Does a foreign manufacturer's in-state technical advice exceed the protection of Public Law 86-272 and subject it to Article 9-A?

Plain-English summary

Construction Forms, Inc., a Wisconsin manufacturer of concrete-pumping system components, sells into New York but has no office, factory, employees, or resident agents here. Its Eastern Regional Manager -- a salaried customer-service manager who does not solicit orders -- visits New York about 6 to 10 times a year to keep up with customers' needs, act as an intermediary with headquarters, and give limited general advice on product use and safety. The company asked whether it is doing business in New York and, if its activities are solicitation, whether they go beyond mere solicitation under the Article 9-A regulations.

The answer turns on the timing of the technical advice, under Public Law 86-272. A foreign corporation whose New York activities are limited to soliciting orders for tangible personal property (orders sent out of state for approval and filled from out of state) and activities ancillary to that solicitation is exempt from Article 9-A (P.L. 86-272; 20 NYCRR 1-3.2(a)(3) and 1-3.4(b)(9)).

The opinion focuses on the manager's technical advice:
- Advice about the products' general application and safe use given before the products are delivered is ancillary to solicitation -- so the company would be exempt.
- The same advice given after delivery goes beyond solicitation (a non-ancillary activity under 20 NYCRR 1-3.4(b)(9)(v)(f)) -- so the company would not be exempt.

Finally, whether a company's actual activities stay within "mere solicitation" is a question of fact that an advisory opinion cannot conclusively resolve; it only states how the rules apply to the stated facts.

What this means for you

P.L. 86-272 protects solicitation and ancillary activities

A foreign seller of goods whose only New York activities are soliciting orders (filled from out of state) and ancillary acts is not subject to Article 9-A.

Technical advice is judged by when it is given

Pre-delivery advice on a product's application and safe use is ancillary and protected; post-delivery advice is a separate, non-ancillary service that breaks the protection.

The ultimate question is factual

Whether your in-state activities truly stay within mere solicitation depends on the facts and is decided on audit, not finally in an advisory opinion.

Common questions

Q: We only sell goods into New York and have no office here -- are we taxable?
A: Generally not, if your New York activities are limited to soliciting orders (filled from out of state) and ancillary activities under Public Law 86-272.

Q: Does giving customers technical advice cost us the protection?
A: It depends on timing. Pre-delivery advice on product use and safety is ancillary and protected; the same advice after delivery goes beyond solicitation and removes the protection.

Q: Is this a bright-line rule?
A: No. Whether your activities stay within mere solicitation is a question of fact, applied to your specific circumstances.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax on every foreign corporation doing business in New York)
- 20 NYCRR 1-3.2(b) (meaning of doing business)
- 20 NYCRR 1-3.2(a)(3) and 1-3.4(b)(9) (Public Law 86-272 exemption)
- 20 NYCRR 1-3.4(b)(9)(v)(f) (technical advice as ancillary or non-ancillary activity)
- 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_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a93_8c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (8) C
Corporation Tax
February 26, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C920814B

On August 14, 1992, a Petition for Advisory Opinion was received from Construction Forms,
Inc., W60 N151 Cardinal Avenue, Cedarburg, Wisconsin 53012.
The issues raised by Petitioner, Construction Forms, Inc., are (1) whether it is doing business
in New York State pursuant to section 1-3.2(b) of the Business Corporation Franchise Tax
Regulations (hereinafter "Article 9-A Regulations") and (2) whether its activities constitute
solicitation and if so, go beyond mere solicitation as defined in section 1-3.4(b)(9)(v) of the Article
9-A Regulations.
Petitioner manufactures concrete pumping system components and accessories for the
concrete pumping industry. Petitioner's products are used throughout the United States and the
world by contractors and others to pump concrete for the construction of office buildings, dams,
bridges, etc. Petitioner is a major supplier in the industry. Petitioner estimates that it controls 50%
of the domestic market. Petitioner's world wide annual sales are approximately $10,000,000.
Petitioner's sales to New York customers totaled $467,000 in fiscal year 1989-1990.
Petitioner does not have any offices, factories or distribution centers in New York. Petitioner
does not have any traveling sales personnel or other employees or agents who reside in New York
or even visit New York to solicit sales for its product.
Petitioner's products are marketed directly from its home offices in Cedarburg, Wisconsin.
Advertising is primarily limited to trade magazines. There are some promotional materials used by
Petitioner. However, these are mailed from Petitioner's home office. A customer can order
Petitioner's product directly from the factory or through a limited number of distributors who are
authorized to resell Petitioner's products or through one of Petitioner's branch warehouses.
Petitioner's closest facility to New York is a branch warehouse located in Piscataway, New Jersey.
Petitioner collects New Jersey sales tax where applicable. A distributor authorized to resell
Petitioner's products takes title to the products, is billed by Petitioner, pays Petitioner and than resells
the products to the ultimate user. Distributors are often also contractors, using Petitioner's products
for their own projects. Approximately one-half of Petitioner's sales in New York are to distributors.
Petitioner uses common carriers to ship all orders that are not picked up directly by the customer at
the New Jersey warehouse. Petitioner never delivers its products with its own vehicles.
Petitioner employs three regional managers to oversee the U.S. market. Mr. John Ferraris
is Petitioner's Eastern Regional Manager. He is responsible for overseeing product distribution and
technical services provided to Petitioner's customers in 15 east coast states, including New York.
TP-9 (9/88)

