NY TSB-A-92(14)C Corporation Tax 1992-10-13

Is a dissolved corporation that merely holds record title to New York real property as nominee for others, while otherwise inactive, subject to Article 9-A franchise tax?

Short answer: It depends on whether the corporation was still incorporated. Midstate Research was a New York corporation that owned four acres of vacant land but stopped all activity in 1971 and was dissolved by proclamation in 1980. For the years it remained incorporated (1972 through 1980), it was subject to Article 9-A franchise tax under section 209.1 simply for existing in corporate form -- even though it was inactive. After it was dissolved by proclamation in 1980, it was no longer subject to Article 9-A, because a dissolved corporation that merely holds record title to property as nominee for the benefit of others, and is otherwise inactive, is not 'continuing to conduct business' under section 209.3.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Bernice E. Bouton, as secretary of the now-dissolved Midstate Research, Inc., asked whether the corporation -- an inactive company that was dissolved by proclamation and remained the record title holder of New York real property -- owes Article 9-A franchise tax.

Midstate was incorporated in New York in 1958 and acquired four acres of vacant land in the Town of Webb, Herkimer County. It ceased all activity in 1971 and conducted no business after that; the owners mistakenly believed it had been voluntarily dissolved and the land transferred to them personally. In fact, the corporation kept legal existence until it was dissolved by proclamation in 1980, and title to the still-vacant land was never conveyed out of its name.

The answer turns on a single line: was the corporation still incorporated?

While incorporated (1972-1980): Section 209.1 imposes the franchise tax for the mere privilege of exercising a corporate franchise -- existing in corporate form, owning property in a corporate capacity. Activity is not required. So Midstate owed Article 9-A tax for every year it remained incorporated.
After dissolution by proclamation (1980 on): Section 209.3 taxes a dissolved corporation only if it continues to conduct business. A dissolved corporation that is merely a record title nominee holding property for the benefit of others, and is otherwise inactive, is not conducting business (20 NYCRR 1-2.2). So Midstate was not subject to Article 9-A after 1980.

What this means for you

Incorporation itself triggers the tax -- inactivity does not excuse it

As long as a corporation keeps its corporate existence, it owes at least the minimum Article 9-A franchise tax each year, even if it does nothing but hold a parcel of land. The tax is for the privilege of being a corporation.

Dissolution by proclamation can end the tax -- but only if the corporation stops doing business

Once dissolved, a corporation that limits itself to winding up, or to passively holding title as nominee for others, is no longer "conducting business" and falls outside section 209.3.

A nominee holding bare title is treated as inactive

Holding record title to real property for the benefit of others, with no rents, leases, or operations, is not by itself "doing business."

Common questions

Q: Did Midstate owe franchise tax even though it was inactive after 1971?
A: Yes -- for every year it remained incorporated (1972-1980). The tax is for the privilege of existing as a corporation, not for being active.

Q: Why did the tax stop after 1980?
A: It was dissolved by proclamation in 1980, and afterward it merely held bare title to land as nominee for others -- not "continuing to conduct business" under section 209.3.

Q: Is owning New York real property in a corporate name always taxable?
A: While the corporation is in existence, owning or leasing New York property in a corporate capacity is enough to trigger the section 209.1 tax. After dissolution, passively holding title as nominee is not.

This opinion applies the same dissolved-nominee, two-period analysis as Highmount Medical Building Inc. (TSB-A-91(12)C), Harold S. Sommers (TSB-A-90(9)C), and Babson Bros. Co. of New York Inc. (TSB-A-88(19)C), which it cites.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax on corporations)
- Tax Law section 209.3 (dissolved corporation that continues to conduct business)
- 20 NYCRR 1-2.2 (dissolved corporation limited to winding up)
- 20 NYCRR 2-3.1 (tax measured up to the date the franchise ceases)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (14) C
Corporation Tax
October 13, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C920819A

On August 19, 1992, a Petition for Advisory Opinion was received from Bernice E. Bouton,
individually and as secretary for the now dissolved Midstate Research, Inc., 5151 N. Kain Street

106, Tucson, Arizona 85705.

