Do a foreign commodity trader's New York activities -- soliciting orders plus maintaining coffee-bean inventory in a New York public warehouse for sale to customers -- subject it to Article 9-A tax, or are they protected as minimal property/Public Law 86-272?

Plain-English summary

International Coffee Corporation is a Louisiana S corporation that trades green coffee beans. In New York it solicits orders (approved in New Orleans) and trades coffee futures through independent brokers; occasionally, when it takes delivery on a futures contract, it must accept the beans where they sit -- sometimes a New York public warehouse -- and it holds them there until sold back through the exchange or sold to its customers. It asked whether its New York activities for its tax year ending September 30, 1993 subjected it to Article 9-A tax.

Yes. Section 209.1 taxes a foreign corporation for owning or leasing property in New York, and 20 NYCRR 1-3.2(d) says property held, stored or warehoused in New York creates taxable status even if the corporation is not otherwise doing business. There are narrow exceptions for minimal property: Public Law 86-272 (mere solicitation), the Advertising Agencies / Aluminum Company of Canada line (goods sent to a New York processor and returned), and Cargill (a financial-instrument trader that occasionally took delivery of precious metals and sold them back through the exchange -- minimal). But International Coffee's activities exceed Cargill: its primary business is buying and selling the physical commodity, and it holds coffee-bean inventory in New York for sale to its customers (not just selling back through the exchange). That is more than minimal property and beyond PL 86-272, so it is subject to Article 9-A tax.

What this means for you

Holding inventory for sale in New York creates nexus

Owning property -- especially inventory held for sale to customers -- stored or warehoused in New York is enough to make a foreign corporation taxable under Article 9-A, even without other in-state business.

The "minimal property" exceptions are narrow

Occasionally taking title to exchange-traded commodities and selling them back through the exchange (as in Cargill) can be minimal. Holding the physical goods to sell to your own customers is not.

Public Law 86-272 only protects solicitation

PL 86-272 shields mere solicitation of orders for tangible goods. Once you maintain saleable inventory in the state, the protection is lost.

Common questions

Q: Does occasionally taking delivery of a commodity in New York create tax?
A: It can be minimal if, like Cargill, you sell it back through the exchange. Holding it to sell to customers crosses the line.

Q: Does soliciting orders alone make me taxable?
A: No -- that is protected by Public Law 86-272. The inventory held for sale is what created nexus here.

Q: Does being an S corporation change the answer?
A: No. The question is whether the corporation has taxable nexus under Article 9-A; owning saleable New York inventory provides it.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax for doing business, employing capital, or owning/leasing property in New York)
- 20 NYCRR 1-3.2(b) (doing business); 1-3.2(c) (employing capital, including maintaining inventories); 1-3.2(d) (owning/leasing or warehousing property creates taxable status)
- 20 NYCRR 1-3.4(b)(9) (Public Law 86-272 protection for interstate solicitation)
- Cargill Financial Services Corporation, TSB-A-90(20)C (minimal property -- exchange-traded commodities sold back through the exchange)
- American Association of Advertising Agencies, TSB-H-80(32)C; Aluminum Company of Canada, TSB-A-83(9)C (goods sent to a New York processor and returned -- minimal)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a95_19c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (19) C
Corporation Tax
November 13, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C950626A

On June 26, 1995, a Petition for Advisory Opinion was received from International Coffee
Corporation, 300 Magazine Street, New Orleans, Louisiana 70130.
The issue raised by Petitioner, International Coffee Corporation, is whether Petitioner's
activities within New York State are sufficient to subject it to tax under Article 9-A of the Tax Law
for taxable year ending September 30, 1993.
Petitioner is an S corporation incorporated in Louisiana, where Petitioner's only office is
located in New Orleans. Petitioner does not maintain an office in New York State, nor does it have
any employees working or residing in New York State.
Petitioner's business activities concern commodities trading, specifically, green coffee beans.
Petitioner's activities within New York are limited to the solicitation of orders by its representatives.
All orders are sent outside New York for approval or rejection in New Orleans. Orders accepted by
Petitioner represent the sale of green coffee beans. Coffee is not grown within the United States and,
consequently, all coffee originates from points outside the country. These shipments are sold as raw
coffee beans with no value added by Petitioner from the point of origin.
Petitioner does not own or lease any real property within New York State. Petitioner states
that, generally, it does not maintain a physical inventory or other personal property in New York
State.
While Petitioner's primary business is the purchase and sale of the physical commodity,
Petitioner states that it also trades in commodity futures through independent brokers on the floor
of the commodities exchange. Generally, these futures contracts are closed out with an offsetting
contract. However, occasionally when market conditions make delivery prudent, Petitioner will take
title to the commodity. When the commodity is tendered by the exchange, Petitioner cannot choose
where to take delivery, but instead, must accept the goods where they are located. In such cases, the
physical commodity could then be held by Petitioner in a public warehouse located in New York.
The length of time the physical commodity is held, is dependent on market conditions.
Petitioner states that the inventory balance for taxable year ending September 30, 1993 was
$26,119 in New York State and $2,598,747 everywhere resulting in 1.0051% of its inventory in New
York State. Also for taxable year ending September 30, 1993, Petitioner states that the total bag
equivalent of futures contracts bought is 217,750 and the bag equivalent of futures contracts bought
with delivery within New York State is 1,749, resulting in .8032% delivery within New York State.
TP-9 (9/88)

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November 13, 1995

Petitioner states that where delivery is taken when closing out a futures contract, the bags of coffee
beans are held until they are either sold back through the exchange or sold to customers.
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 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.
Section 1-3.2(b) of the Business Corporation Franchise Tax Regulations ("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 people 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 immaterial
whether its activities actually result in a profit or 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.
Section 1-3.2(c) of the Article 9-A Regulations provides that:
[t]he term employing capital is used in a comprehensive sense. Any of a large variety
of uses, which may overlap other activities, may give rise to taxable status. In
general, the use of assets in maintaining or aiding the corporate enterprise or activity
in New York State will make the corporation subject to tax. Employing capital
includes such activities as:
(1) maintaining stockpiles of raw materials or inventories; or
(2) owning materials and equipment assembled for construction.

