Does a voluntarily dissolved corporation that, by oversight, still held record title to real property but was completely inactive owe Article 9-A franchise tax for the years after dissolution?

Plain-English summary

Holver Realty Corporation was a New York family corporation that owned several parcels of (mostly vacant) real estate. After a shareholder's death it became inactive, and the sole remaining shareholder voluntarily dissolved it -- a Certificate of Dissolution was filed January 25, 1980, with the Tax Department's consent. The family assumed all the parcels had been distributed out at dissolution. But a deed transferring one property (executed at dissolution and stating it was made in connection with the dissolution) was, by oversight, never recorded -- and it later turned out record title to four parcels still stood in Holver's name. Since 1980 the corporation conducted no business at all.

The question: does Holver owe Article 9-A franchise tax for the years from 1980 onward because record title sat in its name?

No. Section 209.3 subjects a dissolved corporation to Article 9-A only if it continues to conduct business; 20 NYCRR 1-2.4 confirms that a dissolved corporation limited to liquidating and winding up is not subject to the tax. A dissolved corporation that is merely a record-title holder of New York real property as nominee for the benefit of others, and is otherwise inactive, is not conducting business. So after its voluntary dissolution on January 25, 1980, Holver was just holding bare title for others and is not subject to Article 9-A for the post-dissolution years. (This follows Bouton, Highmount, Sommers, and Babson.)

What this means for you

A stray, unrecorded deed does not revive franchise-tax liability

Even though record title mistakenly remained in the dissolved corporation, its complete inactivity meant it was not doing business -- so no Article 9-A tax accrued after dissolution.

Voluntary dissolution plus inactivity ends the tax

Once a corporation is dissolved and does nothing but hold bare title as a nominee, it is winding up under section 209.3 / 20 NYCRR 1-2.4 and falls outside the franchise tax.

Compare the dissolution-by-proclamation cases

This mirrors the result in dissolved-by-proclamation nominee cases like W.R.H.R.E. Corp. (TSB-A-95(4)C): the corporation is taxable while it holds a live franchise, but not after dissolution if it merely holds title and is inactive.

Common questions

Q: Our dissolved corporation is still on the deed by mistake -- do we owe franchise tax for those years?
A: Generally no, if it has been completely inactive and merely holds record title as a nominee. That is winding up, not doing business.

Q: Does it matter that the dissolution was voluntary rather than by proclamation?
A: The key is inactivity after dissolution. Whether voluntary or by proclamation, a dissolved corporation merely holding bare title is not subject to Article 9-A.

Q: What if the corporation actually collected rent or did business after dissolving?
A: Then it would be continuing to conduct business under section 209.3 and could be subject to Article 9-A. Holver did nothing.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax for exercising a franchise, doing business, employing capital, owning property, or maintaining an office)
- Tax Law section 209.3 (a dissolved corporation that continues to conduct business is subject to Article 9-A)
- 20 NYCRR 2-3.1 (a domestic corporation is taxed up to the date it ceases to possess a franchise)
- 20 NYCRR 1-2.4 (a dissolved corporation limited to liquidating and winding up is not subject to Article 9-A)
- Bernice E. Bouton, TSB-A-92(14)C; Highmount Medical Building Inc., TSB-A-91(12)C (record-title nominee not doing business)
- Harold S. Sommers, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., TSB-A-88(19)C (same)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a94_16c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (16) C
Corporation Tax
December 20, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO C940811F

On August 11, 1994, a Petition for Advisory Opinion was received from Robert W.
Hawxhurst, individually and as surviving spouse and executor of estate of sole shareholder, officer
and director of Holver Realty Corp., 76 Scotts Landing Road, Southampton, New York 11968.
The issue raised by Petitioner, Robert W. Hawxhurst, individually and as surviving spouse
and executor of estate of sole shareholder, officer and director of Holver Realty Corp., is whether
Holver Realty Corporation is subject to New York State franchise tax under Article 9-A of the Tax
Law for taxable years 1980 to date.
Holver Realty Corporation was incorporated in New York State on January 9, 1947. It was
a family corporation whose sole shareholders in 1976 were Herbert Oliver and his sister, Isabelle
Hawxhurst, the surviving spouse of Petitioner. The corporation had acquired title to real estate and,
as of December 15, 1976, the date of death of Herbert Oliver, the corporation owned nine parcels.
All but one of these parcels were vacant.
With the death of Herbert Oliver, the corporation became less active, and the remaining sole
shareholder, president and secretary of the corporation, Isabelle Hawxhurst, decided to dissolve the
corporation. Mrs. Hawxhurst executed a Certificate of Dissolution on October 18, 1979 which was
filed with the Department of State on January 25, 1980. The Department of Taxation and Finance
Corporation Tax Bureau, consented to the dissolution on January 11, 1980.
Since its dissolution in 1980, the corporation has been completely inactive, conducting no
business in New York State. The sole shareholder, Isabelle Hawxhurst, and her family, assumed that
all of the corporation's assets had been distributed pursuant to the dissolution. Thus, although the
real estate tax bills were issued in the name of Holver, those who paid them, Mrs. Hawxhurst and
thereafter, her husband (Petitioner) and son-in-law, were under the impression that the County
records had simply not been updated to reflect the dissolution and transfer of title.
Upon the death of Isabelle Hawxhurst on September 27, 1984, her estate was probated; New
York State and Federal estate tax returns were filed; and the taxes due thereon were paid. Included
on those returns were four parcels of real state previously held in the name of Holver and assumed
to have been transferred to Isabelle Hawxhurst in connection with the dissolution.
That title to the four parcels still remained in the name of Holver was not discovered until
February 1994 when Petitioner's new attorneys ordered title searches in connection with estate
planning which was being undertaken for Petitioner. In connection with that review,
TP-9 (9/88)

-2­
TSB-A-94 (16) C
Corporation Tax
December 20, 1994

Petitioner's attorneys discovered a deed which appeared to have been simultaneously executed with
the certificate of dissolution. That deed, conveyed 132 Mill Pond Road from Holver Realty
Corporation to Isabelle Hawxhurst and contained the statement that it was executed in connection
with the dissolution of the transferor corporation. Due to an apparent oversight, this deed was never
recorded.
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 ("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 1-2.4 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. 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 Com T & F, March
15, 1990, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., Adv 0p Comm T & F, September
1, 1988, TSB-A-88(19)C.
Accordingly, after its voluntary dissolution on January 25, 1980 with the consent of the
Department of Taxation and Finance, Holver Realty Corporation 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, Holver Realty Corporation is not subject to tax under
Article 9-A after it was voluntarily dissolved.

DATED: December 20, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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