Does a Virginia temporary-staffing company with no office or property in New York owe Article 9-A franchise tax simply because it places its own temporary employees to work at New York client sites?

Plain-English summary

Quantum Resources Corporation, a Virginia staffing company, placed roughly 1,300 temporary clerical and technical employees a week across 26 states, including New York, where it had no sales office. All billing, payroll, and contract approval happened at Quantum's Richmond, Virginia headquarters, and New York accounts were created and managed by phone from an out-of-state sales office. In New York, Quantum's only presence was its temporary employees themselves, working at client facilities using the clients' equipment under the clients' supervision -- but remaining Quantum's own employees, not the clients'.

The Department found Article 9-A nexus. Public Law 86-272 only shields a corporation whose New York activity is limited to soliciting orders for tangible personal property sales, sent out of state for approval and filled from out of state. Quantum wasn't selling goods -- it was providing services (clerical and technical staffing) performed in New York by its own employees, which the Department held goes well beyond mere solicitation and falls outside the PL 86-272 exemption entirely. Applying the multi-factor "doing business" test in Regulations section 1-3.2(b) -- continuity and regularity of New York activity, employment of agents/employees in the state, and the rest -- the Department concluded Quantum's ongoing placement of its own workers at New York job sites constituted doing business in New York, even without any office, capital, or owned/leased property of its own there. The Department cited two prior rulings reaching the same result for other service providers: a company installing and training customers on software systems (Theatron Data Systems, TSB-A-90(10)C) and a company teaching software seminars in New York (Project Technology, TSB-A-89(13)C).

What this means for you

Staffing agencies and other service providers placing workers or performing services in New York

Public Law 86-272 protects only the solicitation of orders for the sale of tangible personal property -- it does not extend to service businesses. If your own employees perform work at New York client sites (even under the client's day-to-day supervision, using the client's equipment), that ongoing service activity itself can create Article 9-A nexus, with no office or property of your own required.

Contrast with product-solicitation businesses

Compare this to a company whose New York activity is limited to salespeople taking orders for physical goods that are shipped from outside the state (protected under PL 86-272, as in TSB-A-91(8)C ROP Color). The line the Department draws is goods vs. services: selling and shipping tangible property can stay protected; performing services in New York, even through placed personnel, cannot.

Accountants and tax professionals

Watch for any New York-based service delivery -- staffing placements, installation/training visits, seminars, consulting work performed on-site -- as activity that defeats the PL 86-272 safe harbor outright, regardless of how minimal the company's physical footprint in the state otherwise is.

Common questions

Q: Does Public Law 86-272 protect a staffing company that places workers in New York?
A: No. PL 86-272 only covers solicitation of orders for tangible personal property sales; providing labor/services in New York through placed employees is not covered, regardless of how the relationship with the client is structured.

Q: Does the client's day-to-day supervision of the temporary worker change the analysis?
A: No -- the Department looked at who employs the worker (Quantum, not the client) rather than who directs daily tasks on site. The worker remained Quantum's employee for nexus purposes.

Q: Does a company need an office or property in New York to be "doing business" there for franchise tax purposes?
A: No. As here, ongoing New York activity through employees or agents alone -- with no office, capital, or property -- can be sufficient under the multi-factor doing-business test.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax)
• Tax Law section 210 (Article 9-A tax computation)
• 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 1-3.4(b)(9) (Public Law 86-272 solicitation exemption and its limits)

Prior opinions cited:

• Theatron Data Systems, Adv Op Comm T&F, April 16, 1990, TSB-A-90(10)C
• Project Technology, Adv Op Comm T&F, November 6, 1989, TSB-A-89(13)C

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_2c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(2)C
Corporation Tax
January 18, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C901011A

On October 11, 1990, a Petition for Advisory Opinion was received from Quantum
Resources Corporation, 300 Arboretum Place, Suite 500, Richmond, Virginia 23236.
The issue raised by Petitioner, Quantum Resources Corporation, is whether a foreign
corporation providing temporary clerical and technical personnel to its clients in New York State is
subject to tax under Article 9-A of the Tax Law.
Petitioner is a Virginia corporation located in Richmond, Virginia. It is a provider of
temporary clerical and technical personnel to its clients. All billing, payroll and contract approval
is done in the Richmond, Virginia office.
Petitioner employs approximately 1,300 people a week in approximately 26 states, including
New York. There are sales offices in Parkersburg, West Virginia; McLean, Virginia; Columbia and
Florence South Carolina; West Palm Beach, Florida; and Goshen, Indiana. The account is created
and managed by telephone from the sales office originating the sale. For states in which there is not
a sales office, such as New York State, the only presence in the state is the temporary employees
placed by Petitioner. The temporary employees of Petitioner use the client's equipment and supplies
at the client's facilities under the client's supervision.
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-91(2)C
Corporation Tax
January 18, 1991

(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
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:

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TSB-A-91(2)C
Corporation Tax
January 18, 1991

(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:
(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.
It has been held that where a foreign corporation has no offices or assets located in New York
and no employees based in New York, the corporation was doing business in New York and was not
exempt pursuant to Public Law 86-272 when it sent employees into New York to install automated
management systems for movie theatres by connecting the hardware, loading the software, testing

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TSB-A-91(2)C
Corporation Tax
January 18, 1991

the system and training the customers to use the system. Theatron Data Systems, Adv Op Comm
T & F, April 16, 1990, TSB-A-90(10)C.
Also, a foreign corporation was held to be doing business in New York when its employees
taught software development seminars conducted in New York even though the corporation did not
employ capital or own or lease property in New York and did not maintain an office in New York.
Project Technology, Adv Op Comm T & F, November 6, 1989, TSB-A-89(13)C.
Herein, Petitioner is located in Virginia where all billing, payroll and contract approval is
done. Petitioner also has sales offices in West Virginia, Virginia, South Carolina, Florida, and
Indiana. Petitioner's only presence in New York is the temporary employees placed by Petitioner.
Even though the employees use the client's equipment and supplies at the client's facilities under the
client's supervision, such employees are employed by Petitioner, not the client.
Consequently, Petitioner's employees are providing clerical and technical services in New
York State for Petitioner's clients. Therefore, 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
forth above, 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
all 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 for each taxable year.

DATED: January 18, 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.