Is a New York corporation subject to Article 9-A franchise tax after it discontinued all active business and was later dissolved by proclamation, when it merely holds record title to real property as nominee for others?

Plain-English summary

Clean At Tri-Diamond Stores, Ltd. was a New York corporation incorporated in 1963 that ran a dry-cleaning business until 1978, when it stopped all active operations. The sole shareholder believed the company had been dissolved and personally ran a laundromat on the property, paid the taxes, and collected the rent. In fact the corporation was dissolved by proclamation on September 29, 1982 for unpaid franchise taxes -- but it still held record title to the Brooklyn building, which came to light in 1993 when the shareholder tried to sell it. The question: is the corporation subject to Article 9-A franchise tax after it stopped doing business and after dissolution?

The answer splits into two periods. Under section 209.1, a corporation owes franchise tax for the privilege of exercising its franchise, doing business, employing capital, or owning property "up to the date on which it ceases to possess a franchise" (20 NYCRR 2-3.1). So for 1963 through the September 29, 1982 dissolution, the corporation is subject to Article 9-A tax. After dissolution, section 209.3 taxes a dissolved corporation only if it continues to conduct business; a dissolved corporation that is merely a record-title holder of New York real property as nominee for the benefit of others, and otherwise inactive, is not conducting business (20 NYCRR 1-2.4). So for the post-1982 period, the corporation is not subject to Article 9-A tax.

What this means for you

Tax runs until the corporation loses its franchise

A domestic corporation is taxed up to the date it ceases to possess its franchise -- here, the date of dissolution by proclamation. Stopping active operations earlier does not end the franchise-tax liability if the corporation still exists.

A dissolved corporation holding title as nominee is not "doing business"

After dissolution, merely holding record title to property for the benefit of others, while otherwise inactive, is not conducting business under section 209.3 -- so no Article 9-A tax for that period.

Watch the dissolution date

The dividing line is the dissolution-by-proclamation date. Liabilities before it stand; mere passive nominee title-holding after it does not create new franchise tax.

Common questions

Q: Does discontinuing business in 1978 end the franchise tax?
A: No. The corporation kept its franchise until it was dissolved by proclamation in 1982, and is taxable up to that date.

Q: Is the dissolved corporation taxed for just holding the building's title?
A: No -- holding record title as nominee for others, while otherwise inactive, is not "conducting business" under section 209.3.

Q: What if a dissolved corporation kept actually operating?
A: Then section 209.3 would tax it; the relief here depends on the corporation being inactive after dissolution.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax for exercising the franchise, doing business, employing capital, or owning/leasing property)
- Tax Law section 209.3 (a dissolved corporation that continues to conduct business is subject to Article 9-A)
- 20 NYCRR 2-3.1 (domestic corporation taxed up to the date it ceases to possess a franchise)
- 20 NYCRR 1-2.4 (a dissolved corporation limited to liquidating its affairs is not subject to Article 9-A)
- W.R.H.R.E. Corp., TSB-A-95(4)C; Highmount Medical Building, TSB-A-91(12)C; Harold S. Sommers, TSB-A-90(9)C; Babson Bros. Co., TSB-A-88(19)C (dissolved nominee not conducting business)
- Same two-period line: 343 East 18th Street, TSB-A-97(2)C; Rubin Brothers, TSB-A-97(27)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (1) C
Corporation Tax
January 2, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C950823A

On August 23, 1995, a Petition for Advisory Opinion was received from Clean At TriDiamond Stores, Ltd., 110 Van Siclen Avenue, Brooklyn, New York 11207.
The issue raised by Petitioner, Clean At Tri-Diamond Stores, Ltd., is whether Petitioner is
subject to franchise tax under Article 9-A of the Tax Law after it discontinued active business
operations and after it was dissolved by proclamation.
Petitioner presents the following facts. Petitioner was incorporated in New York on October
9, 1963. The shareholders were Ernest Ciarrotta, Steve Xenidis and Saverio Valentino.
On June 10, 1971, Petitioner acquired title to the premises located at 110 Van Siclen Avenue,
Brooklyn, New York, Block 3946, Lot 24. The premises were and still are improved by a two-story
dwelling. The first floor consisted of Petitioner's dry cleaning business operations until 1978 and
from then on Mr. Xenidis' laundromat business. The second and third floors consist of residential
apartments.
In 1978, Steve Xenidis became the sole shareholder of Petitioner after both Mr. Ciarrotta and
Mr. Valentino had passed away. At that time in 1978, Petitioner discontinued the dry cleaning
business and all active business operations. Since 1978 to the present time, Petitioner has not
conducted any business operations whatsoever.
At or about that same time in 1978, Mr. Xenidis installed a laundromat on the first floor of
the subject premises. Mr. Xenidis operated the laundromat in his personal capacity. At that time,
he thought that Petitioner had been dissolved because it was no longer conducting any corporate
business operations.
From 1978 until the present time, Mr. Xenidis believed that he was the owner of the subject
premises. He personally paid the real estate taxes and water and sewerage charges for the premises
located at 110 Van Siclen Avenue. The water and tax bills are in his personal name. From 1978 to
the present, Mr. Xenidis also operated the laundromat in his personal capacity. Additionally, he
personally collected all rent from the premises.
Mr. Xenidis' accountant, Mr. Magro, a CPA, had advised Mr. Xenidis in 1978 that Petitioner
was dissolved, and that nothing further had to be done.
In February of 1993, Mr. Xenidis entered into a contract to sell the subject premises. The
purchaser ordered a title report and Mr. Xenidis learned for the first time that the title to the subject
premises is still in the name of Petitioner and that Mr. Xenidis was not the record owner as he had
TP-9 (9/88)

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TSB-A-96 (1) C
Corporation Tax
January 2, 1996
believed. Upon further investigation, it was determined that formal dissolution of Petitioner had not
been accomplished in 1978, as believed, and that Petitioner was dissolved by proclamation on
September 29, 1982 for failure to pay corporate franchise taxes.
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.
Section 2-3.1 of the Business Corporation Franchise Tax 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 of the Tax Law. Section 1-2.4 of the
Business Corporation Franchise Tax 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. W.R.H.R.E Corp.,
Adv Op Comm T & F, March 3, 1995, TSB-A-95(4)C; Highmount Medical Building Inc., Adv 0p
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, October 9, 1963
through September 29, 1982 the date of dissolution by proclamation, 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 on September 29, 1982, 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 of the
Tax Law after it was dissolved by proclamation.

DATED: January 2, 1996

s/DORIS S. BAUMAN
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.