NY TSB-A-94(6)C Corporation Tax 1994-04-07

Are storage fees paid at a public warehouse, charged per carton per day with no formal lease, gross rents that must be capitalized at eight times and included in the Article 9-A property factor?

Short answer: Yes. Corporation A stores inventory in public warehouses, paying on a per-carton, per-day basis with no formal lease. Under 20 NYCRR 4-3.2, real property rented to a taxpayer is included in the property factor at eight times the gross rents, and gross rents means the actual sums of money payable for the rental of property under the taxpayer's control. Storage or rental fees at a public warehouse are such gross rents -- the absence of a formal lease and the variable per-carton basis do not matter. So Corporation A must include in its property factor, both within and without New York, eight times the actual storage or rental fees paid for warehouse space.

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

Richard Berman, CPA asked how public-warehouse storage fees are treated for the Article 9-A property factor. His client, Corporation A, holds inventory in public warehouses in several states (including New York), paying per carton, per day -- the charge varies week to week with the number of cartons stored, and there is no conventional lease. The questions: are these payments rent for real estate; are they true rent without a formal lease; does the Department distinguish a whole-warehouse annual lease from per-carton storage fees; must the fees be multiplied by eight and added to rented real property; and does this distort the property factor?

The storage fees are gross rents and go into the property factor at eight times their amount. Section 210.3(a)(1) computes the property factor from the taxpayer's real and tangible personal property (owned or rented) in New York over everywhere. Under 20 NYCRR 4-3.2, real property rented to the taxpayer is included in the property factor, valued at eight times the gross rents payable. "Gross rents" means the actual sums of money payable for the rental of property under the control of the taxpayer. Storage or rental fees at a public warehouse are within that meaning -- it does not matter that there is no formal lease or that the charge is on a variable per-carton basis. So Corporation A must include, both within and without New York, eight times the actual storage/rental fees it pays for warehouse space.

What this means for you

Public-warehouse storage fees are rent for the property factor

Even without a lease, the per-carton or per-day fees you pay to store goods in a public warehouse are gross rents, captured in the property factor.

Capitalize rented real property at eight times gross rents

Rented real property enters the property factor at eight times the actual rents payable -- so multiply your warehouse storage fees by eight and add them to your rented-property value.

No formal lease, variable charges -- still rent

The form of the arrangement (per-carton, fluctuating, no signed lease) does not change the result. What counts is the actual money payable to use space under your control.

Common questions

Q: I pay a public warehouse per carton with no lease. Is that "rent" for the property factor?
A: Yes. Those storage fees are gross rents under 20 NYCRR 4-3.2, regardless of the lack of a lease or the per-carton basis.

Q: How do I value that in the property factor?
A: At eight times the actual storage/rental fees payable, included both within and without New York.

Q: Does a per-carton arrangement get treated differently from a full-warehouse annual lease?
A: No. Both are gross rents for rented real property; the actual amounts payable are capitalized at eight times.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.3(a)(1) (property factor of the business allocation percentage)
- 20 NYCRR 4-3.2 (rented real property valued at eight times gross rents; definition of gross rents)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (6) C
Corporation Tax
April 7, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C940121B

On January 21, 1994, a Petition for Advisory Opinion was received from Richard Berman,
CPA, Berman and Berman, One Penn Plaza #1605, New York New York 10119.
The issue raised by Petitioner, Richard Berman, CPA, involves the treatment of warehouse
storage fees at public warehouses for purposes of the property factor of the business allocation
percentage under Article 9-A of the Tax Law. Specifically, Petitioner asks:
1. Does the Department of Taxation and Finance consider the payment of fees to a
public warehouse to be fees for the use of rental real estate?
2. Does the Department of Taxation and Finance consider storage fees or rental fees
at public warehouses to be true rent even if a formal lease agreement does not exist?
3. Does the Department of Taxation and Finance distinguish between an entire
warehouse being rented on a yearly basis under a binding lease and storage fees paid
at a public warehouse on a per carton - per day basis?
4. Does the Department of Taxation and Finance require that the total storage fees
at public warehouses be multiplied by eight and added to the value of real property
rented?
5. Would the potential scenario of both inventory and its corresponding storage fees
at public warehouses distort the entire property factor?
Corporation A holds inventory in various jurisdictions including New York State in public
warehouses. The rent is not paid as a uniform monthly, weekly or annual rental charge as in the case
with a conventional office rental lease.
Corporation A pays its warehouse rent on a per day - per carton basis. The rent varies from
week to week and month to month on the amount of cartons stored.
Section 4-3.2 of the Business Corporation Franchise Tax Regulations (herein after
"Regulations") provides that in computing the property factor of the business allocation percentage,
real property rented to the taxpayer must be included.

TP-9 (9/88)

-2
TSB-A-94 (6) C
Corporation Tax
April 7, 1994

Section 4-3.2 of the Regulations also provides that the term "gross rents" means the actual
sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit
for the use or possession of the property and includes, among other things, any amount payable for
the use or possession of real property, or any part thereof, whether designated as a fixed sum of
money or as a percentage of sales, profits or otherwise. The term "gross rents" does not include
amounts payable for storage, provided such amounts are payable for space not designated and not
under the control of the taxpayer.
Therefore, real property rented to the taxpayer is included in the property factor of the
business allocation percentage. This would include space rented at a public warehouse. Storage fees
or rental fees at a public warehouse are included within the meaning of gross rents under section 4
3.2 of the Regulations if such storage or rental fees are payable for designated space that is under the
control of the taxpayer. If the storage fees or rental fees at a public warehouse are payable for space
not designated and not under the control of the taxpayer, such storage fees or rental fees are not
included in gross rents under section 4-3.2 of the Regulations.
Where the storage fees or rental fees at a public warehouse are payable for designated space
that is under the control of the taxpayer, gross rents includes the actual sum of money payable for
the use or possession of real property. It is immaterial whether there is a formal lease agreement or
whether the rent is paid as a uniform charge or based on a per day - per carton charge. Section
210.3(a)(1) of the Tax Law and section 4-3.2 of the Regulations provides that for purposes of
determining the value of the taxpayer's real and tangible personal property, the value of rented
property shall be the product of eight times the gross rents payable for the rental of such property
during the taxable year.
Accordingly, Corporation A must include in its property factor, both within and without New
York State, eight times the gross rents (the actual amounts payable as storage fees or rental fees) for
the use of public warehouse space that is designated for Corporation A's use and under Corporation
A's control.
Section 4-3.2(d) of the Regulations provides that in exceptional cases, the use of the general
method described herein may result in inaccurate valuations of rented real property and in such cases,
any other method which properly reflects the value may be adopted by the Commissioner of Taxation
and Finance either on its own motion or at the request of the taxpayer. Another method of valuation
may not be used unless approved by the Commissioner. However, it is not within the scope

-3
TSB-A-94 (6) C
Corporation Tax
April 7, 1994

of an Advisory Opinion to determine whether a discretionary adjustment under this section would
be granted. An Advisory Opinion merely sets forth the applicability of pertinent statutory and
regulatory provisions to "a specified set of facts" §l71.Twenty-fourth; 20 NYCRR 2376.1(a).

DATED: April 7, 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.