Does an inactive corporation that was dissolved by proclamation, but still holds bare legal title to New York real property as a nominee, owe Article 9-A franchise tax?

Plain-English summary

W.R.H.R.E. Corp. was created in January 1973 for one reason: a lender (Frank Laber) would only make a $46,000 improvement loan if legal title to a Port Washington restaurant-and-bar property was held by a corporation that could sign the mortgage. The Richardsons deeded the property to the new corporation, which executed the mortgage. The corporation never did business -- no bank account, no books, no shares issued, no meetings, no officers, no income, no tax returns. All mortgage payments, taxes, and later rents went through Mr. Richardson personally. The corporation was dissolved by proclamation of the Secretary of State on December 19, 1978, yet kept bare legal title until the property was sold in 1991.

The question: did this empty title-holding shell owe New York's Article 9-A franchise tax?

The Department split the timeline in two:

• While incorporated (Jan 16, 1973 -- Dec 19, 1978): Section 209.1 imposes the franchise tax for the mere privilege of exercising a corporate franchise -- doing business is not required. So the corporation was subject to Article 9-A for those years.
• After dissolution by proclamation (Dec 19, 1978 onward): Section 209.3 taxes a dissolved corporation only if it continues to conduct business. A dissolved corporation that is merely a record-title nominee holding property for others, and is otherwise inactive, is not conducting business. So the corporation owed no Article 9-A tax after dissolution.

What this means for you

A live corporate charter is enough to owe the tax

While a corporation possesses its franchise, Article 9-A applies even if it never trades, banks, or earns a dime. The privilege of being incorporated is itself the taxable event under section 209.1.

After dissolution, bare title-holding is not "doing business"

A dissolved corporation that just sits on record title as a nominee for others -- collecting nothing, deciding nothing -- is winding up, not conducting business, and is outside section 209.3. This follows Highmount, Sommers, and Babson.

Watch the dissolution date

The dissolution by proclamation is the dividing line. Returns and any minimum tax may be owed for the in-charter years; the post-dissolution years are clear if the corporation truly does nothing but hold title.

Common questions

Q: My corporation was formed only to hold title for a lender and never traded. Is it off the hook?
A: Not for the years it was an active charter. The privilege of holding a franchise is taxable under section 209.1 even with no business activity.

Q: It was dissolved by proclamation years ago but still on the deed. Do I owe tax for those years?
A: Generally no, if it did nothing but hold bare legal title as a nominee. That is winding up, not conducting business under section 209.3.

Q: Does it matter that all the money flowed through the individual, not the corporation?
A: Yes -- it supports the conclusion that the corporation itself conducted no business and held title only as a nominee.

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 1-2.2 (a dissolved corporation limited to liquidating and winding up is not subject to Article 9-A)
- Highmount Medical Building Inc., TSB-A-91(12)C (record-title nominee is 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_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a95_4c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (4) C
Corporation Tax
March 3, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C941125C

On November 25, 1994, a Petition for Advisory Opinion was received from W.R.H.R.E.
Corp., c/o William H. Richardson, 40 South Washington Street, Port Washington, New York 11050.
The issue raised by Petitioner, W.R.H.R.E. Corp., is whether an inactive corporation that was
dissolved by proclamation, and is the record title holder of real property in New York State, but not
engaged in business, is subject to the New York State franchise tax under Article 9-A of the Tax
Law.
In 1966 and 1970, William H. Richardson and Betty Richardson, his wife, as individuals,
acquired two adjacent parcels of real property known as Nos. 166-168 Main Street, Port Washington,
County of Nassau and State of New York (Section 5 Block 37 Lots 11 and 12 on the Nassau County
tax map). The premises were and are located in a business zone under the Town of North
Hempstead zoning ordinance.
At the time of acquisition, the two lots were improved by attached commercial buildings.
One such building had been used by Richardson's grantor as a bicycle sales and repair shop; the other
as a sign maker's shop.
Upon acquisition, Mr. Richardson converted the use of the two buildings to a restaurant and
bar business. The business was conducted by Richardson through a corporate entity known as BR,
Inc., doing business as The Embers. The said restaurant and bar business was conducted by
Richardson until about 1980, when the business was sold. The sale of the business did not include
the sale of the real property. Following the sale of the restaurant and bar business in 1980, the
premises (166-168 Main Street) were rented to various individuals and entities for use as a restaurant
and bar. The Richardsons had no interest in any of the entities which operated the restaurant and bar
business after their tenure.
In about 1973, at which time legal and record title to the real property (166168 Main Street)
was in William H. and Betty Richardson, the Richardsons proposed to borrow the sum of $46,000
from one Frank Laber, then a Port Washington resident. The said Frank Laber had no interest in the
real property or in the restaurant and bar business owned and operated by Richardson. The purpose
of the loan was to acquire funds for use in making improvements to the buildings. To secure
repayment of the borrowed monies, Richardson agreed to give the lender a first mortgage on the
premises in the amount of $46,000, with interest, payable monthly over twenty years.
As part of the conditions for making the loan, the lender (Frank Laber) demanded that legal
title to the premises be transferred to a corporation and that the corporation execute the said
mortgage. To comply with the lender's demand, a certificate of incorporation of Petitioner was filed
in the office of the Secretary of State on January 16, 1973. On November 16, 1973, deeds were
TP-9 (9/88)

