NY TSB-A-96(14)C Corporation Tax 1996-05-09

Is a sewage-works corporation taxed under Article 9 (sections 183/184, 186, or 186-a) or under Article 9-A?

Short answer: Under Article 9-A. A sewage-works corporation organized under the Transportation Corporations Law and not regulated by the Public Service Commission is not principally engaged in a transportation or transmission business (sections 183/184), is not in the business of supplying water, steam, gas, or electricity through mains or pipes (section 186), and does not sell or furnish a utility service such as water (section 186-a). Although it moves sewage through pipes, that is incidental to its sewage-disposal business. So Valeria, a sewage-disposal corporation serving the Dickerson Pond Projects, is subject to the Article 9-A franchise tax.

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

Upper Willow Properties Corporation plans to form Valeria Sewage-Works Corporation under section 3 of the Transportation Corporations Law to operate the sewer system serving two condominium developments (the Dickerson Pond Projects). Valeria will run the pipes, pumping stations, and treatment plants that collect and dispose of sewage; it will not supply water. Sewage-works corporations are not regulated by the Public Service Commission; their rates are set with the local governing body. The question: is Valeria taxed under Article 9 (sections 183/184, 186, or 186-a) or under Article 9-A?

Article 9-A. Classification turns on the nature of the corporation's activities (McAllister Bros.), and a corporation is generally principally engaged in the activity producing more than 50% of its receipts (Bucciero). Valeria is solely in the sewage-disposal business:

It is not principally engaged in a transportation or transmission business (sections 183/184) -- moving sewage a short distance through pipes is incidental to disposing of it.
It is not "supplying water, steam, gas, or electricity" through mains or pipes (section 186).
It does not sell or furnish water or another enumerated utility service (section 186-a).

Because none of the Article 9 utility/transportation taxes apply, Valeria is subject to the Article 9-A franchise tax under section 209.1.

What this means for you

Sewage disposal is not a transportation, transmission, or utility-supply business

Operating a sewer system to collect and dispose of sewage is not "transportation or transmission" (sections 183/184) and is not "supplying" water/gas/steam/electricity (section 186), even though pipes are involved.

Not a Public Service Commission utility, and not section 186-a

A sewage-works corporation under the Transportation Corporations Law is not PSC-regulated and does not sell a section 186-a utility service like water, so section 186-a does not apply.

The default is Article 9-A

When a corporation is not liable under sections 183, 184, or 186, it is subject to the Article 9-A franchise tax.

Common questions

Q: Is a sewage-works corporation a transportation business under sections 183/184?
A: No. Moving sewage through pipes is incidental to the sewage-disposal business; the corporation is not principally engaged in transportation or transmission.

Q: Is it a utility under section 186 or 186-a?
A: No. It does not supply water, gas, steam, or electricity (section 186) and does not sell or furnish an enumerated utility service like water (section 186-a).

Q: So how is it taxed?
A: Under the Article 9-A franchise tax, because none of the Article 9 utility/transportation taxes apply.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax); section 209.4 (corporation liable under sections 183, 184, or 186 is not subject to 9-A)
- Tax Law sections 183 and 184 (transportation or transmission business); section 186 (supplying water/steam/gas/electricity through mains or pipes); section 186-a (utility services)
- Transportation Corporations Law Article 10, sections 115, 116, 118, 121 (sewage-works corporations; local rate-setting, not PSC-regulated)
- McAllister Bros., Inc. v. Bates, 272 AD 511; Re Joseph Bucciero Contracting, TSB-A-81(5)C (more-than-50-percent-of-receipts test)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (14) C
Corporation Tax
May 9, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C960112A

On January 12, 1996, a Petition for Advisory Opinion was received from Upper Willow
Properties Corporation, One Marine Midland Center, Buffalo, New York 14203.
The issue raised by Petitioner, Upper Willow Properties Corporation, is whether a sewage
works corporation is subject to franchise tax under Article 9 of the Tax Law or under Article 9-A
of the Tax Law. Further, if it is subject to Article 9, is it subject to tax under sections 183 and 184
or 186 or 186-a?
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a Delaware corporation which holds title to certain real property including a
sewage treatment facility in the Dickerson Pond Sewer District, Town of Cortlandt, County of
Westchester, New York, as agent for Demooring, Inc., a Delaware corporation. Petitioner intends
to form a wholly-owned subsidiary, to be known as Valeria Sewage-Works Corporation ("Valeria"),
pursuant to section 3 of the New York Transportation Corporations Law. Pursuant to section 2 of
Valeria's proposed Certificate of Incorporation, Valeria's purpose will be "to the extent and as may
be permitted by law, to carry on the business of a sewage disposal corporation in all its branches and
in connection therewith to provide a sewer system or sewer systems for the disposal of sewage,
including all sewer pipes, easements and other appurtenances which are used or useful, in whole or
in part, in connection with the collection, treatment or disposal of sewage, including sewage
pumping stations, sewage treatment and disposal plants and sites, and to erect, operate and maintain
the same and to perform other necessary acts incidental thereto within the Dickerson Pond Sewer
District of the Town of Cortlandt, Westchester County, New York."
The Dickerson Pond Sewer District consists of two existing condominium developments:
Dickerson Pond Condominium I and Dickerson Pond Condominium II and vacant undeveloped real
property (owned by Petitioner, as agent for Demooring, Inc.) upon which additional units may be
built (collectively, the "Dickerson Pond Projects"). Valeria will be formed solely to operate the
sewer system serving the Dickerson Pond Projects.
Valeria will operate the sewer system which consists, in part, of pipe lines for the removal
and transportation of sewage from the Dickerson Pond Projects to the system's pumping stations,
treatment and disposal plants and sites. Although water is used in the sewer system, Valeria will not
supply, and will not be in the business of supplying, water to the Dickerson Pond Projects.
Article 10 of the Transportation Corporations Law governs sewage-works corporations.
Section 115.1 of the Transportation Corporations Law provides that a "sewage-works corporation"
is a corporation organized "to provide a sewer system ... for the disposal of sewage, through an

