Does an out-of-state company owe New York corporate franchise tax just because its employees taught four five-day training courses in New York, even though another state's tax rules would attribute the income to that other state instead?

Subject

Whether Project Technology, Inc. is subject to Article 9-A franchise tax because it conducted four five-day courses in New York State.

Plain-English summary

Project Technology, Inc., a California software-consulting company, sent its own employees (who don't live in New York) to teach four five-day software-development seminars in New York in 1988, earning $50,000 in gross revenue with roughly a 4% profit margin. The company owned no property and had no office in New York — its only New York contact was the teaching itself, plus some possibly-in-state consulting work. The company argued it shouldn't owe New York tax because California's own income-sourcing rules (the "cost of performance" three-factor formula) would attribute the income to California instead, since most of the direct costs — instructor salaries, site expenses, travel, course-material production — were incurred there.

The Department ruled the company is subject to Article 9-A franchise tax. Having employees physically present in New York, teaching paid courses, is enough "doing business" activity on its own to create nexus — New York's "doing business" standard is deliberately broad, covering any profit-generating activity regardless of how minor, and doesn't require an office, property, or ongoing presence. The Department was explicit that it doesn't matter whether another state (here, California) also taxes the same income under its own sourcing rules — that's irrelevant to whether New York has the right to tax the New York-source activity in the first place. Any New York-based consulting-services work would independently support the same conclusion.

What this means for you

Out-of-state consulting, training, and seminar businesses

Sending your own employees into New York — even briefly, even for a handful of multi-day sessions — to deliver paid instruction or consulting creates New York corporate nexus. There's no minimum-days or minimum-revenue safe harbor apparent in this ruling; the presence itself, tied to a profit-generating activity, is what matters.

Companies worried about double taxation across states

Don't expect New York to defer to another state's income-sourcing test. Even if California (or any other state) would also tax the same income under a cost-of-performance or similar rule, that doesn't relieve you of New York tax on the New York-source activity — you may simply owe tax to both states, subject to whatever credit or apportionment relief each state's law separately provides.

Accountants and tax professionals

The multi-factor "doing business" test in 20 NYCRR § 1-3.2(b) doesn't require any single dominant factor — physical presence of employees performing revenue-generating work in New York was independently sufficient here, without needing to reach the "employing capital" or "owning/leasing property" prongs (both of which the Department found inapplicable on these facts).

Common questions

Q: Does a company need an office or property in New York to owe franchise tax?
A: No. Employees physically present in New York conducting paid instruction or consulting work is sufficient "doing business" activity on its own.

Q: If another state already taxes this income under its own rules, does New York back off?
A: No. The Department explicitly stated it's immaterial whether California taxes the same income — New York's right to tax turns on its own "doing business" standard, independent of other states' sourcing rules.

Q: Can another out-of-state training or consulting company 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.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax on doing business, employing capital, owning/leasing property, or maintaining an office in New York)
• 20 NYCRR § 1-3.2(b) (comprehensive "doing business" standard and multi-factor test)
• 20 NYCRR § 1-3.2(c) (employing capital)
• 20 NYCRR § 1-3.2(d) (owning or leasing property)

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_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89(13)C
Corporation Tax
November 6, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890712A

