A demolition and excavation contractor that also hauls debris and leases trucks/machinery wants to switch from filing as an Article 9 transportation corporation to Article 9-A — which of its many revenue streams count toward the 50%-of-receipts "principally engaged" test, and can the Department just decide the classification in an advisory opinion?

Subject

Whether Raymond Rizzo Associates, Inc. is subject to franchise tax as a transportation corporation under Article 9, sections 183 and 184, for taxable years ended September 30, 1986, 1987, and 1988.

Plain-English summary

Raymond Rizzo Associates was incorporated in 1973 and had always filed as an Article 9 transportation corporation. It argued that starting in its fiscal year beginning October 1, 1985, its business changed so much that it should have switched to filing as a general Article 9-A business corporation instead. By then the company had become primarily a demolition and excavation contractor, with revenue spread across eight activities: demolition/excavation/hauling, excavation/carting/hauling, pure carting/hauling, sand and soil sales and delivery, machine/truck/operator leasing, container disposal service, grading, and pipe jacking/underpinnings. Notably, when the company hauled away sand or soil, its contracts specified that material became the company's own property — so it argued it wasn't really "transporting" a customer's goods at all, just disposing of its own material off-site.

The Department worked through each activity: hauling debris and soil that belongs to someone else is a genuine Article 9 transportation activity; hauling the company's own property (as with the sand/soil contracts) is neither an Article 9 nor an Article 9-A activity at all, since no separate income is derived from that transport; material sales, the container disposal service, machine leasing, demolition, excavation, grading, and pipe jacking/underpinnings are Article 9-A activities; and truck or operator leasing splits down the middle — leasing a truck with an operator is a transportation business (Article 9), while leasing a truck without an operator is just an equipment-leasing business (Article 9-A). A corporation is "principally engaged" in whichever category produces more than 50% of its total receipts.

Applying that framework to the company's actual revenue breakdown, the Department found the facts too unclear to make a final classification — machine/truck hire and operator hire revenue could fall on either side depending on whether an operator came with the lease, and the "miscellaneous" revenue category wasn't described. Because an advisory opinion can only apply the law to the specific facts presented (and this was ultimately a fact question, not a legal one), the Department declined to render a final classification and instead set out the rule for the taxpayer to apply once it sorted its own books: if a review of the facts shows the company is principally engaged in transportation, it's an Article 9 transportation corporation; if not, it's an Article 9-A general business corporation.

What this means for you

Demolition, excavation, and hauling contractors

If your business spans several activities — hauling for customers, disposing of debris, leasing equipment, demolition/excavation work — you need to separately track receipts from each activity, because they land on different sides of the Article 9 vs. Article 9-A line: transportation-for-others is Article 9; equipment/machine leasing without an operator, demolition, excavation, grading, and material sales are Article 9-A; and hauling your own property doesn't count as transportation revenue at all (it's excluded from the 50% test entirely, not counted toward either side).

Companies leasing trucks or machinery with operators

Whether you lease "with operator" or "bare" (without an operator) changes the classification of that specific revenue stream — leased-with-operator is transportation (Article 9), leased-without-operator is equipment leasing (Article 9-A). Track these separately even within the same customer relationship.

Accountants and tax professionals

This is a companion ruling to TSB-A-89(14)C (Paul Carucci & Company, decided about three months earlier) on the same 50%-of-receipts "principally engaged" test — read together for the fuller allocation framework. Note the important limitation here: an advisory opinion cannot resolve a genuinely disputed factual classification (Tax Law § 171(24); 20 NYCRR § 901.1(a)) — when the revenue breakdown doesn't cleanly show which side of 50% the company falls on, expect the Department to decline a final answer and push the determination to audit instead.

Common questions

Q: Does hauling my own property (not a customer's) count toward the 50% transportation test?
A: No. The Department found that transporting one's own property doesn't generate separate transportation income and is excluded from the calculation entirely — it's neither an Article 9 nor Article 9-A activity.

Q: Does leasing trucks or machines always count as an Article 9-A activity?
A: Only if leased without an operator. If a truck is leased with an operator, that's a transportation business activity under Article 9.

