Does an out-of-state financial trading company create New York nexus by having independent brokers trade commodity futures on the COMEX floor, if it occasionally takes brief warehouse-receipt title to precious metals held in New York vaults?

Plain-English summary

Cargill Financial Services Corporation, a Delaware financial-trading subsidiary of Cargill, Incorporated (both headquartered in Minneapolis), had no employees, office, inventory, or owned/leased real property of its own in New York. It already traded stocks, bonds, currencies, commodities, and other instruments on New York exchanges -- but always through independent brokers, never its own staff. The Department confirmed that broker-executed trading alone is not enough to create Article 9-A nexus.

Cargill then proposed also trading precious-metals futures contracts on the floor of the Commodity Exchange, Inc. (COMEX) in New York City, again through independent brokers. Normally a futures position is closed out with an offsetting contract and the commodity itself never changes hands. But in certain market conditions, it can be prudent for Cargill to briefly take title to the underlying metal (e.g., 100 oz. of gold) -- receiving only a warehouse receipt, never physical possession, while the metal sits in a COMEX-licensed New York vault.

The Department found this likely too minimal to create nexus, though it couldn't say so definitively. Owning tangible personal property in New York can independently trigger Article 9-A tax under Regulations section 1-3.2(d), even without other business activity. But the Department drew on two prior rulings finding that minimal or transient property presence doesn't cross that threshold: a company shipping raw materials to an unrelated New York contractor for processing before the goods return or move elsewhere (American Association of Advertising Agencies, TSB-H-80(32)G), and an aluminum manufacturer shipping byproduct dross to a New York reclaimer for processing and return (Aluminum Company of Canada, TSB-A-83(9)C). Cargill's occasional, brief warehouse-receipt title was found "similarly minimal," and -- assuming Cargill isn't otherwise doing business in New York -- would not by itself trigger Article 9-A tax. But because the ultimate determination depends on the totality of Cargill's actual year-by-year circumstances, the Department couldn't issue a definitive yes/no in the advisory opinion itself.

What this means for you

Financial trading firms and commodity traders using New York exchanges through brokers

Executing trades on New York exchanges entirely through independent brokers, without your own New York office or employees, generally stays outside Article 9-A nexus. Occasionally taking brief, paper-only title (a warehouse receipt, not physical possession) to a commodity as an incident of that trading -- without maintaining ongoing New York inventory or facilities -- also likely doesn't tip the balance on its own, though it's a facts-and-circumstances call, not a bright-line safe harbor.

Contrast with maintained inventory or facilities

This is different from actually storing, warehousing, or maintaining stockpiles of a commodity in New York as an ongoing business practice -- Regulations section 1-3.2(d) treats that kind of property presence as sufficient for nexus by itself. The key distinguishing facts here were the brevity and incidental nature of the title-holding, tied directly to market-timing needs rather than routine storage.

Accountants and tax professionals

Note the Department's own caveat: this is a facts-and-circumstances determination, not a categorical exemption. Track the frequency and duration of any New York title-taking carefully, and be ready to show it remains occasional and incidental to the trading activity rather than a routine business practice.

Common questions

Q: Does executing trades through independent brokers on a New York exchange create Article 9-A nexus?
A: Not by itself, per this ruling and its cited authorities -- broker-executed trading alone was found insufficient.

Q: Does briefly holding a warehouse receipt for a commodity in a New York vault create nexus?
A: The Department found this "similarly minimal" to other transient-property-presence cases and likely insufficient on its own, but declined to give a definitive answer since it depends on the totality of the taxpayer's actual circumstances.

Q: Can another commodities trader in a similar situation rely on this ruling directly?
A: No. This is a private advisory opinion binding the Department only for Cargill Financial Services Corporation on these specific facts.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax)
• Business Corporation Franchise Tax Regulations section 1-3.2(b) (doing-business multi-factor test)
• Business Corporation Franchise Tax Regulations section 1-3.2(c), (d) (employing capital; owning/leasing property)
• Business Corporation Franchise Tax Regulations section 1-3.3 (safe harbors for cash balances, custodied securities, incidental broker actions)
• Business Corporation Franchise Tax Regulations section 1-3.4(a)(9) (Public Law 86-272 minimal-property exception)

Prior opinions cited:

• American Association of Advertising Agencies, Inc., Adv Op St Tax Comm, November 7, 1980, TSB-H-80(32)G
• Aluminum Company of Canada, Ltd., Adv Op St Tax Comm, August 12, 1983, TSB-A-83(9)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a90_20c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(20)C
Corporation Tax
September 26, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C900525B

