Does a foreign corporation that only displays goods at two five-day trade shows a year in New York, without taking orders or selling, become subject to the Article 9-A franchise tax?

Plain-English summary

ABC, a foreign corporation, comes into New York only to participate in two five-day trade shows a year to display its goods. It does not take orders or sell at the shows and does not otherwise do business in New York. Ernst & Young asked whether this makes ABC subject to the Article 9-A franchise tax.

No. Even where an activity goes beyond mere solicitation, Public Law 86-272 and 20 NYCRR 1-3.4(b)(9) do not subject a corporation to tax if the activity is de minimis -- that is, it does not establish a nontrivial additional connection with New York. Here, ABC's presence is limited to 10 days of displaying goods, with no orders, sales, property, office, or other business. That is a trivial connection and a de minimis activity, so ABC is not subject to the Article 9-A franchise tax.

What this means for you

A few days of trade-show display alone won't create New York franchise-tax nexus

A foreign corporation that only shows goods at a couple of short trade shows each year, without taking orders, selling, holding property, or keeping an office, has only a trivial -- de minimis -- connection and is not subject to the Article 9-A franchise tax.

The de minimis safety valve covers trivial activity even beyond solicitation

Activities beyond solicitation are taxable unless they are de minimis. An activity is not de minimis only if it establishes a nontrivial additional connection with New York; brief, isolated trade-show attendance does not.

Taking orders or selling at the show would change the analysis

The result rests on ABC not selling or taking orders and not otherwise doing business in New York; adding in-state sales, inventory, or an office could create nexus.

Common questions

Q: Does attending a New York trade show create franchise-tax nexus?
A: Not by itself. Briefly displaying goods at a couple of short trade shows each year, with no sales, orders, property, or office, is a de minimis activity that does not subject a foreign corporation to the Article 9-A tax.

Q: What makes trade-show activity "de minimis"?
A: That it establishes only a trivial -- not a nontrivial -- additional connection with New York. Ten days of mere display, without doing business, qualifies.

Q: What would push a trade-show presence over the line?
A: Taking orders, selling goods, maintaining inventory or an office, or otherwise doing business in New York beyond a trivial connection.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A business corporation franchise tax)
- Public Law 86-272, 15 USC sections 381-384 (interstate solicitation immunity)
- 20 NYCRR 1-3.4(b)(9) (PL 86-272 exemption; ancillary, de minimis, and office rules)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a97_6c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(6)C
Corporation Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C960425A

On April 25, 1996, a Petition for Advisory Opinion was received from Ernst
& Young LLP, 787 Seventh Avenue, New York, New York 10019.
The issue raised by Petitioner, Ernst & Young LLP, is whether a foreign
corporation that displays goods at trade shows in New York State is doing
business pursuant to section 1-3.2 of the Business Corporation Franchise Tax
Regulations ("Article 9-A Regulations").
Petitioner submits the following facts as the basis for this Advisory
Opinion.
ABC is a foreign corporation that comes into New York for the limited
purpose of participating in trade shows to display its goods.
Typically, ABC
comes into New York for two five-day trade shows a year. ABC does not take
orders nor sell its goods at the trade shows.
ABC does not otherwise "do
business" within New York State.
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax
on domestic or foreign corporations for the privilege of exercising a corporate
franchise, doing business, employing capital, owning or leasing property in a
corporate or organized capacity, or maintaining an office in New York State for
all or any part of each of its fiscal or calendar years.
However, section 1-3.4(b)(9) of the Article 9-A Regulations provides for
an exemption from taxation under Article 9-A for corporations which are exempt
pursuant to the provisions of Public Law 86-272 (15 USCA §§ 381-384) and states
as follows:
(i) A foreign corporation whose income is derived from interstate
commerce is not subject to tax under article 9-A of the Tax Law if
the activities of the corporation in New York State are limited to
either, or both of the following:
(a) the solicitation of orders by employees or representatives
in New York State for sales of tangible personal property and the
orders are sent outside New York State for approval or rejection;
and if approved, are filled by shipment or delivery from a point
outside New York State; and
(b) the solicitation of orders for sales of tangible personal
property by employees or representatives in New York State in the
name of or for the benefit of a prospective customer of such

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Corporation Tax

corporation if the customer's orders to the corporation are sent
outside the State for approval or rejection; and, if approved, are
filled by shipment or delivery from a point outside New York State.
...
(iv) In order to be exempt by virtue of Public Law 86-272, the
activities in New York State of employees or representatives must be
limited to the solicitation of orders. The solicitation of orders
includes offering tangible personal property for sale or pursuing
offers for the purchase of tangible personal property and those
ancillary activities, other than maintaining an office, that serve
no independent business function apart form their connection to the
solicitation of orders. Examples of activities performed by such
employees or representatives in New York State that are entirely
ancillary to the solicitation of orders include:
(a) the use of free samples and other promotional materials in
connection with the solicitation of orders;
(b) passing product
corporation's home office;

inquiries

and

complaints

to

the

(c) using autos furnished by the corporation;
(d) advising customers on the display of the corporation's
products and furnishing and setting up display racks;
recruitment,
( e)
representatives;

training

and

evaluation

of

sales

(f) use of hotels and homes for sales-related meetings;
(g) intervention in credit disputes;
(h) use of space at the salesperson's home solely for the
salesperson's convenience.
(v) Activities in New York State beyond the solicitation of orders
will subject a corporation to tax in New York State unless such
activities are de minimis. Activities will not be considered de
minimis if such activities establish a nontrivial additional
connection with New York State.
Solicitation activities do not
include those activities that the corporation would have reason to
engage in apart from the solicitation of orders but chooses to
allocate to its New York sales force.
In determining whether a
corporation's activities exceed the solicitation of orders, all of
the corporation's activities in New York State will be considered.
Examples of activities which go beyond the solicitation of orders
include:

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Corporation Tax

(a) making repairs to or installing the corporation's products;
(b) making credit investigations;
(c) collecting delinquent accounts;

(d) taking inventory of the
customers or prospective customers;

corporation's

products

for

(e) replacing the corporation's stale or damaged products;
(f) giving technical advice on the use of the corporation's
products after the products have been delivered to the customer.
Pursuant to section 1-3.4(b)(9) of the Article 9-A Regulations, a
corporation is not subject to tax in New York State if it is exempt pursuant to
the provisions of Public Law 86-272. To be exempt pursuant to Public Law 86-272,
a corporation's activities in New York State must be limited to the solicitation
of orders by employees or representatives in New York State for sales of tangible
personal property and the orders are sent outside New York State for approval or
rejection; and if approved, are filled by shipment or delivery from a point
outside New York State. Activities that exceed the solicitation of orders will
subject a corporation to tax in New York State, unless they are de minimis.
Activities are not de minimis if they establish a nontrivial additional
connection with New York.
In this case, ABC is a foreign corporation that comes into New York State
for the limited purpose of participating in two five-day trade shows to display
its goods. Petitioner states that ABC does not take orders or sell its goods at
the trade shows nor does it otherwise do business in New York State.
Where ABC comes into New York State for 10 days during the taxable year to
participate in the two five-day trade shows, the activity for the limited purpose
of displaying its goods at the trade shows constitutes a trivial connection with
New York that is deemed to be a de minimis activity in excess of solicitation.
Where ABC does not otherwise do business, employ capital, own or lease property
or maintain an office in New York State, this de minimis activity, pursuant to
Public Law 86-272 and section 1-3.4(b)(9) of the Article 9-A Regulations, is not
sufficient to subject ABC to tax under Article 9-A of the Tax Law.

DATED:

March 24, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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