If an out-of-state bank regularly sends its own officer or a New York agent into New York to negotiate purchases of New York mortgage loans, is it 'doing business' in New York and subject to the bank franchise tax, even without a New York office or employees?

Plain-English summary

A banking corporation organized outside New York ("HCI"), not authorized to do business here, regularly bought mortgage loans secured by New York residential property from New York bankers. Sometimes HCI's own chief operating officer traveled to New York to negotiate the purchases; sometimes a New York-based agent negotiated on HCI's behalf. HCI kept no offices or employees in New York, occasionally foreclosed on New York property when loans went bad, and sometimes sold the loans on to secondary-market buyers like FNMA. HCI asked whether these activities amounted to "doing business" in New York for bank franchise tax purposes, whether it mattered how HCI's commitments were structured, and whether the dollar volume or transaction count changed the answer.

The Department said HCI is doing business in New York. Article 32's "doing business" regulation is broad — it covers "all activities which occupy the time or labor of people for profit," looking at factors like the nature, frequency, and regularity of New York activity, without regard to whether the activities are profitable. There's a narrow safe harbor for merely acquiring a security interest or foreclosing on New York property "without otherwise doing business" — but HCI's regular, purposeful negotiation activity (whether through its own officer or its New York agent) goes well beyond that safe harbor. The Department distinguished a prior ruling, GEF Funding Corp. (TSB-A-88(2)C), where a similar mortgage company was found NOT doing business because its only New York contact was a bank that merely delivered securities and collected payment — here, by contrast, HCI's actual negotiating presence in New York was regular and ongoing. Neither the size of the transactions nor how many there were changed that conclusion, and the activities of any secondary-market buyers HCI later sold loans to were irrelevant to HCI's own nexus analysis.

What this means for you

Out-of-state lenders buying New York mortgage loans

Simply lacking a New York office or employees doesn't protect you from bank franchise tax nexus if you (or your agent) regularly travel into or operate in New York to negotiate the deals. The key factor here was the regularity of active negotiation contact, not the presence of brick-and-mortar or the volume of business.

Accountants and tax professionals

This opinion draws a clean line against GEF Funding Corp. (TSB-A-88(2)C): passive, occasional, or purely mechanical New York contact (a bank delivering certificates and collecting payment) stays outside "doing business," but regular in-person or agent-driven negotiation of New York-secured loans does not. Note the Department explicitly declined to resolve whether HCI's New York agent was acting as HCI's legal agent — calling that "a question of fact not susceptible of determination in an Advisory Opinion" — so the ruling assumes an agency relationship exists based on the facts presented rather than adjudicating it.

Common questions

Q: Does occasionally foreclosing on New York property by itself create nexus?
A: No — the regulation's safe harbor specifically excludes occasionally acquiring a security interest or foreclosure title "without otherwise doing business." It's an independent, additional activity (regular negotiation) that created nexus here.

Q: Does it matter whether HCI purchases existing loan commitments versus extends new commitments itself?
A: No — either way, closing the loans in New York is itself sufficient activity to constitute doing business.

Q: Does the dollar volume or number of transactions change the analysis?
A: No — the Department found HCI doing business "regardless of the dollar amount of the aggregated mortgage loans or the number of transactions entered into," based on the regular negotiating activity alone.

Q: Can another out-of-state lender rely on this specific conclusion?
A: No. This opinion binds the Department only for HCI's specific facts and cannot be relied upon by other taxpayers with different New York contact patterns.

Citations and references

Statutes and regulations:

• Tax Law § 1451 (Article 32 franchise tax); § 1452(a)(2) (banking corporation defined)
• Franchise Tax on Banking Corporations Regulations § 16-2.7(a), (b), (e)
• Tax Law § 171, subd. 24; 20 NYCRR 901.1(a) (advisory opinion scope)
• TSB-A-88(2)C, GEF Funding Corp. (Jan. 26, 1988)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (13)C
Corporation Tax
June 1, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880125A

On January 25, 1988, a Petition for Advisory Opinion was received from Cuddy & Feder,
90 Maple Avenue, White Plains, New York 10601.
Issues
The issues raised are applicable to the franchise tax under Article 32 of the Tax Law for
taxable years 1987 and 1988. The issues are:
1.

(a)
(b)

2.

Does the answer to Issue 1 change if
(a)
(b)

3.

Do the activities of Hypothetical Corporation Inc. ("HCI") constitute "doing
business"?
Do the activities of the secondary market investors constitute "doing business"?

HCI purchases existing loan commitments and closes the loans in New York
or
HCI extends the commitments itself and closes the loans in New York.

Do the answers to Issues 1 and 2 change with
(a)
(b)

the dollar amount of the aggregated mortgage loans, or
the number of transactions entered into.