On May 25, 1990, a Petition for Advisory Opinion was received from Cargill Financial
Services Corporation, P.O. Box 9300 Loc. #26, Minneapolis, Minnesota 55440.
The issue raised by Petitioner, Cargill Financial Services Corporation, is whether it is doing
business in New York State for purposes of Article 9-A of the Tax Law if it takes title to precious
metals that are the subject of futures contracts traded on the Commodity Exchange, Inc. in New York
City.
Petitioner is a Delaware corporation with its principal place of business in Minneapolis,
Minnesota. Petitioner is engaged in the business of trading financial instruments. Petitioner is a
wholly owned subsidiary of Cargill, Incorporated, a Delaware corporation with its principal place
of business in Minneapolis, Minnesota. Cargill, Incorporated is engaged in the business of
procuring, processing, and selling commodities.
Petitioner has no employees either working or residing within the State of New York.
Petitioner does not maintain an office, branch or other facility in New York State. Petitioner does
not maintain any inventory, raw materials, work-in-process or other tangible personal property in
New York State. Petitioner does not own or lease real property in New York State.
Petitioner currently trades in stocks, bonds, currencies, commodities and other financial
instruments on the various exchanges in New York City. However, all such transactions are
executed by independent brokers.
Under the proposed transaction, Petitioner would employ independent brokers to trade in
commodity futures contracts in precious metals on the floor of the Commodity Exchange, Inc.
(hereinafter "COMEX") in New York City. A futures contract is a right to receive at a future date
a specific quantity of a commodity for a fixed price. Generally, Petitioner would not take title to the
commodity and the futures contract would be closed out with an offsetting contract. However, in
certain situations, when Petitioner holds a contract to buy a commodity, for example 100 oz. of gold,
it may be prudent to take title to the gold for a short period of time. In such a case, Petitioner would
not receive actual possession of the commodity, but rather would receive a warehouse receipt
signifying ownership in a specific quantity of the commodity. The physical commodities would be
held in warehouses or vaults in the City of New York licensed by COMEX.
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.
TP-9 (9/88)

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Corporation Tax
September 26, 1990
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.
(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.
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.
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

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Corporation Tax
September 26, 1990
business, is sufficient to make the corporation subject to tax. Property held, stored
or warehoused in New York State creates taxable status. Property held as a nominee
for the benefit of others creates taxable status ....
Section 1-3.3 of the Article 9-A Regulations provides that:
[a] foreign corporation will not be deemed to be doing business, employing capital
owning or leasing property in a corporate or organized capacity or maintaining an
office in New York State because of:
(a) the maintenance of cash balances with banks or trust companies in New York
State;
(b) the ownership of shares of stock or securities kept in New York State in a safe
deposit box, safe, vault or other receptacle rented for this purpose, or if pledged as
collateral security, or if deposited in safekeeping or custody accounts with one or
more banks or trust companies, or brokers who are members of a recognized security
exchange;
(c) the taking of any action by any such bank or trust company or broker, which is
incidental to the rendering of safekeeping or custodian service to such corporation
....
Herein, Petitioner is engaged in the business of trading in stocks, bonds, currencies,
commodities and other financial instruments on various exchanges in New York City. The
transactions are executed by independent brokers. This activity by itself is not sufficient to deem
Petitioner to be doing business in New York State.
Additionally, Petitioner proposes to trade in commodity futures contracts in precious metals
on the floor of COMEX in New York City. Because of market conditions, it may be prudent for
Petitioner to occasionally take title to the precious metal for a short period of time. The physical
commodities would be held in warehouses or vaults in New York City.
Pursuant to section 1-3.2(d) of the Article 9-A Regulations, the ownership of real or tangible
personal property located in New York State is sufficient to make a corporation subject to the
franchise tax imposed under Article 9-A of the Tax Law even though the corporation is not deemed
to be doing business in New York State.
However, there are situations where the ownership of property in New York is not sufficient
in magnitude to subject a foreign corporation to tax. For example, section 1-3.4(a)(9) of the Article
9-A Regulations provides that a foreign corporation whose income is derived from interstate
commerce is not subject to tax if its New York activities do not exceed those prescribed by Public
Law 86-272, even where the corporation has samples or automobiles in New York, used exclusively
for solicitation. Similarly, it has been held that a foreign corporation which ships raw materials or
partially finished goods to an unrelated contractor in this state, by whom the goods are processed or
finished, is not taxable solely because of the ownership of such property in New York,

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TSB-A-90(20)C
Corporation Tax
September 26, 1990
assuming that the contractor returns the goods to the foreign corporation or ships them to another
contractor outside the state. American Association of Advertising Agencies, Inc., Adv Op St Tax
Comm, November 7, 1980, TSB-H-80(32)G.
Also, a foreign corporation manufacturing aluminum, is not subject to tax because it only has
minimal ownership of property in New York when it ships its by-product, dross, to a processor in
New York who reclaims some aluminum from the dross and then ships the reclaimed metal back to
the foreign corporation and disposes of the waste product. Aluminum Company of Canada, Ltd.,
Adv Op St Tax Comm, August 12, 1983, TSB-A-83(9)C.
Herein, it appears that Petitioner's occasional ownership of property in New York State is
similarly minimal, and if Petitioner is not otherwise doing business in New York, Petitioner would
not be subject to the franchise tax imposed under Article 9-A because of such minimal ownership.
However, the actual determination of whether Petitioner will be subject to tax under Article
9-A is a factual matter dependent on the totality of the corporation's circumstances and is 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: September 26, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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