Q: Can another demolition/excavation contractor rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else — and even for this taxpayer, the Department did not reach a final classification on these facts.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax)
• Tax Law § 209.4 (Article 9 taxpayers excluded from Article 9-A)
• Tax Law § 183, § 184 (Article 9 franchise tax on transportation corporations)
• Tax Law § 171(24); 20 NYCRR § 901.1(a) (advisory opinions apply law to specified facts; cannot resolve disputed factual questions)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a89_11c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-89(11)C
Corporation Tax
September 11, 1989

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890320A

On March 20, 1989, a Petition for Advisory Opinion was received from Raymond Rizzo
Associates, Inc., 97 East Hawthorne Avenue, Valley Stream, New York 11580.
The issue raised is whether Petitioner, Raymond Rizzo Associates, Inc., is subject to
franchise tax as a transportation corporation pursuant to sections 183 and 184 of the Tax Law for
taxable years ended September 30,1986, September 30, 1987 and September 30, 1988.
Facts
Petitioner was incorporated in New York on June 18, 1973. Petitioner has been filing
franchise tax returns under Article 9 as a transportation corporation. However, Petitioner maintains
that as of the fiscal year beginning October 1, 1985, the nature of the business activities has changed
so substantially that since then it has not been a transportation corporation and that it should have
filed franchise returns under Article 9A as of the taxable year ended September 30, 1986.
Since October 1, 1985, Petitioner has been engaged as a demolition and excavation contractor
for institutional, governmental and commercial entities. Petitioner's business activities for the
taxable years at issue consisted of:
1.
2.
3.
4.
5.
6.
7.
8.

Demolition, excavation and hauling away of debris and soil.
Excavation, carting and hauling away of debris and soil.
Carting and hauling away of debris and soil.
Sand or soil sales and delivery.
Machine and/or truck and/or operator hire.
Container (disposal) service.
Grading of soil.
Pipe jacking and underpinnings.

Petitioner hauls away debris to an off site dumpsite and not to a location designated by the
general contractor. Any contract involving the removal of sand or soil is drafted as follows: "Any
sand or soil being removed becomes the property of Raymond Rizzo Associates." Therefore, when
the Petitioner "transports" the soil and sand, it is not transporting someone else's property, but its
own.
Petitioner's records allocate the income received to its various activities. Contract revenues
earned for the taxable years at issue are as follows:
FYE 9/30/88
Sales - Materials
Sales - Trucking
TP-9 (9/88)

$ 182,754
283,930

%
4.64
6.07

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TSB-A-89(11)C
Corporation Tax
September 11, 1989
Sales - Demol./Excavation
Sales - Misc.
Sales - Grading
Sales - Mach/Truck Hire
Sales - Operator Hire
Subtotal
Less-Sales Discounts
Contract Revenues Earned

1,546,391
628,905
211,483
630,331
497,492
3,936,286
17,850
$3,918,436

FYE 9/30/87
Sales - Material
$ 212,437
Sales - Trucking
536,705
Sales - Demol./Excavation
827,359
Sales - Misc.
83,534
Sales - Grading
53,053
Sales - Mach/Truck Hire
547,356
Sales - Operator Hire
404,362
Subtotal
2,664,806
Less-Sales Discounts
25,692
Contract Revenues Earned $2,639,114
FYE 9/30/86
Sales - Materials
Sales - Trucking
Sales - Demol./Excavation
Sales - Misc.
Sales - Grading
Sales - Mach/Truck Hire
Sales - Operator Hire
Subtotal
Less-Sales Discounts
Contact Revenues Earned

$ 413,552
567.338
778 554
47 293
13 800
668 237
565 441
3,054 215
25,624
$3,028,591

39.29
15.98
5.37
16.01
12.64
100.00

7.97
20.14
31.04
3.13
1.99
20.54
15.19
100.00

13.54
18.58
25.49
1.55
.45
21.88
18.51
100.00

Petitioner argues that its principal business activities consist of demolition, excavation, the
holding out for hire of machinery, trucks and operators, grading, and the sale of materials. The
transporting of debris and/or dirt or gravel is clearly not the principal source of revenues.
Furthermore, a substantial portion of the Petitioners's transportation activities, whereby it transports
its own property, is not transportation within the intent of sections 183 and 184 of the Tax Law. The
transporting of ones own property or providing a disposal service to an nondesignated off-site
location is not "transportation" for purposes of sections 183 and 184.
Petitioner contends that the dirt and gravel being transported belongs to Petitioner. It is not
being transported for a customer. Generally, in the situations where debris is carted away it is
dumped in an unrelated dump site. Petitioner argues that this is a disposal service activity. In any
event, the amount of transportation of dirt and gravel from one area of a construction site to another
area on the site or to another location designated by the general contractor amounts

