NY TSB-A-93(16)C Corporation Tax 1993-08-13

Is a corporation dissolved by proclamation in 1981, holding only real property as nominee for others, subject to Article 9-A franchise tax?

Short answer: Two periods, two answers. For the taxable years while the corporation was incorporated (here, the years ended February 28, 1978 through September 30, 1981), it owes the Article 9-A franchise tax under Tax Law section 209.1 simply for holding its corporate franchise -- it need not have done any business. After it was dissolved by proclamation in September 1981, it is not subject to Article 9-A if it was merely a record title holder of New York real property as nominee for the benefit of others and was otherwise inactive, because that is not conducting business under section 209.3. A dissolved corporation whose activities are limited to liquidating its affairs is not taxed (20 NYCRR 1-2.2).

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

1028 Faile Street Corp. was incorporated in March 1977, held a two-family home that never showed a profit, and was dissolved by proclamation in September 1981. It never filed a franchise tax return or paid any tax, and the owner died in 1981. The corporation asked whether it is subject to Article 9-A franchise tax.

The answer splits into two periods.

While incorporated -- taxable. Section 209.1 imposes the franchise tax for the privilege of exercising the corporate franchise, whether or not the corporation actually does business, employs capital, or owns property. So for the taxable years it held its franchise -- the years ended February 28, 1978 through September 30, 1981 -- the corporation is subject to the Article 9-A franchise tax, even though it was barely operating.

After dissolution -- not taxable, if a mere nominee. Section 209.3 keeps a dissolved corporation taxable only if it continues to conduct business. Under 20 NYCRR 1-2.2, a dissolved corporation whose activities are limited to liquidation is not taxed. So if, after its 1981 dissolution, the corporation was merely a record title holder of real property as nominee for the benefit of others and was otherwise inactive, it is not conducting business and is not subject to Article 9-A. The opinion relies on a line of advisory opinions -- Bouton (92(14)C), Highmount Medical Building (91(12)C), Sommers (90(9)C), and Babson Bros. (88(19)C).

What this means for you

The corporate franchise itself is taxable

While a corporation holds its charter, it owes the Article 9-A franchise tax for the privilege -- even if it does no business and makes no money.

Dissolution can end the tax -- but only for true wind-down

After dissolution, a corporation is taxed only if it keeps doing business. Merely holding title as a nominee while inactive is not doing business.

This is the recurring "two-period" rule

The same analysis appears throughout the dissolved-corporation opinions: taxable while incorporated, not taxable afterward if it is just a nominee winding down.

Common questions

Q: My corporation never did business -- does it still owe franchise tax?
A: Yes, for the years it held its corporate franchise. The tax is for the privilege of having the franchise, not for actually operating.

Q: We were dissolved by proclamation. Are we still taxed?
A: Not if your only activity is winding down or holding property as nominee for others while otherwise inactive -- that is not conducting business under section 209.3.

Q: What if the dissolved corporation kept operating?
A: Then it remains subject to Article 9-A under section 209.3, because it is still conducting business.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax for the privilege of exercising the corporate franchise)
- Tax Law section 209.3 (a dissolved corporation continuing to do business remains subject to tax)
- 20 NYCRR 1-2.2 (dissolved corporation limited to liquidation is not subject to Article 9-A)
- 20 NYCRR 2-3.1 (domestic corporation taxed until it ceases to possess a franchise)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (16) C
Corporation Tax
August 13, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930621C

On June 21, 1993, a Petition for Advisory Opinion was received from 1028 Faile Street
Corp., 321 Chestnut Ridge Road, Mt. Kisco, New York 10549.
The issue raised by Petitioner, 1028 Faile Street Corp., a corporation dissolved by
proclamation in 1981, is whether it is subject to tax under Article 9-A of the Tax Law.
Petitioner was incorporated on March 8, 1977 and was dissolved by proclamation in
September 1981. The corporation consisted of a two family home that never showed any profit and
was closed down not long after incorporating and has remained closed since. No franchise tax
returns have ever been filed and no tax has ever been paid for this corporation. The owner of the
corporation and the property has been deceased since 1981.
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.
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 of the Tax Law. 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 of the Tax Law.
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. Bernice E. Bouton,
Adv Op, Comm T & F, October 13, 1992, TSB-A-92(14)C; 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-(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 ended February 28,1978 through September 30, 1981 during
which Petitioner was incorporated, Petitioner is subject to the franchise tax imposed by Article 9-A
of the Tax Law, pursuant to section 209.1 of the Tax Law.
TP-9 (9/88)

-2
TSB-A-93 (16) C
Corporation Tax
August 13, 1993

After its dissolution by proclamation in September 1981, if Petitioner 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, Petitioner is not subject to tax under Article 9-A of the Tax Law
after it was dissolved by proclamation.

DATED: August 13, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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