-2­
TSB-A-95 (4) C
Corporation Tax
March 3, 1995

executed by William H. Richardson and Betty Richardson conveying their legal title to premises
166-168 Main Street to Petitioner. Simultaneously with execution of the deeds conveying legal title
to Petitioner, the corporation then executed and delivered a first mortgage on the property to Frank
Laber, the lender/mortgagee.
Title to the real property (166-168 Main Street) remained in Petitioner until March 13, 1991,
when the property was sold and the mortgage held by Frank Laber satisfied.
Petitioner owned no other real property.
While legal title to the property was in Petitioner, the corporation was dissolved by
proclamation of the Secretary of State on December 19, 1978.
From the time the real property was acquired by Mr. and Mrs. Richardson in 1966 and 1970,
until the same was sold in 1991, the property was used exclusively for the restaurant and bar
business. No other business was conducted on the premises; no portion thereof was used for any
other commercial purpose; no residential use of the premises was made.
Petitioner was formed solely for the purpose of holding bare legal title to the subject property
during the term of the mortgage for the convenience of the mortgagee. No business was ever
conducted by the corporation; the corporation never had a bank account; never kept books and
records. No share certificates were issued; there was never a stockholders' meeting. No officers or
directors were ever elected; no directors' meetings were held. No dividends were declared; no
corporate seal was ever adopted. The corporation received no rental or other income. The
corporation never filed a franchise tax return or paid a franchise tax. No Federal income tax return
was ever filed. Payments of principal and interest on the first mortgage were made personally by
William H. Richardson. Real estate taxes assessed to the property were paid by Mr. Richardson
personally.
At stated, the Richardsons sold their restaurant and bar business in about 1980. Title to the
real property remained in Petitioner, and the premises were rented to others for use as a restaurant
and bar. All rent payments were made to Mr. Richardson, personally, and not to the corporation.
In 1991, the property, having been abandoned and left vacant by the last tenant, was sold to
one Mitsuake Nomoto, and his wife, who are the present owners. The deed of conveyance to
Mitsuake Nomoto and his wife was executed and delivered by Petitioner. The consideration for the
sale, including a purchase money mortgage and note were received personally by William H.
Richardson. The mortgage made by Petitioner to Frank Laber was paid and satisfied at the time of
the sale to Mitsuake Nomoto.
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.

-3­
TSB-A-95 (4) C
Corporation Tax
March 3, 1995

Section 2-3.1 of the Business Corporation Franchise Tax Regulations (hereinafter
"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 1-2.2 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. Highmount Medical
Building Inc., Adv Op Comm T & F, May 7, 1991, TSB-A-91(12)C; Harold S. Sommers, Adv Op
Comm T & F, March 15, 1990, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., Adv Op Comm
T & F, September 1, 1988, TSB-A-88(19)C.
Accordingly, for the taxable years during which Petitioner was incorporated, January 16,
1973 through December 19, 1978, Petitioner is subject to the franchise tax imposed by Article 9-A
of the Tax Law, pursuant to section 209.1 of the Tax Law. After its dissolution by proclamation in
December 1978, Petitioner 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,
Petitioner is not subject to tax under Article 9-A after it was dissolved by proclamation.

DATED: March 3, 1995

s/PAUL B. C0BURN
Deputy Director
Taxpayer Services Division

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