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TSB-A-89(11)C
Corporation Tax
September 11, 1989
to no more than a nominal percentage of Petitioner's gross receipts.
Petitioner asserts that it was formed as a transportation company, in so far that it originally
was principally engaged in trucking. Since October 1, 1985, the activities of the business have
become construction related and not transportation related. Since a corporation is to be taxed
according to the business it conducts rather than the law under which it is organized, Petitioner
further asserts that the business activities of Petitioner are principally in the nature of construction
activities and a disposal service which are subject to tax as a general business corporation under
Article 9-A.
Discussion
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax on domestic
or foreign corporations for the privilege of exercising a corporate franchise, doing business,
employing capital, owning or leasing property in a corporate or organized capacity, or maintaining
an office, in New York State. Section 209.4 of the Tax Law, provides that corporations liable to tax
under sections 183 and 184 of Article 9 of the Tax Law are not subject to tax under Article 9-A.
Sections 183 and 184 of Article 9 of the Tax Law impose franchise taxes, on a domestic or
foreign corporation formed for or principally engaged in the conduct of a transportation business,
for the privilege of exercising its corporate franchise, doing business, employing capital, owning or
leasing property in a corporate or organized capacity or maintaining an office, in New York State.
To determine the classification and proper taxability of a corporation under either Article 9
or Article 9-A, an examination of the nature of the corporation's activities is necessary, regardless
of the purposes for which the corporation was organized. See McAllister Bros., Inc., v Bates, 272
App Div 511, 517.
The determination of whether Petitioner is subject to tax under Article 9-A or Article 9,
hinges on what activity the taxpayer is principally engaged in. Ordinarily, a corporation is deemed
to be principally engaged in the activity from which more than 50% of its receipts are derived. See,
e.g. Re Joseph Bucciero Contracting Inc., Advisory Op St Comm, July 23, 1981, TSB-A-81(5)C.
In the RVA Trucking Inc. v State of New York State Tax Commission, 135 AD2d 938,
affirming State Tax Commission Decision, June 12, 1986, TSB-H-86(24)C, the Court stated that the
State Tax Commission "quite reasonably defined "transportation" as comprehending "any real
carrying about or from one place to another" and "trucking" as generally involving "the process or
business of carting goods on trucks" (Matter of Joseph A. Pitts Trucking, State Tax Commission
Decision, July 18, 1984, TSB-H-84(34)C; see, Newton Creek Towing Co. v Law, 205 App Div 209,
211, affd 237 NY 578)."

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TSB-A-89(11)C
Corporation Tax
September 11, 1989
A corporation engaged primarily in performing subcontracting work on road construction and
other major construction sites, deriving 65% of gross receipts from loading, hauling and dumping
of construction materials and debris both on and off construction job sites, and also engaged in
transporting snow, was a transportation corporation rather than a business corporation. RVA
Trucking Inc., supra.
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, 257 App Div 888).
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., supra.
Since a corporation is taxed according to the business it conducts, a corporation that is
engaged in more than one activity must determine what activity or activities the corporation is
principally engaged in. Such determination is based on the percentage of the corporation's receipts
from Article 9 type activities versus the percentage of its receipts from Article 9-A type activities.
Herein, Petitioner's business activities consisting of carting and hauling away of debris and
soil is a trucking business and clearly is an Article 9 activity. However, the transportation of ones
own property is not an activity from which income is derived and is neither an Article 9 nor an
Article 9-A activity. Petitioner's business activities consisting of sand or soil sales and delivery,
operating a container (disposal) service, leasing machines, demolition, excavation, grading and pipe
jacking and underpinnings are Article 9-A type activities. Petitioner's business activities of leasing
trucks and/or operators may be classified as Article 9 or Article 9-A. If a truck is leased with an
operator, such activity is a transportation business and is an Article 9 activity. If a truck is leased
without an operator, such activity is a leasing business and is an Article 9-A activity.
Conclusion
Based on the facts presented, it is unclear what classification should be given to Petitioner's
activities. In Petitioner's breakdown of contract revenues for taxable years September 30, 1986,
September 30, 1987 and September 30, 1988, the sale of materials, the demolition/excavation, the
leasing of machines and the grading are derived from Article 9-A type activities. The trucking
revenues are derived from an Article 9 activity. However, the truck hire and operator hire revenues
may be derived from either Article 9 or Article 9-A activities depending on whether the lease
includes the operator. Also, it is not known what the miscellaneous revenues consist of.

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TSB-A-89(11)C
Corporation Tax
September 11, 1989
The actual classification of Petitioner as either an Article 9 or Article 9-A taxpayer 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).
Accordingly, if after a review of the facts it is determined that Petitioner is principally
engaged in the transportation business, Petitioner will be classified as a transportation and
transmission corporation subject to tax under Article 9 of the Tax Law. If not, Petitioner will be
classified as a general business corporation subject to tax under Article 9-A of the Tax Law.

DATED: September 11, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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