Does a New York sales office that only signs up new clients generate receipts from services performed in New York for the Article 9-A receipts factor, when all the investment consulting is performed elsewhere?

Plain-English summary

Insight Management, a Massachusetts investment-consulting company that performs all its services in Wellesley, is considering opening a New York City sales office used only to sign up new clients (all consulting and financial transactions would stay in Massachusetts). It asked whether that office would generate "receipts from services performed in New York" for the Article 9-A receipts factor.

No -- not if the office only signs up clients. Receipts from services are sourced to New York where the services are performed (section 210.3(a)(2)(B); 20 NYCRR 4-4.3). Following Alan Langer (where a New York booking agent's sale was what generated the receipt), the Department looks at what activity actually generates the income. Here, Insight's income comes from performing the investment consulting and conducting the related financial transactions -- not from the mere act of signing up clients. So if the New York office does nothing more than sign up clients, with all consulting and transactions outside New York, it generates no New York service receipts.

But if the New York activities exceed mere sign-ups -- e.g., meeting clients to consult or to relate the results of the consulting and transactions -- then those activities do generate New York receipts, allocated under 20 NYCRR 4-4.3(f) by relative value or time. Either way, the New York office is reflected in the property and payroll factors, and to be a New York S corporation Insight must make the section 660 election.

What this means for you

Sourcing follows where the income-producing service is performed

It is the activity that actually generates the income -- here, performing the consulting -- that determines the receipts factor, not where a contract is signed.

A pure sign-up office generates no service receipts

If a New York office only signs up clients while the substantive services are performed elsewhere, it adds nothing to the New York receipts numerator.

But consulting or advising clients in New York does count

If New York staff do more than sign up clients -- consulting, delivering results -- those services are performed in New York and generate New York receipts, allocated by value or time. The office still shows up in the property and payroll factors regardless.

Common questions

Q: I'll open a New York office just to sign up clients -- does that create New York service receipts?
A: No, if the consulting and transactions stay out of state. The income is generated by performing the services, not by signing clients.

Q: What if my New York staff also advise clients?
A: Then those services are performed in New York and generate New York receipts, allocated by relative value or time.

Q: Does the New York office affect my allocation at all?
A: Yes -- it is reflected in the property and payroll factors even if it generates no receipts.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax on foreign corporations maintaining an office or doing business in New York)
- Tax Law section 210.3(a)(2)(B) (receipts from services performed within the state)
- 20 NYCRR 4-4.3 (services performed in New York are New York receipts; lump sum allocated by relative value or time)
- Tax Law section 660 (election for a federal S corporation to be a New York S corporation)
- Alan Langer, CPA, TSB-A-92(9)C (the booking/sales agent's effort generates the service receipt; 100% New York where the agent is in New York)

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_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (5) C
Corporation Tax
March 29, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C941220B

On December 20, 1994, a Petition for Advisory Opinion was received from Insight
Management, Inc., 20 William Street, P.O. 9135, Wellesley, Massachusetts 02181.
The issue raised by Petitioner, Insight Management, Inc., is whether having a New York sales
office that signs up new clients would generate receipts from "services performed in New York
State" for purposes of line 10, Form CT-3-S-ATT or Form CT-3-ATT, of the receipts factor of the
business allocation percentage under Article 9-A of the Tax Law.
Petitioner, a Massachusetts corporation, is an investment consulting company performing all
of its services in Wellesley, Massachusetts. Petitioner is currently examining the possibility of
opening a sales office in New York City. This office would be used only to sign up new clients. All
investment consulting will be performed in Massachusetts. All financial transactions would be
conducted with financial institutions located in Massachusetts.
Section 660(a) of the Tax Law states that:
[i]f a corporation which is an S corporation for federal income tax purposes is subject
to tax under article nine-a of [the Tax Law], the shareholders of the corporation may
elect in the manner set forth in subsection (b) of this section to take into account, to
the extent provided for in this article, the S corporation items of income, loss,
deduction and reductions for taxes described in paragraphs two and three of
subsection (f) of section thirteen hundred sixty-six of the internal revenue code which
are taken into account for federal income tax purposes for the taxable year. No
election under this subsection shall be effective unless all shareholders of the
corporation have so elected.
Section 209.1 of the Tax Law imposes the business corporation franchise tax on every
foreign corporation, unless specifically exempt, for the privilege of doing business, or 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 210.3(a)(2)(B) of the Tax Law provides that, for purposes of computing the receipts
factor of the business allocation percentage, receipts from services performed are allocated to New
York State when such services are performed within New York State.
Section 4-4.3 of the Business Corporation Franchise Tax Regulations (Article 9-A
Regulations) provides that:
TP-9 (9/88)

