NY TSB-A-94(9)C Corporation Tax 1994-05-26

When goods originate in New Jersey, are sent to New York contractors for processing, and are returned to New Jersey, where are they located for the Article 9-A property factor?

Short answer: They are located where they physically sit, with in-transit goods deemed at their destination. McNaughton's piece goods are cut in New Jersey, sent to sewing contractors in and out of New York, then returned to a New Jersey warehouse (title staying with the company throughout). Under 20 NYCRR 4-3.1(c), tangible personal property is in New York while physically located here, and property in transit between the taxpayer's locations is deemed to be at its destination. So the cut goods are in transit (deemed at the contractor's location) while moving to a New York contractor and remain located there while being sewn; the finished goods are deemed at the New Jersey warehouse while in transit back. Whether the goods are finished, partly finished, or untouched, the purpose, and how long they stay are all immaterial to situs.

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

McNaughton Affiliates Inc. makes ladies' sportswear. Its piece goods are stored and cut in New Jersey, then sent to sewing contractors both in and out of New York, after which the finished goods come back to a New Jersey warehouse and ship to customers from there. McNaughton keeps title throughout. It asked: when goods originate in New Jersey, go to New York for processing, and return to New Jersey, are they "in transit" inventory -- and where are they located for the Article 9-A property factor?

The property factor counts property where it physically sits, and treats in-transit property as at its destination. Section 210.3(a)(1) measures the property factor by New York real and tangible personal property over everywhere. Under 20 NYCRR 4-3.1(c):

Tangible personal property is within New York while physically located here (even in a bonded warehouse, or held by an agent/consignee/factor).
Property in transit between the taxpayer's own locations is considered to be at its destination.

Applying that: the cut goods are "in transit" while being carried to a contractor and are deemed at the contractor's location; they remain located at the contractor (in New York, if it is a New York contractor) while being sewn. The finished goods are "in transit" on the way back and are deemed at the New Jersey warehouse. The Department stressed that the condition of the goods (finished, partly finished, or not worked on), the purpose for which they are there, and the length of time they stay are all immaterial to situs.

What this means for you

"In transit" means deemed at the destination

Goods moving between your own locations are sourced to where they are heading, not where they came from -- so inbound goods bound for a New York contractor are treated as New York property on arrival.

Goods sit where the work is done

While your goods are physically at a New York processor, they are New York property for the factor; while at an out-of-state location, they are not. Title staying with you throughout does not change the physical-situs analysis.

Condition, purpose, and duration don't matter

The situs rule applies the same whether the goods are raw, partly finished, or complete, regardless of why they are there or how long they stay.

Common questions

Q: My goods are made in New Jersey but processed by a New York contractor. Are they New York property?
A: While physically at the New York contractor, yes -- they are located in New York for the property factor. In transit toward New York, they are deemed at that New York destination.

Q: What about the finished goods heading back out of state?
A: While in transit back to your New Jersey warehouse, they are deemed to be at the New Jersey warehouse.

Q: Does it matter that I keep title the whole time, or that the goods are only there briefly?
A: No. Title, the goods' condition, the purpose, and the length of stay are all immaterial to where the property is sited.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 210.3(a)(1) (property factor of the business allocation percentage)
- 20 NYCRR 4-3.1(c) (situs of tangible personal property; property in transit is at its destination)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (9) C
Corporation Tax
May 26, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION ANDFINANCE
ADVISORY OPINION

PETITION NO. C940224C

On February 24, 1994, a Petition for Advisory Opinion was received from McNaughton
Affiliates Inc., 463 7th Avenue, New York, New York 10018.
The issue raised by Petitioner, McNaughton Affiliates Inc., is whether goods originating in
New Jersey, sent to New York for processing and then returned to New Jersey are considered "in
transit" inventory.
Petitioner is a manufacturer of ladies sportswear. Petitioner's piece goods are stored in New
Jersey and are cut in New Jersey. The cut goods are sent for sewing to various contractors, both
within and without New York State. After the work is completed by the contractors the finished
goods are returned to a New Jersey warehouse. Title to the goods remains with Petitioner
throughout. The finished goods are shipped by Petitioner to its customers from the New Jersey
warehouse.
Section 210.3(a)(1) of the Tax Law provides that the property factor of the business
allocation percentage is computed by ascertaining the percentage which the average value of the
taxpayer's real and tangible personal property, whether owned or rented to it, within the State during
the period covered by its report bears to the average value of all the taxpayer's real and tangible
personal property, whether owned or rented to it, wherever situated during such period.
With respect to the situs of tangible personal property for purposes of the property factor,
section 4-3.1(c) of the Business Corporation Franchise Tax Regulations states:
Tangible personal property of the taxpayer is considered to be within New York
State if and so long as it is physically situated or located here, even though it may
be stored in a bonded warehouse. Property of the taxpayer held in New York State
by an agent, consignee or factor is considered to be situated or located within New
York State. Property in transit between locations of the taxpayer is considered to
be at its destination for purposes of the property factor. Property in transit between
a buyer and a seller which is included by a taxpayer in the denominator of its
property factor in accordance with its regular accounting practices is included in the
numerator of its property factor if its destination is New York State. (emphasis
added)
The common meaning of the words "in transit" is "on the way or passage; while passing from
one person or place to another. In the course of transportation." (Black's Law Dictionary 823 [6th
ed 1990]).
Accordingly, property is "in transit" for purposes of section 4-3.1 of the Regulations when
it is being transported from one location to another and during such time is considered to be at its
destination. Herein, Petitioner's cut goods are "in transit" when they are being transported from
TP-9 (9/88)

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TSB-A-94 (9) C
Corporation Tax
May 26, 1994

New Jersey to the various contractors for completion. During such time, the cut goods are
considered to be at the location of the contractor for purposes of the property factor. The goods
continue to be located at the contractor's location until they are returned to New Jersey as finished
goods. The finished goods are "in transit" when they are being transported from the contractor's
location to the New Jersey warehouse. During such time, the finished goods are considered to be
at the New Jersey warehouse. When determining whether tangible personal property has a situs in
New York State, the condition of the property, whether finished, partially finished or not worked on
at all, the purpose for which it is at its location, and the length of time it is at that location is
immaterial.

DATED: May 26, 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.