Is a foreign nonprofit agricultural cooperative, authorized to do business in New York under the Not-For-Profit Corporation Law, automatically exempt from New York corporate franchise tax?

Subject

Whether a foreign cooperative corporation, classified as nonprofit under Cooperative Corporations Law § 3(d) and authorized to do business in New York under Not-For-Profit Corporation Law § 1304, is exempt from New York franchise or other corporate taxes.

Plain-English summary

Pennsylvania Farm Bureau Members' Service Corporation, a foreign nonprofit cooperative organized under Pennsylvania's version of cooperative-corporation law, registered to do business in New York, receiving authority from the New York Department of State under the Not-For-Profit Corporation Law. It asked whether that combination — nonprofit cooperative status plus not-for-profit registration — meant it was exempt from New York's corporate franchise tax.

The Department said no, not automatically. Being a cooperative corporation, or being registered under the Not-For-Profit Corporation Law, doesn't by itself exempt anyone from Article 9-A franchise tax. But there's a narrower, more specific exemption: 20 NYCRR § 1-3.4(a)(7) excludes from Article 9-A any cooperative corporation that is instead subject to the $10 annual fee under Cooperative Corporations Law § 77. That fee-in-lieu-of-tax provision applies only to cooperatives organized for one of three specific purposes — cooperative marketing of agricultural products, making loans to members who produce agricultural products, or purchasing food products for resale to members (capped at under $200,000 in such purchasing-cooperative sales per year) — and only if the cooperative has properly filed its articles of incorporation, bylaws, and annual reports with the Department of Agriculture and Markets as the Cooperative Corporations Law requires. The petitioner had complied with the registration requirements of § 76 but hadn't actually established that it met § 77's substantive purpose test. So the Department's answer was conditional: if the petitioner is in fact organized for one of those three qualifying purposes and meets the sales cap where applicable, it pays only the $10 annual fee and owes no Article 9-A franchise or other corporate tax; if not, ordinary Article 9-A tax applies.

What this means for you

Agricultural cooperatives operating across state lines

Don't assume that "nonprofit" or "cooperative" status alone gets you out of New York franchise tax. You need to independently qualify under the narrow Cooperative Corporations Law § 77 test — organized specifically for agricultural marketing, agricultural-producer lending, or capped-volume member food purchasing — and have the required filings on record with the Department of Agriculture and Markets.

Foreign cooperatives registering to do business in New York

Registering under the Not-For-Profit Corporation Law (§ 1304) to satisfy Cooperative Corporations Law § 76's registration requirement is a separate step from qualifying for the § 77 fee-in-lieu-of-tax treatment — completing one doesn't establish the other.

Accountants advising cooperative clients

Confirm both the substantive test (one of the three § 77 purposes, plus the $200,000 sales cap for purchasing cooperatives) and the procedural requirement (filed articles/bylaws/annual reports with Agriculture and Markets) before treating a cooperative client as exempt from Article 9-A tax under the $10 fee provision.

Common questions

Q: Does nonprofit or cooperative status alone exempt a corporation from New York franchise tax?
A: No. Neither cooperative status nor Not-For-Profit Corporation Law authorization, by itself, creates an Article 9-A exemption.

Q: What does qualify a cooperative for the $10 annual fee instead of franchise tax?
A: Being organized for cooperative marketing of agricultural products, making loans to members producing agricultural products, or purchasing food products for member resale (with sales under $200,000/year for that last category) — and having properly filed with the Department of Agriculture and Markets under the Cooperative Corporations Law.

Q: Can another agricultural cooperative 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 here, the Department's answer was conditional on facts the petitioner hadn't yet established.

Citations and references

Statutes and regulations:

• Tax Law § 209 (Article 9-A franchise tax)
• 20 NYCRR § 1-3.4(a)(7) (cooperative corporations subject to the Cooperative Corporations Law § 77 fee excluded from Article 9-A)
• Cooperative Corporations Law § 3(d) (definition of nonprofit cooperative corporation)
• Cooperative Corporations Law § 76 (foreign cooperative corporation registration requirements)
• Cooperative Corporations Law § 77 ($10 annual fee in lieu of franchise/license/corporation taxes)
• Not-For-Profit Corporation Law § 1304 (foreign not-for-profit corporation authority to do business)

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_4c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (4)C
Corporation Tax
March 2, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C881121A

On November 21, 1988, a Petition for Advisory Opinion was received from Pennsylvania
Farm Bureau Members' Service Corporation, 510 South 31st Street, Camp Hill, Pennsylvania 17011.
The issue raised is whether a foreign cooperative corporation, that is classified as a non-profit
corporation pursuant to section 3(d) of the Cooperative Corporations Law and which is authorized
to do business in New York State pursuant to section 1304 of the Not-For-Profit Corporation Law,
is exempt from New York State franchise or other corporate taxes.
Petitioner is a foreign non-profit corporation, pursuant to section 3(d) of the Cooperative
Corporations Law. Pursuant to section 1304 of the Not-For-Profit Corporation Law, Petitioner
received authority to do business in New York State from the New York State Department of State.
Such authority was sought to comply with the provisions of section 76 of the Cooperative
Corporations Law.
Section 209 of Article 9A of the Tax Law impose a franchise tax upon every domestic or
foreign corporation for 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." A cooperative corporation is not exempt from tax under Article 9-A merely because it is
a cooperative corporation or merely because it is authorized to do business under The Not-For-Profit
Corporation Law.
However, section 1-3.4(a) of the Business Corporation Franchise Tax Regulations provides
that "[a] corporation which is subject to any of the following taxes is not subject to tax under article
9-A of the Tax Law:
...
(7) cooperative corporations subject to the annual fee imposed by section 77 of the
Cooperative Corporations Law .... "
Section 77 of the Cooperative Corporations Law states that:
Each cooperative corporation organized, with or without capital
stock, for the purpose of cooperative marketing of agricultural
products or for the purpose of making loans to its members producing
agricultural products or for the purpose of purchasing food products
for sale to its members, such a purchasing cooperative corporation
having gross receipts from such sales of less than two hundred
thousand dollars in a calendar year,
TP-9 (9/88)

-2­
TSB-A-89 (4)C
Corporation Tax
March 2, 1989

shall pay to the state tax commission an annual fee of ten dollars, in
lieu of all franchise or license or corporation taxes. Such annual fee
shall be paid for each calendar year on the fifteenth day of March next
succeeding the close of such calendar year.
Petitioner states that it has complied with all of the provisions of section 76 of the
Cooperative Corporations Law. However, Petitioner has not stated that it is a cooperative
corporation as described in section 77 of the Cooperative Corporations Law.
Accordingly, if Petitioner has filed with the Department of Agriculture and Markets a
certified copy of its articles of incorporation, by-laws and annual reports as provided by the
Cooperative Corporations Law, and if Petitioner meets the conditions of section 77 of the
Cooperative Corporations Law, that is, if Petitioner is a cooperative corporation organized for the
purpose of cooperative marketing of agricultural products or for the purpose of making loans to its
members producing agricultural products or for the purpose of purchasing food products for sale to
its members, and Petitioner has gross receipts from such sales of less than $200,000 in a calendar
year, Petitioner shall remit an annual fee of ten dollars to the Department of Taxation and Finance.
If Petitioner is subject to the $10 annual fee imposed by section 77 of the Cooperative
Corporations Law, it is not subject to New York State franchise or other corporate taxes.

DATED: March 2, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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