On July 12, 1989, a Petition for Advisory Opinion was received from Project Technology,
Inc., 2560 Ninth Street #214, Berkeley, California 94710.
The issue raised is whether Petitioner, Project Technology, Inc., is subject to franchise tax,
under Article 9-A of the Tax Law, because it conducted four five-day courses in New York State.
Petitioner is a California corporation that conducted four five-day courses in New York State
in 1988. The classes were taught by employees of Petitioner who do not reside in New York State.
Petitioner does not own or rent property in New York State. Petitioner also provided consulting
services for client projects. The gross revenue in question was $50,000.00 and Petitioner's before-tax
profit margins were approximately 4%.
Petitioner states that California uses the three-factor formula (sales, property and payroll) to
determine the percentage of business income to be taxed in California and under such formula,
California will tax the income from the activities at issue, if the income-producing activity, based
on the costs of performance, is performed in California. Petitioner provides that "costs of
performance" are the direct costs in the income producing activity. For Petitioner, the direct costs
of the activities at issue include the instructor's salary, course site expenses, travel expenses and the
production costs of the course materials. Because a greater share of the costs of performance of the
activities at issue were incurred in California, the income is taxed in California. Therefore,
Petitioner contends that it is not subject to tax in New York State.
Section 209.1 of Article 9-A of the Tax Law imposes the business corporation franchise tax
on every foreign corporation, unless specifically exempt, for the privilege of doing business, or of
employing capital, or of owning or leasing property in New York State in a corporate or organized
capacity, or of maintaining an office in New York State.
Section 1-3.2(b) of the Business Corporation Franchise Tax Regulations (hereinafter
"Article 9-A Regulations") provides that:
(1) [t]he term doing business is used in a comprehensive sense and
includes all activities which occupy the time or labor of men for
profit. Regardless of the nature of its activities, every corporation
organized for profit and carrying out any of the purposes of its
organization is deemed to be doing business for the 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.
TP-9 (9/88)

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TSB-A-89(13)C
Corporation Tax
November 6, 1989
(2) 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:
(i) the nature, continuity, frequency, and regularity of the activities of
the corporation in New York State, compared with the nature,
continuity, frequency, and regularity of its activities elsewhere;
(ii) the purposes for which the corporation was organized, compared
with its activities in New York State;
(iii) the location of its offices and other places of business;
(iv) the income of the corporation and the portion thereof derived
from activities in New York State;
(v) the employment in New York State of agents, officers and
employees; and
(vi) the location of the actual seat of management or control of the
corporation. 20 NYCRR 1-3.2(b)
Section 1-3.2(c) of the Article 9-A Regulations provides that:
[t]he term employing capital is used in a comprehensive sense.
Any of a large variety of uses, which may overlap other activities,
may give rise, to taxable status. In general, the use of assets in
maintaining or aiding the corporate enterprise or activity in New
York State will make the corporation subject to tax. Employing
capital includes such activities as:
(1) maintaining stockpiles of raw materials or inventories; or
(2) owning materials and equipment assembled for
construction. 20 NYCRR 1-3.2(c)
Section 1-3.2(d) of the Article 9-A Regulations provides that:
[t]he owning or leasing of real or personal property within New
York State constitutes an activity which subjects a foreign
corporation to tax. Property owned by or held for the taxpayer in
New York State, whether or not used in the taxpayer's business,
is sufficient to make the corporation subject to tax. Property held,
stored or warehoused in New York State creates taxable status.

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TSB-A-89(13)C
Corporation Tax
November 6, 1989
Property held as a nominee for the benefit of others creates
taxable status. 20 NYCRR 1-3.2(d)
Petitioner is not employing capital in New York, does not own or lease property in New York
and does not maintain an office in New York. Therefore, the pertinent question in determining
whether Petitioner is subject to tax under Article 9-A is whether Petitioner is "doing business" in
New York State.
During 1988, Petitioner's employees taught software development seminars in four five-day
courses that were conducted in New York State. In addition, during 1988, its employees provided
"consulting services for client projects," but it is not clear, whether such services were conducted by
employees in New York State.
The fact that Petitioner's employees were in New York State conducting the software
development seminars for compensation is sufficient presence in New York State to constitute
"doing business" in New York State. Further, where the consulting services are performed by
Petitioner's employees in New York State, such activity would also constitute "doing business" in
New York State.
When a corporation is doing business in New York State pursuant to section 209.1 of the Tax
Law, such corporation is subject to tax under Article 9-A of the Tax Law.
Accordingly, pursuant to section 209.1 of the Tax Law and section 1-3.2(b) of the Article 9-A
Regulations, Petitioner is subject to the franchise tax imposed under Article 9-A of the Tax Law for
taxable year 1988 and for all subsequent taxable years Petitioner is doing business in New York
State. Petitioner must compute its tax under Article 9-A pursuant to section 210 of the Tax Law.
It should be noted that for New York State franchise tax purposes, it is immaterial whether California
taxes the income from the activities conducted in New York State.

DATED: November 6, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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