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He does not have an engineering degree or other formal technical training. He does not call on
customers to solicit or otherwise obtain orders. In addition, Mr. Ferraris does not call on Petitioner's
customers to distribute catalogues or other advertising material. Rather, Mr. Ferraris is a customer
service manager and his primary responsibility is to ascertain and arrange to service the needs of the
customers, and to act as intermediary between the customer and Petitioner's headquarters in
Cedarburg.
The regional manager acts as the eyes and ears of Petitioner. He keeps abreast of various
ongoing and proposed projects which may have a use for Petitioner's concrete pumping equipment.
He keeps the corporate offices informed so it can make the appropriate marketing effort. The
regional manager also keeps in touch with major customers with ongoing projects to keep abreast
of their needs and to refer them to Petitioner's engineering department in Cedarburg, Wisconsin for
technical advice. The regional manager is responsible for keeping good customer relations with
Petitioner's large customers by entertaining and listening to their concerns.
Petitioner's regional managers do provide some limited and basic advice regarding general
and routine applications for Petitioner's products. This includes basic advice regarding the safe use
of Petitioner's products. However, this is limited and basic advice as to what Petitioner's products
are available for general and routine applications. This advice is more along the lines of an
assessment of a need and best utilization of Petitioner's products. The primary source of advice for
technical applications is from Petitioner's engineering department. For any large or complex job
which requires non-routine application of Petitioner's concrete pumping equipment, the regional
manager would refer any questions to Petitioner's engineering department. In addition, Petitioner's
engineering department holds an annual service school at its home offices on the safety and
application of its products.
Mr. Ferraris is paid a straight salary. He is not under any type of commission arrangement.
Petitioner's customers are not charged for the services provided by its regional managers. Mr.
Ferraris resides in Pennsylvania and services 15 east coast states. He makes approximately 6 to 10
personal visits to New York per year, each trip lasting one to two days. Mr. Ferraris and other
Petitioner personnel do not solicit current or prospective customers 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
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 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

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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;
(ii) the purposes for which the corporation was organized;
(iii) the location of its offices and other places of business;
(iv) the employment in New York State of agents, officers and employees; and
(v) the location of the actual seat of management or control of the corporation.
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.
Also, 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 when
it sent employees into New York to install automated management systems for movie theatres by
connecting the hardware, loading the software, testing 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.
In addition, a foreign corporation was held to be doing business in New York when its
employees provided clerical and technical services in New York under the supervision of the foreign
corporation's clients even though the foreign corporation did not employ capital or own or lease
property in New York and did not maintain an office in New York. Quantum Resources
Corporation, Adv Op Comm T & F, January 18, 1991, TSB-A-91(2)C.
Herein, 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 east
coast regional manager'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 State pursuant to section 209.1 of the Tax Law,
such corporation is subject to tax under Article 9-A of the Tax Law unless specifically exempt.

