Is an unincorporated cattle-breeders' club that runs a commission cattle auction, but issues no stock or ownership certificates, subject to New York's corporate franchise tax?

Plain-English summary

The W.N.Y. Ayrshire Club, formed in 1979 to improve Ayrshire cattle breeding and support Western New York dairymen, ran a commission cattle auction as its main activity: members consigned cattle, the club advertised and auctioned them (using a hired professional auctioneer), and kept a 10% commission on each sale. Anyone could join by paying dues. The club had already been denied federal tax-exempt status as an "agricultural organization" under IRC § 501(c)(5), because a prior IRS ruling found that organizations marketing livestock as agent for members at commission auctions don't qualify for that exemption. The club asked whether, lacking the federal exemption, it now owed New York's corporate franchise tax.

The Department said no — but not because of any exemption. It's not a "corporation" at all under the relevant definition. Article 9-A's franchise tax only reaches "corporations," and the regulations define that term for unincorporated entities as a "joint stock company or association" — specifically, one with "capital stock divided into shares" evidenced by certificates or written instruments. Because the Ayrshire Club is a true unincorporated association that never issued stock, certificates, or any other ownership instrument, it simply falls outside the definition of a taxable corporation, regardless of whether it also qualifies for a federal tax exemption.

What this means for you

Unincorporated clubs, associations, and cooperatives with commission-based activities

Losing (or never qualifying for) federal tax-exempt status doesn't automatically mean New York's corporate franchise tax applies. If your organization is a true unincorporated association — no stock, no certificates, no written ownership instruments — it may fall outside Article 9-A's definition of "corporation" entirely, regardless of its federal exemption status.

Accountants and tax professionals

This is a threshold "is it even a corporation" question, separate from any substantive tax-exemption analysis. The controlling test under Regulations § 1-2.3(b) is formal: does the entity have capital stock divided into shares, evidenced by a certificate or written instrument? An entity that in substance "acts like a corporation" but lacks that formal stock structure still isn't a "corporation" for Article 9-A purposes.

Common questions

Q: Does this mean the club has no New York tax obligations at all?
A: This opinion addresses only Article 9-A corporate franchise tax; it doesn't address other potential New York tax obligations (sales tax on the auction commissions, individual member reporting, etc.), which aren't discussed here.

Q: What if the club later issues membership certificates or stock?
A: That could change the analysis, since the regulatory definition specifically turns on whether ownership is evidenced by a certificate or written instrument.

Q: Can another unincorporated association rely on this ruling?
A: No. It binds the Department only for this petitioner's specific facts and cannot be relied upon by other organizations, even ones that appear similar.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax); § 208.1 (definition of corporation)
• Business Corporation Franchise Tax Regulations § 1-2.3(b) (joint stock company/association)
• IRC § 501(c)(5) (agricultural organization exemption); Revenue Ruling 66-105

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_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (9)C
Corporation Tax
April 6, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880107B

On January 7, 1988, a Petition for Advisory Opinion was received from W.N.Y. Ayrshire
Club, Box 291, South Dayton, New York 14138.
The issue raised is whether an association or club, as described herein, is subject to New
York State franchise tax.
Petitioner was organized as an unincorporated association on October 20, 1979. Petitioner
does not issue stock or other certificates or written instruments evidencing ownership interests.
Petitioner's purposes as stated in its Constitution are, "to improve the Ayrshire cattle of Western New
York State; to associate its members together; to assist its members - without profit to the Club - in
promotional work with dairymen, dairy organizations, dealers and others .... " Any person may
become a member of the club upon payment of the membership dues.
Petitioner's major activity is conducting a cattle auction. Ayrshire cattle are furnished to
Petitioner on consignment to be "auctioned off". Each animal is sold to the highest bidder with the
organization receiving a 10 percent commission on each sale. The consignor accepts whatever the
highest bid nets him. These auctions are advertised in farm magazines, local newspapers and on
posters. All labor is provided by Petitioner except that a professional auctioneer is hired.
It has been determined that for federal income tax purposes Petitioner is not exempt from tax
pursuant to section 501(c)(5) of the Internal Revenue Code which grants exemption to, "labor,
agricultural or horticultural organizations." The determination was based on Revenue Ruling 66-105
which held that an organization similar to Petitioner's was not exempt under section 501(c)(5) of the
Internal Revenue Code. Such Revenue Ruling describes an organization of agricultural producers
whose principal activity is marketing livestock as agent for its members at auctions held throughout
the year. The organization provided labor, advertising, bookkeeping services and the physical
facilities required for auctions. A percentage of sales proceeds is retained by the organization and
the balance is remitted to the original owner of the livestock.
Section 209.1 of Article 9-A of the Tax Law imposes a corporate franchise tax on a
corporation "[f]or the privilege of exercising its corporate franchise, or of doing business, or of
employing capital, or of owning or leasing property in this state in a corporate or organized capacity
.... "
Section 208.1 of the Tax Law provides that "[t]he term "corporation" includes a joint-stock
company or association and any business conducted by a trustee or trustees wherein interest or
ownership is evidenced by certificate or other written instrument .... "

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

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

-2­
TSB-A-88 (9)C
Corporation Tax
April 6, 1988

Regulation section 1-2.3(b) of the Business Corporation Franchise Tax regulations provides:
(b) the term corporation includes a joint stock company or association and any
business conducted by a trustee or trustees wherein interest or ownership is
evidenced by certificate or other written instrument. An entity conducted as a
corporation is deemed to be a corporation.
(1) The terms joint stock company and association include every unincorporated joint stock
association, joint stock company or enterprise having written articles of association and
capital stock divided into shares. The term association includes a joint stock association.
Inasmuch as Petitioner was created as an unincorporated association, does not issue stock or
other certificates or written instruments evidencing ownership interests, Petitioner is not a
"corporation" for purposes of regulation section 1-2.3(b) and is not subject to the tax imposed by
Article 9-A of the Tax Law.

DATED: April 6, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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