Facts
HCI is a banking corporation organized under the laws of a state other than New York and
has not applied for authorization to do business in New York.
HCI purchases on a regular basis, from New York bankers, certain mortgage loans secured
by New York residential property. HCI purchases the loans through an agent located in New York.
Sometimes HCI's chief operating officer travels to New York to negotiate the purchases; sometimes
the agent negotiates the purchases for HCI. HCI also purchases such loans from bankers in other
states, secured by residential property in such other states.
In some cases, HCI retains and services the loans itself. In other cases, HCI sells the loans
to secondary market investors; that is, corporations such as FNMA that buy large blocks of
residential mortgages at a time. On occasion, both HCI and the secondary market investors are forced
to foreclose and take title to the New York real property.
Neither HCI nor the secondary market investors maintain any branches or offices in New
York, nor do they maintain any employees in New York. Both do maintain offices and employees
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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Corporation Tax
June 1, 1988
in their "home" state and/or in sister states other than New York.
Both HCI and the secondary market investors collect tax and insurance escrows in connection
with servicing the loans. Both HCI and the secondary market investors employ New York counsel
in connection with the above-described activities.
Discussion
Section 1451 of Article 32 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)(2) of the Tax Law provides that every corporation or association organized
under the laws of any state other than New York which is doing a banking business, anywhere, is
a banking corporation.
Petitioner states that HCI is a banking corporation. As a banking corporation organized
outside New York State, HCI would be subject to the Franchise Tax on Banking Corporations
imposed by Article 32 of the Tax Law if it is doing business within New York State.
Section 16-2.7 of the Franchise Tax on Banking Corporations Regulations (hereinafter
"Article 32 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:
(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

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Corporation Tax
June 1, 1988
(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 ....
When determining whether HCI is doing business in New York State many factors must be
considered. However, it is immaterial whether HCI is authorized to do business in New York and
the activities of the secondary market investors are irrelevant. The fact that HCI occasionally
acquires title to property located in New York through foreclosure of a security interest in New York
is not sufficient activity, by itself, to constitute "doing business" in New York.
Petitioner states that HCI does not maintain any branches or offices in New York nor does
it have any employees in New York. It has been determined that a foreign corporation engaged in
the business of making and servicing mortgage loans was not "doing business" under Article 9-A
where the corporation did not make loans in New York, did not own loans secured by real property
in New York, did not have an office in New York and its only contact with New York was with a
New York bank that delivered FNMA and GNMA certificates to buyers and received payment for
them. GEF Funding Corp., Advisory Opinion of the Commissioner of Taxation and Finance, January
26, 1988 (TSB-A-88(2)C). However, it was also determined, in GEF Funding Corp., that a foreign
corporation could be subject to tax if the corporation has an arrangement with an unrelated bank
whereby the corporation does all of the work regarding a loan but the unrelated bank actually makes
the loan (extends the funds) to the borrower and subsequently the corporation purchases the loan
from the bank. The totality of the corporation's circumstances and whether it has an agency
relationship with the bank would determine the corporation's taxable status in such case.
The instant inquiry is distinguished from GEF Funding Corp. because herein, HCI's chief
operating officer comes into New York on a regular basis to negotiate mortgage loan purchases
secured by New York residential property. Additionally, HCI's agent in New York, on a regular
basis, negotiates mortgage loan purchases for HCI that are secured by New York residential property.
In both cases, HCI is regularly acquiring a security interest in real property located in New York.
Accordingly, after considering the factors set forth in section 16-2.7 of the Article 32
Regulations and reviewing HCI's activities as stated herein, it is determined that such activities
constitute "doing business" within the meaning of section 1451 of the Tax Law and that HCI would

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Corporation Tax
June 1, 1988
be subject to the franchise tax on banking corporations for taxable years 1987 and 1988.
With respect to Issue 2, if HCI purchases existing loan commitments and closes the loans in
New York or extends the commitments itself and closes the loans in New York such activity, by
itself, would constitute doing business in New York.
With respect to Issue 3, the dollar amount of the aggregated mortgage loans and the number
of transactions entered into would be considered when reviewing the totality of a banking
corporation's circumstances. However, based on the facts presented in Issue 1 and Issue 2, HCI
would be "doing business" in New York State regardless of the dollar amount of the aggregated
mortgage loans or the number of transactions entered into.
It should be noted that the existence of an agency relationship between HCI and its agent in
New York is a question of fact not susceptible of determination in an Advisory Opinion. An
Advisory Opinion merely sets forth the applicability of pertinent statutory and regulatory provisions
to "a specified set of facts." Tax Law, §171, subd. twenty-fourth; 20 NYCRR 901.1(a).

DATED: June 1, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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