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TSB-A-95 (19) C
Corporation Tax
November 13, 1995

Section 1-3.2(d) of the Article 9-A Regulations provides that:
[t]he owning or leasing of real or personal property within New York State
constitutes an activity which subjects a foreign corporation to tax. Property owned
by or held for the taxpayer in New York State, whether or not used in the taxpayer's
business, is sufficient to make the corporation subject to tax. Property held, stored or
warehoused in New York State creates taxable status. Property held as a nominee for
the benefit of others creates taxable status ....
Pursuant to section 1-3.2(d) of the Article 9-A Regulations, the ownership of real or tangible
personal property located in New York State is sufficient to make a corporation subject to the
franchise tax imposed under Article 9-A of the Tax Law even though the corporation is not deemed
to be doing business in New York State.
However, there are situations where the ownership of property in New York is not sufficient
in magnitude to subject a foreign corporation to tax. For example, section 1-3.4(b)(9) of the Article
9-A Regulations provides that a foreign corporation whose income is derived from interstate
commerce is not subject to tax if its New York activities do not exceed those prescribed by Public
Law 86-272, even where the corporation has samples or automobiles in New York, used exclusively
for solicitation.
Similarly, it has been held that a foreign corporation which ships raw materials or partially
finished goods to an unrelated contractor in this state, by whom the goods are processed or finished,
is not taxable solely because of the ownership of such property in New York, assuming that the
contractor returns the goods to the foreign corporation or ships them to another contractor outside
the state. American Association of Advertising Agencies, Inc., Adv Op St Tax Comm, November
7, 1980, TSB-H-80(32)C.
Also, a foreign corporation manufacturing aluminum, is not subject to tax because it only has
minimal ownership of property in New York when it ships its by-product, dross, to a processor in
New York who reclaims some aluminum from the dross and then ships the reclaimed metal back to
the foreign corporation and disposes of the waste product. Aluminum Company of Canada, Ltd.,
Adv Op St Tax Comm, August 12, 1983, TSB-A-83(9)C.
In Cargill Financial Services Corporation, Adv Op Comm T & F, September 26,
1990, TSB-A-90(20)C, the petitioner was engaged in the business of trading in stocks, bonds,
currencies, commodities and other financial instruments on various exchanges in New York City.
The transactions were executed by independent brokers. The opinion held that such activity
by itself was not sufficient to deem the petitioner to be doing business in New York State.
The petitioner proposed to also trade in commodity futures contracts in precious metals on the
floor of the Commodity Exchange, Inc. in New York City. Because of market conditions, it may be
prudent for the petitioner to occasionally take title to the precious metal for a short period of time.
The physical commodities would be held in warehouses or vaults in New York City. The opinion
also held that when the petitioner occasionally takes title to the precious metal for short periods of
time, such ownership of property in New York State is minimal, and if the petitioner is not
otherwise doing business in New York, the petitioner would not be taxable under

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Corporation Tax
November 13, 1995

Article 9-A of the Tax Law. However, the actual determination of whether the petitioner was subject
to tax was a factual matter dependent on the totality of the corporation's circumstances and not
susceptible of determination in an Advisory Opinion.
Herein, Petitioner is in the business of buying and selling coffee beans. As part of its
business, Petitioner also trades in coffee bean futures through independent brokers on the floor of
the commodities exchange. When trading commodity futures, occasionally the market conditions
make it prudent to take delivery, and Petitioner takes title to the physical commodity, coffee beans.
When the commodity is tendered by the exchange, Petitioner must take delivery wherever the goods
are located. Therefore, Petitioner's inventory in New York includes the occasional taking of title to
coffee beans through the commodities exchange which Petitioner holds until it either sells the beans
back through the exchange or sells the beans to its customers. In addition, Petitioner occasionally
has other inventory located in New York State that is held for sale to its customers.
Petitioner's activities in New York State exceed those in Cargill, supra. Where Cargill was
engaged in the business of trading financial instruments, Petitioner's primary business is the purchase
and sale of coffee beans. Also, where Cargill occasionally took delivery, for short periods of time,
of precious metals when closing out futures contracts, such precious metals were sold back through
the exchange. Herein, when Petitioner takes delivery of coffee beans in New York State when
closing out futures contracts, such coffee beans are sometimes sold to Petitioner's customers rather
than sold back through the exchange. In addition, Petitioner occasionally acquires inventory held
in New York State that is sold to its customers.
Petitioner's activities in New York State exceed those prescribed by Public Law 86-272.
Therefore, Petitioner is not exempt from taxation pursuant to section 1-3.4(b)(9) of the Article 9-A
Regulations. Because Petitioner does maintain inventory in New York State for sale to customers,
albeit not continuously, Petitioner's activities in New York State exceeds the minimal ownership of
property as contemplated in American Association of Advertising Agencies, supra, Aluminum
Company of Canada, supra, and Cargill, supra.

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TSB-A-95 (19) C
Corporation Tax
November 13, 1995

Accordingly, Petitioner is subject to tax under Article 9-A of the Tax Law, pursuant to
section 209.1 of the Tax Law and section 1-3.2(d) of the Article 9-A Regulations, for taxable year
ending September 30, 1993.

DATED: November 13, 1995

NOTE:

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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