The issue raised by Petitioner, Bernice E. Bouton, is whether Midstate Research, Inc., an
inactive corporation that was dissolved by proclamation and that is record title holder of real property
in New York State, is subject to New York State franchise tax under Article 9-A of the Tax Law.
Midstate Research, Inc., was incorporated in New York State on February 3, 1958. It
acquired title to four acres of vacant land in the Town of Webb, Herkimer County on September 3,
1958. Said property was still vacant as of March 1992.
As of 1971, Midstate Research, Inc., ceased to function, conducted no business whatsoever,
and performed no activities in its corporate name. Its two officers, Gerald D. Bouton (now deceased),
President, and Bernice E. Bouton, Corporate Secretary thought Midstate Research, Inc. had gone into
voluntary dissolution and also thought that any real estate owned by Midstate Research, Inc. was
transferred to Gerald D. Bouton and Bernice E. Bouton, as husband and wife, at that time.
Since 1971 Midstate Research, Inc. was merely a title holder of real property and was
otherwise completely inactive, conducting no business in New York State. The Boutons continued
to pay real property taxes to the locality in their individual capacities without realizing that Midstate
Research, Inc., remained in existence and that title to the property had never been transferred to them
as husband and wife. In 1976, Bernice E. Bouton became aware that title had never been transferred
and that the Herkimer County Department of Taxation still listed Midstate Research, Inc. on its tax
rolls as the owner of the property. She had such Department change the tax rolls for said property
from Midstate Research, Inc., to Mrs. Jerry Bouton.
Midstate Research, Inc. was dissolved by proclamation in 1980. However, in a recent
attempt to sell the four acres of real estate in the Town of Webb, Herkimer County, it was discovered
that the property was never conveyed to the Boutons in 1971 and remains in the name of Midstate
Research, Inc.
Section 209.1 of the Tax Law imposes a franchise tax on every corporation for the privilege
of exercising its franchise, or 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 for all or any part of each of its fiscal or calendar years.
TP-9 (9/88)

-2
TSB-A-92 (14) C
Corporation Tax
October 13, 1992

Section 2-3.1 of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations") provides that every domestic corporation is required to pay a tax measured by entire
net income (or other applicable basis) up to the date on which it ceases to possess a franchise.
Section 209.3 of the Tax Law provides that a dissolved corporation which continues to
conduct business shall be subject to tax under Article 9-A. Section 1-2.2 of the Regulations provides
further that where the activities of a dissolved corporation are limited to the liquidation of its
business and affairs, the disposition of its assets (other than in the regular course of business) and
the distribution of the proceeds, the dissolved corporation is not subject to tax under Article 9-A.
Therefore, a dissolved corporation that is merely a record title holder of real property located
in New York State as nominee for the benefit of others, and is otherwise inactive, is not conducting
business in New York State as contemplated by section 209.3 of the Tax Law. Highmount Medical
Building Inc., Adv Op, Comm T & F, May 7, 1991, TSB-A-91(12)C; Harold S. Sommers, Adv Op,
Comm T & F, March 15, 1990, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., Adv Op,
Comm T & F, September 1, 1988, TSB-A-88(19)C.
Accordingly, for taxable years 1972 through 1980 during which Midstate Research, Inc. was
incorporated, Midstate Research, Inc. is subject to the franchise tax imposed by Article 9-A of the
Tax Law, pursuant to section 209.1 of the Tax Law. After its dissolution by proclamation in 1980,
Midstate Research, Inc. was merely holding property as nominee for the benefit of others and was
not conducting business in New York State pursuant to section 209.3 of the Tax Law. Therefore,
Midstate Research, Inc. is not subject to tax under Article 9-A after it was dissolved by proclamation.

DATED: October 13, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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