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TSB-A-95 (5) C
Corporation Tax
March 29, 1995
(a) The receipts from services performed in New York State are allocable to New
York State. All receipts from such services are allocated to New York State, whether
the services were performed by employees, agents or subcontractors of the taxpayer,
or by any other persons. It is immaterial where such receipts are payable or where
they are actually received.
...
(f)(1) Where a lump sum is received by the taxpayer in payment of services
performed within and without New York State, the portion of the sum attributable
to services performed within New York State is determined on the basis of the
relative values of, or amounts of time spent in performance of, such services within
and without New York State, or by some other reasonable method. Full details must
be submitted with the taxpayer's report.
In Alan Langer, CPA, Adv Op Comm T & F, May 20, 1992, TSB-A-92(9)C, a corporation
had wholesale and retail offices which "booked" trips and tours. The corporation's purchasing agents
and administrative personnel were located outside New York State and the "booking agent" or sales
agent was located in New York State. It was held that it is the booking agent's efforts in making the
sale that generated the corporation's receipts from services. The corporation's activities through the
efforts of the purchasing agents in packaging the tours and arranging pricing with the various
vendors; the marketing efforts; the computer operation and the activities of the administrative
personnel, all of which were conducted outside New York State, did not generate any income. The
generation of income is based on the booking agent's efforts in New York State in selling, to a
customer, a trip or tour "packaged" by the purchasing agent. No revenue is generated until a
customer buys a ticket or tour package at the booking agent's New York location. Therefore, since
the booking agents are in New York State, 100% of the corporation's receipts from services rendered
are attributable to New York State. It was noted that the corporation's activities outside New York
State, that is, the efforts of its purchasing agents and its administrative personnel, and the marketing
efforts and the computer operation would be reflected in the property and payroll factors of the
business allocation percentage.
Pursuant to section 210.3(a)(2)(B) of the Tax Law and section 4-4.3 of the Article 9-A
Regulations, the amount of receipts from investment consulting services for services performed in
New York State, that is to be included in the numerator of the receipts factor of the business
allocation percentage, will depend on what activities are performed in New York. As determined
in Alan Langer, CPA, supra, the generation of income is based on the efforts of Petitioner in earning
such income. Herein, Petitioner's receipts from investment consulting services is generated from
Petitioner's performance of its investment consulting and the conduct of the related financial
transactions, not from the mere signing up of new clients.
Therefore, if the only activity performed in New York State is the signing up of new clients,
with all the investment consulting services being performed outside of New York and the conduct
of all related financial transactions outside New York, the activity in New York State of merely
signing up new clients will not generate any income from services performed in New York State.

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TSB-A-95 (5) C
Corporation Tax
March 29, 1995
However, if the activities performed in New York State exceed the mere signing up of new
clients, such as, meeting with Petitioner's clients to consult with such clients or to relate to such
clients the results of Petitioner's investment consulting services and related financial transactions,
such activities in New York State will generate income from services performed in New York State.
Pursuant to section 4-4.3(f) of the Article 9-A Regulations, the portion of the receipts from
investment consulting services attributable to services performed within New York State is
determined on the basis of the relative values of, or amounts of time spent in performance of, such
services within and without New York State, or by some other reasonable method.
In any event, the operation of a New York City sales office would be reflected in the property
and payroll factors of the business allocation percentage under Article 9-A of the Tax Law.
It should be noted that, if Petitioner wants to be treated as a New York S corporation,
Petitioner must make the election pursuant to section 660 of the Tax Law.

DATED: March 29, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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