people for profit. Every corporation organized for
profit and carrying out any of the purposes of its organization is deemed to be doing business for
purposes of the tax. In determining whether a corporation is doing business, it is immaterial
whether its activities actually result in a profit or a loss.
(b) Whether a corporation is doing business in New York State is determined by the
facts in each case. Consideration is given to such factors as:

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TSB-A-87 (8) C
Corporation Tax
April 16, 1987
(1) the nature, continuity, frequency and regularity of the activities of the
corporation in New York State;
(2)

the purposes for which the corporation was organized;

(3)

the location of its offices and other places of business;

(4)

the employment in New York State of agents, officers and employees; and

(5)

the location of the actual seat of management or control of the corporation.

. . . .
(e)
A corporation will not be deemed to be doing business in New York State if its
activities in New York State are limited to such things as:
(1) occasionally acquiring a security interest in real or personal property located
in New York State without otherwise doing business;
(2) occasionally acquiring title to property located in New York State through
the foreclosure of a security interest without otherwise doing business . . . .
Based on the above definition of doing business, a national banking association that does
not operate an office, does not own or rent real or personal property, does not maintain any
employees or does not have any contact with New York State is not doing business in New York
State. The activity of a national banking association as a trustee for New York State industrial
development bonds where all of the services are provided outside New York State except for the
signing of the trust agreement and the delivery of the securities to the underwriter in New York is
not sufficient to constitute "doing business" in New York State.
Accordingly, Bank is a banking corporation pursuant to section 1452(a)(3) of the Tax
Law. However, based on the facts presented, Bank is not doing business in New York State as
contemplated by section 16-2.7 of the Franchise Tax on Banking Corporations regulations.
Therefore, Bank is not subject to tax under section 1451 of the Tax Law.

DATED: April 16, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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