If an out-of-state manufacturer's only New York presence is a handful of employee-days per year repairing products it sold, is that enough activity to make it subject to New York's corporate franchise tax?

Plain-English summary

The American Crane Corporation, incorporated in North Carolina in 1987, manufactures heavy cranes and sells them to dealers nationwide (about $40 million in annual sales, 250 employees, all facilities in Wilmington, NC). For customer convenience it maintains a small field-service department: four or five employees who travel to repair cranes already sold. Its New York presence is tiny -- a maximum of about two weeks a year (in 1990, just one employee spent ten days across three trips), generating less than one-tenth of one percent of total revenue, with a nominal fee charged just to cover expenses. It asked whether this minimal activity makes it subject to New York's Article 9-A franchise tax.

The answer: yes. Public Law 86-272 shields out-of-state sellers from state income tax only when their in-state activity is limited to soliciting orders that are approved and shipped from outside the state. Regulations section 1-3.4(b)(9)(v) expressly lists "making repairs to or installing the corporation's products" as an activity that goes beyond mere solicitation -- so the federal shield doesn't apply here at all, regardless of how little time is involved. Once the 86-272 exemption is off the table, the Department applies the multi-factor "doing business" test in Regulations section 1-3.2(b) -- nature, continuity, frequency, and regularity of in-state activity; comparison to activity elsewhere; and other factors -- and found that even this modest, occasional repair activity is enough to constitute "doing business" in New York. The corporation employs no capital, owns no property, and maintains no office in New York, but that doesn't matter once repair activity (a non-solicitation activity) is present at all.

What this means for you

Out-of-state manufacturers with field-service technicians

If your company sends technicians into New York to repair or install products you've sold -- even rarely and even generating negligible revenue -- Public Law 86-272 will not protect you, because repairs/installation are specifically called out as activity beyond mere solicitation. There is no de minimis carve-out in this ruling: ten employee-days a year was enough.

Sales-only operations vs. service operations

The critical line is between activities that are purely order-solicitation (protected) and virtually anything else physical or service-related happening in the state (not protected). If you want to preserve 86-272 protection, route repairs and installation through independent, unaffiliated local contractors rather than your own employees.

Accountants and tax professionals

Once an activity falls outside 86-272's narrow solicitation-only safe harbor, the "doing business" analysis reverts to the ordinary multi-factor Regulations 1-3.2(b) test, which does not require a revenue threshold -- the Department here found nexus despite the New York-sourced revenue being a rounding error.

Common questions

Q: Does Public Law 86-272 protect field repair or installation activities?
A: No. Regulations section 1-3.4(b)(9)(v) expressly lists making repairs or installing products as activity beyond mere solicitation, which forfeits the 86-272 exemption.

Q: Is there a minimum amount of in-state activity needed to create nexus?
A: This ruling found ten employee-days a year, generating a fraction of a percent of revenue, sufficient -- there's no bright-line de minimis threshold once a non-solicitation activity is present.

Q: Does the company need an office or property in New York to be taxable?
A: No. The company had no office, no property, and employed no capital in New York, and was still found to be doing business based solely on its repair activity.

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 factors)
• Business Corporation Franchise Tax Regulations section 1-3.4(b)(9) and (b)(9)(v) (Public Law 86-272 exemption and its limits)
• Public Law 86-272, 15 U.S.C. sections 381-384

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a91_19c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(19)C
Corporation Tax
October 24, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.C910715B

On July 15, 1991, a Petition ,for Advisory Opinion was received from The American Crane
Corporation, 202 Raleigh St., Wilmington, North Carolina 28412.
The issue raised by Petitioner, The American Crane Corporation, is whether it is doing
business in New York State and therefore is subject to tax under Article 9-A of the Tax Law.
Petitioner was incorporated in North Carolina in April 1987 and began operations in July
1987. Petitioner manufactures heavy equipment machinery (cranes). Petitioner sells the cranes to
dealers throughout the county and has averaged $40 million in sales since inception. At the present
time, Petitioner employs 250 people. All facilities including manufacturing, warehousing and sales
are located in Wilmington, North Carolina.
For customer service and convenience, Petitioner has a small service department that repairs
cranes out in the field. Only four or five employees travel for this purpose. Petitioner's employees
come into New York for a maximum of two weeks a year for such repair services. For instance,
during 1990 only one employee spent ten days in New York consisting of two days in July, three
days in September and five days in November. Petitioner charges a nominal fee to cover its
expenses for this service. The revenue generated from these service trips represent less than one­
tenth of one percent of Petitioner's total revenue for 1990. Petitioner does no other business in New
York.
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.
(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:
TP-9 (9/88)

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October 24, 1991
(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 or 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
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 1-3.4(b)(9) of the Article 9-A regulations provides an exemption from taxation under
Article 9-A for corporations which are exempt pursuant to the provisions of Public Law 86-272 (15
U.S.C.A. §§ 381-384). Such section provides that:
(i) [a] foreign corporation whose income is derived from interstate commerce is not
subject to tax under article 9-A if the activities of the corporation in New York State
are limited to either, or both of the following:

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Corporation Tax
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(a) the solicitation of orders by employees or representatives in New
York State for sales of tangible personal property and the orders are
sent outside New York State for approval or rejection; and, if
approved, are filled by shipment or delivery from a point outside New
York State, and
(b) the solicitation of orders by employees or representatives in New
York State in the name of or for the benefit of a prospective customer
of such corporation if the customer's orders to the corporation are sent
outside the State for approval or rejection; and, if approved, are filled
by shipment or delivery from a point outside New York State.
Section 1-3.4(b)(9)(v) of the Article 9-A Regulations provides that:
[a]ctivities beyond mere solicitation will subject a corporation to tax in New York
State. In general, activities of employees in New York State which are intended or
designed to promote or encourage the marketing of the corporation's products in New
York State or intended or designed to maintain a market already established in New
York State are beyond mere solicitation and will make a corporation taxable. In
determining whether a corporation's activities exceed mere solicitation, all of the
corporation's activities in New York State will be considered. Examples of activities
which go beyond mere solicitation include:
(a) making repairs to or installing the corporation's products;
(b) making credit investigations;
(c) collecting delinquent accounts;
(d) taking inventory of the corporation's products for customers or prospective
customers;
(e) setting up displays of the corporation's products for customers;
(f) giving technical advice on the use of the corporation's products.
Herein, Petitioner's employees come into New York to repair cranes that it sells.
Consequently, Petitioner's activities in New York State go beyond the mere solicitation of orders and
Petitioner is not exempt from tax by virtue of Public Law 86-272.
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. However, giving due consideration to the factors set
forth in section 1-3.2(b)(2) of the Article 9-A Regulations, and viewing Petitioner's activities as set

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Corporation Tax
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forth above in a comprehensive sense, such activities in New York State constitute "doing business"
within the meaning of section 209.1 of the Tax Law.
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
the 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.

DATED: October 24, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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