NY TSB-A-98(27)C Corporation Tax 1998-12-30

Is a New York corporation that never issued stock and never did any business still subject to the Article 9-A franchise tax?

Short answer: Yes. A corporation incorporated in New York is subject to the annual Article 9-A franchise tax under section 209.1 for every taxable year from the date of incorporation until it is dissolved, regardless of whether it ever issued shares or conducted any business. Because it has no business activity and no capital, it owes the fixed dollar minimum tax under section 210.1(d) for each such year.

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

Chatham International Enterprises was incorporated in New York on December 30, 1996, but never issued stock, never transferred ownership, and never conducted any business. It asked whether it is nonetheless subject to the Article 9-A franchise tax.

The Department held it is:

Section 209.1 imposes the franchise tax for the privilege of exercising a corporate franchise -- which a corporation holds simply by being incorporated and not dissolved.
A New York corporation is not relieved of annual franchise tax liability merely because it issued no stock or did no business; liability continues until it is dissolved (Claire Belle Dresses).
Because Chatham has no business activity and no capital, it owes the fixed dollar minimum tax under section 210.1(d) for each taxable year from incorporation until dissolution.

What this means for you

Incorporation alone creates the tax

Holding a New York corporate franchise -- even an unused one -- is the taxable privilege. You owe at least the minimum tax each year you remain incorporated.

Inactivity is not an exemption

Never issuing stock and never doing business does not excuse the franchise tax; only dissolution ends it.

The cost is the fixed dollar minimum

An inactive, no-capital corporation pays the fixed dollar minimum tax under section 210.1(d) each year.

Common questions

Q: Does a corporation that never issued stock owe the franchise tax?
A: Yes. The tax is on the privilege of holding the corporate franchise, which exists from incorporation until dissolution.

Q: What if it never did any business?
A: It still owes the tax -- at the fixed dollar minimum -- because it has no capital and no income but retains its franchise.

Q: How does it stop the tax?
A: By dissolving. Liability continues for every year it remains incorporated.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax; privilege of exercising a corporate franchise)
- Tax Law section 210.1(d) (fixed dollar minimum tax)
- People ex rel Claire Belle Dresses v State Tax Commn, 221 App Div 471, affd 248 NY 568
- Chatham International Enterprises, Inc., TSB-A-98(27)C (Dec. 30, 1998)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(27)C
Corporation Tax
December 30, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C981007A

On October 7, 1998, a Petition for Advisory Opinion was received from Chatham
International Enterprises, Inc., 343 Almeria Avenue, Coral Gables, Florida 33134.
The issue raised by Petitioner, Chatham International Enterprises, Inc., is whether it is subject
to franchise tax under Article 9-A of the Tax Law when it has not issued any shares of stock nor
engaged in any type of business.
Petitioner submits the following facts as the basis for this Advisory Opinion.
In December 1996, Petitioner's representative submitted for filing, the incorporation of
Petitioner as a New York corporation, with the New York State Department of State, Division of
Corporations and State Records. Pursuant to section 104-A(d) of the Business Corporation Law, the
incorporator paid $125.00 to file a Certificate of Incorporation with the Secretary of State and paid
an organizational tax based on the shares of stock authorized to be issued, as set forth in section 180
of the Tax Law. Upon these payments and the filing with the Secretary of State, Petitioner was
incorporated as a New York corporation on December 30, 1996.
Other than being incorporated, no further action has been taken with Petitioner. The
incorporator has not issued any stock, the incorporator has not transferred ownership to anyone and
absolutely no business has been conducted by Petitioner. Petitioner has not exercised any rights
related to the corporate franchise.
Discussion
Section 209.1 of the Tax Law imposes, annually, 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.
The United States Supreme Court has held that the franchise tax imposed by New York State
is simply for the conferral of the right to be a corporation, not for the actual exercise of the right

-2
TSB-A-98(27)C
Corporation Tax
December 30, 1998

(People v. Jersawit, 263 US 493; see, generally, 100 NY Jur 2d, Taxation and Assessment, §1266,
p 280). This right is granted to a corporation when the Secretary of State accepts the certificate of
incorporation and files such certificate. A New York corporation is not relieved from liability for
annual franchise taxation when it is not dissolved (see, People ex rel Claire Belle Dresses v State Tax
Commn, 221 App Div 471; affd 248 NY 568).
Accordingly, Petitioner is subject to the annual franchise tax imposed under section 209.1
of Article 9-A of the Tax Law for every taxable year from the date of its incorporation on December
30, 1996 until it is dissolved, regardless of whether any shares of stock are ever issued or whether
it conducts any business. Since Petitioner is not conducting business and has no capital, it will be
subject to the fixed dollar minimum tax for each taxable year as described in section 210.1(d) of the
Tax Law.

DATED: December 30, 1998

NOTE:

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

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