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established system of pipe lines, treatment plants and other means of disposal, and which erects,
operates, maintains and performs other necessary acts incidental thereto, disposal systems for sewer
areas formed within towns or villages and other municipal areas of the state." Section 115.2 of the
Transportation Corporations Law provides that a "sewer system" means "all sewer pipes and other
appurtenances which are used or useful in whole or in part in connection with the collection,
treatment or disposal of sewage, and other waste, including sewage pumping stations and sewage
treatment and disposal plants and sites."
Section 116 of the Transportation Corporations Law provides that the filing of a certificate
of incorporation of a sewage-works corporation requires the consent of the local governing body of
the city, town or village where the sewer system provided by the corporation is located. Section
ll8.1(a)and (b) of the Transportation Corporations Law provides that the local governing body must
have a licensed professional engineer (1) examine plans and specifications for the system, and (2)
perform inspections of the system at reasonable intervals during and after construction, and report
to the local governing body.
Petitioner states that sewage-works corporations, such as Valeria, are not regulated by the
Public Service Commission. See, Suffolk Sanitary Cord v Town Bd of Town of Brookhaven, 84
Misc 2d 373. Instead, pursuant to section 121 of the Transportation Corporations Law, the rates
charged by a sewage-works corporation are agreed to between the corporation and the local
governing body and are reviewable at intervals of not more than five years or at any time by petition
of the corporation or motion by the local governing body.
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax on a domestic
corporation for the privilege of exercising its corporate franchise. Section 209.4 of the Tax Law,
provides that corporations liable to tax under sections 183, 184 or 186 of Article 9 of the Tax Law
are not subject to tax under Article 9-A.
Sections 183 and 184 of Article 9 of the Tax Law impose annual franchise taxes on a
domestic corporation formed for or principally engaged in the conduct of railroad, canal, steamboat,
ferry, express, navigation, pipe line, transfer, baggage express, omnibus, trucking, taxicab, telegraph,
telephone, palace car or sleeping car business, and every other domestic corporation principally
engaged in the conduct of a transportation or transmission business, except the conduct of aviation
and a corporation subject to tax under section 186 of Article 9 or Article 32 of the Tax Law.
Section 186 of the Tax Law imposes an annual franchise tax on every corporation formed
for or principally engaged in the business of supplying water, steam or gas, when delivered through
mains or pipes, or electricity, or principally engaged in two or more such businesses.
Section 186-a of the Tax Law imposes a tax on the furnishing of utility services. The tax
is imposed on a utility which is not subject to the supervision of the New York State Department
of Public Service, if it "sells gas, electricity, steam, water, refrigeration, telephone or
telegraphy, delivered through mains, pipes or wires, or furnishes gas, electric, steam, water,

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refrigerator, telephone or telegraph service, by means of mains, pipes, or wires, regardless of whether
such activities are the main business of such person or are only incidental thereto, or of whether use
is made of the public streets."
To determine the classification and proper taxability of a corporation under either Article 9
or Article 9-A, an examination of the nature of the corporation's activities is necessary, regardless
of the purposes for which the corporation is organized. See, McAllister Bros.. Inc.. v Bates, 272 App
Div 511, 517.
The determination of whether Valeria is subject to tax under Article 9-A or Article 9,
depends on what activity Valeria is principally engaged in. Ordinarily, a corporation is deemed to
be principally engaged in the activity from which more than 50 percent of its receipts are derived.
See, e.g. Re Joseph Bucciero Contracting Inc., Adv Op St Tax Comm, July 23, 1981, TSB-A-81(5)C.
Based on the facts submitted, Valeria will be organized as a sewage-works corporation
pursuant to section 3 of the Transportation Corporations Law. Valeria will be solely engaged in a
sewage disposal business and will operate a sewer system serving the Dickerson Pond Projects. As
a sewage-works corporation, Valeria's activities in conducting the sewage disposal business will
include the use of pipe lines for the removal and transportation of sewage from the Dickerson Pond
Projects to the system's pumping stations, treatment and disposal plants and sites. However, it
appears that Valeria's conduct of the overall sewage disposal business will not constitute being
"principally engaged in the conduct of a transportation or transmission business" as contemplated
under sections 183 and 184 of the Tax Law. In addition, the conduct of this business is not the
business of supplying water to the Dickerson Pond Projects. Therefore, Valeria will not be subject
to tax under section 186 of the Tax Law. Further, Valeria will not be selling or furnishing water to
the Dickerson Pond Projects and will not be subject to tax under section 186-a of the Tax Law.
Accordingly, based on the facts submitted, Valeria will be subject to tax pursuant to Article
9-A of the Tax Law.

DATED: May 9, 1996

NOTE:

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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