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Section 1-3.2(a)(3) of the Article 9-A Regulations provides that:
Pursuant to Public Law 86-272 (15 U.S.C.A. sections 381 - 384), a foreign
corporation is not subject to the tax imposed by article 9-A of the Tax Law if its
activities are limited to those described in that law. That is, the solicitation of orders
by the corporation's employees, representatives or independent contractors for sales
of tangible personal property, which orders are sent outside New York State for
approval or rejection, and, which if approved, are filled by shipment or delivery from
a point outside New York State. For a description of corporations which are exempt
from taxation under Article 9-A of the Tax Law pursuant to the provisions of Public
Law 86-272, see section 1-3.4(b)(9) of this Subpart.
Section 1-3.4(b)(9) of the Article 9-A regulations as amended January 25, 1993, 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 of the Tax Law 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 for a point outside New
York State; and
(b) the solicitation of order for sales of tangible personal
property 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.
...
(iv) In order to be exempt by virtue of Public Law 86-272, the activities in
New York State of employees or representatives must be limited to the solicitation
of orders. The solicitation of orders includes offering tangible personal property for
sale or pursuing offers for the purchase of tangible personal property and those
ancillary activities, other than maintaining an office, that serve no independent
business function apart from their connection to the solicitation of orders. Examples
of activities performed by such employees or representatives in New York State that
are entirely ancillary to the solicitation of orders include:

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(a) the use of free samples and other promotional materials in connection
with the solicitation of orders;
(b)

passing product inquiries and complaints to the corporation's home

office;
(c) using autos furnished by the corporation;
(d) advising customers on the display of the corporation's products and
furnishing and setting up display racks;
(e)

recruitment, training and evaluation of sales representatives;

(f)

use of hotels and homes for sales-related meetings;

(g)

intervention in credit disputes;

(h) use of space at the salesperson's home solely for the salesperson's
convenience. (However, see subparagraph (vi) of this paragraph as to loss of
immunity for maintaining an office.)
(v) Activities in New York State beyond the solicitation of orders will subject a corporation
to tax in New York State unless such activities are de minimis. Activities will not be considered de
minimis if such activities establish a nontrivial additional connection with New York State.
Solicitation activities do not include those activities that the corporation would have reason to
engage in apart from the solicitation of orders but chooses to allocate to its New York State sales
force. In determining whether a corporation's activities exceed the solicitation of orders, all of the
corporation's activities in New York State will be considered. Examples of activities which go
beyond the solicitation of orders 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) replacing the corporation's stale or damaged products
(f) giving technical advice on the use of the corporation's products after the
products have been delivered to the customer.

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(vi) Maintaining an office, shop, warehouse or stock of goods in New York
State will make a corporation taxable. However, a corporation will not be made
taxable solely by maintaining a supply of goods in New York State if such goods are
used only as free samples in connection with the solicitation of orders. A corporation
will be considered to be maintaining an office in New York State if the space is held
out to the public as an office or place of business of the taxpayer. For example, a
salesperson uses his or her house for business. A telephone, listed in the
corporation's name, is maintained at the salesperson's house. The salesperson makes
telephone contacts from the house or receives calls and orders at the house. The
residence will be treated as an office of the corporation, and the corporation will be
taxable ....
If Petitioner does not solicit orders for its products in New York State, the provisions of
Public Law 86-272 are not applicable to its activities in New York State and thus Petitioner is not
exempt from tax under Article 9-A pursuant to section 1-3.4(b)(9) of the Article 9-A Regulations.
If it is held that Petitioner's activities in New York State do constitute the solicitation of
orders pursuant to Public Law 86-272, and the eastern regional manager gives advice on the general
application of Petitioner's products and on the safe use of such products, which advice constitutes
"technical advice" as contemplated in section 1-3.4(b)(9)(v)(f) of the Article 9-A Regulations, where
such advice about Petitioner's products is given before the products are delivered, such advice is
ancillary to the solicitation of orders and Petitioner would be exempt from tax under Article 9-A
pursuant to section 1-3.2(a)(3) by virtue of Public Law 86-272. However, if the advice is given after
the products are delivered, such activity, pursuant to section 1-3.4(b)(9)(v)(f) of the Article 9-A
Regulations, goes beyond the solicitation of orders, and Petitioner will not be exempt from tax under
Article 9-A pursuant to section 1-3.2(a)(3) of the Article 9-A Regulations.

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The determination of whether Petitioner's activities constitute the solicitation of orders is a
question of fact 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 §l71.Twenty-fourth, 20 NYCRR 2376.1(a).

DATED: February 26, 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.