Is an out-of-state manufacturer with two New York sales representatives, one working from a home office, subject to Article 9-A, or is it protected by Public Law 86-272?

Plain-English summary

Company A, an out-of-state wholesale paper-products manufacturer, sells only to retailers/distributors and never to consumers. Its only New York activities are two sales representatives soliciting orders; Rep 1 works from his home near Buffalo. The company owns no New York real property, provides Rep 1 a company vehicle and office equipment, reimburses office supplies but not home-office rent, and uses its out-of-state address and phone on business cards, letterhead, mail and voicemail. It asked whether these activities subject it to Article 9-A.

The Department held Company A is protected by Public Law 86-272:

• Public Law 86-272 shields a company from net-income tax if its in-state activity is limited to solicitation of orders for tangible personal property that are approved and filled from outside the state.
• The pivotal question was whether Rep 1's home is "maintaining an office in New York" under 20 NYCRR 1-3.4(b)(9)(vi). Because the company does not hold the home out as its office, does not pay home-office rent (only supplies), and uses its out-of-state address/phone for all customer-facing contact, the home is not a New York office.
• With no New York office, Company A's activity is mere solicitation, so it is exempt from the Article 9-A franchise tax under 20 NYCRR 1-3.4(b)(9).
• It must, however, file Form CT-245 (activities report for a foreign corporation disclaiming tax liability), but it owes no maintenance fee.

What this means for you

A home office is not automatically a company office

A salesperson working from home does not create nexus by itself. What matters is whether the company holds the home out as its office and pays for it as one.

Keep the out-of-state identity consistent

Using the out-of-state address and phone on cards, letterhead, mail and voicemail, and reimbursing only supplies (not rent), supports treating the rep's home as not a company office.

Protection still comes with a filing

Even when Public Law 86-272 exempts you from the tax, New York requires a Form CT-245 activities report -- though no maintenance fee is due.

Common questions

Q: Does a New York home-office sales rep create Article 9-A nexus?
A: Not by itself. If the company does not hold the home out as its office or pay home-office rent, it is not maintaining a New York office.

Q: What protects the company from the franchise tax?
A: Public Law 86-272, because its only New York activity is solicitation of orders for tangible personal property filled from out of state.

Q: Does it have to file anything?
A: Yes. It must file Form CT-245 as a foreign corporation disclaiming tax liability, but owes no maintenance fee.

Citations and references

Statutes, regulations, and authorities:
- Public Law 86-272 (protection for solicitation of orders for tangible personal property)
- Tax Law section 209.1 (Article 9-A franchise tax)
- 20 NYCRR 1-3.4(b)(9) (Public Law 86-272 exemption)
- 20 NYCRR 1-3.4(b)(9)(vi) (when a home office is maintaining an office in New York)
- Company A, TSB-A-99(14)C (March 1, 1999)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a99_14c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(14)C
Corporation Tax
March 1, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C980330B

On March 30, 1998, a Petition for Advisory Opinion was received from Company A, c/o
Ernst & Young LLP, 99 Wood Ave. S., PO Box 751, Iselin New Jersey 08830-0471.
The issue raised by Petitioner, Company A, is whether its activities in New York are enough
to subject it to tax under Article 9-A of the Tax Law, and if yes, must it compute tax under the entire
net income base.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Company A is a manufacturer and distributor of wholesale paper products used in a
specialized industry. Company A's products are manufactured outside New York State (the "State")
and are then sold to retailers and/or other distributors located both inside and outside the State.
Company A never directly sells its products to the ultimate consumer.
The activities of Company A within the boundaries of the State are limited to those
conducted by only two employees. Both employees are sales representatives responsible for the
solicitation of sales from within and without the State. The first sales representative ("Rep 1")
resides in or around Buffalo, New York while the second sales representative ("Rep 2") resides in
the State of New Jersey. The sales territory of Rep 1 is inclusive of western Pennsylvania and all
the counties of upstate New York. The sales territory of Rep 2 is inclusive of New York City, Long
Island, Westchester County, New Jersey and eastern Pennsylvania. Both representatives are
permitted to and do carry product samples. These product samples are used for display purposes in
the solicitation of sales. At no time may these samples be sold to any individual or company.
Company A does not own or lease any real property in the State. Personal property owned
by Company A within the State is limited to that of a company vehicle and general office equipment
(i.e., fax machine, computer, etc.) needed by Rep 1 in performing his everyday duties. Offices
supplies (i.e., paper, pens, etc.) needed by Rep 1 are obtained through a local office supply store.
Office supplies and other general expenses (i.e., phone bill, travel expenses, etc.) are reimbursed to
Rep 1 through a periodic expense report. Note, Company A does not provide any other
remuneration to Rep 1 with regards to his home office expenses (i.e., rental reimbursement).
Petitioner states that Company A does not represent itself as having an existence within New
York State, either by the efforts of Rep 1 or through the company's own efforts. Any documentation
(i.e., business cards, letterhead, etc.) that is provided by Rep 1 to customers references only the out­

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Corporation Tax
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of-state corporate office address and phone number of Company A. Any correspondence sent to Rep
1 by customers is sent to the out-of-state corporate office address of Company A and then forwarded
to Rep 1 by Company A. Rep 1 has a voice-mailbox at the out-of-state corporate office where Rep
1 can retrieve voice-mails.
In addition to the above mentioned facts, it can be assumed for purposes of this advisory
opinion that Company A is properly complying with the payroll withholding and unemployment
compensation tax laws of the State.
The following is a listing of the job responsibilities of both Rep 1 and Rep 2:
�

Fulfill assigned sales quotas for all company distributed products.

�

Responsible to visit territorially designated customers for purposes of solicitation of sales
orders.

�

Confer with immediate supervisor (located outside the State) on all matters affecting the
assigned sales territory.

�

Implement localized sales plan in order to meet annual sales quotas.

�

Provide feedback to Company A regarding its sales programs (i.e., summary of sales by
product) in order to better align itself for solicitation of future sales.

�

Advise Company A of trends and competitive activity within their assigned sales territories.

�

Remit customer purchase requests to Company A (located outside the State) for credit check,
order processing, shipping and billing.

�

Attend nationwide trade show conventions when and as directed by the Vice President of
Sales. (Note: conventions are not held in the State.)

Discussion
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. The tax is
imposed on the basis of the corporation's entire net income base, or upon such other basis (capital
base, minimum taxable income bases or the fixed dollar minimum), as may be applicable, as
determined under section 210 of the Tax Law.

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Corporation Tax
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However, section 1-3.4(b)(9) of the Article 9-A Regulations ("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 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 inquiries and complaints to the corporation's home office;
(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;

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Corporation Tax
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(e) recruitment, training and evaluation of sales representatives;
(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. (However, see subparagraph (vi) of this paragraph as to loss of
immunity for maintaining an office.)
(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:
(a) making repairs to or installing the corporation's products;
(b) making credit investigations;
(c) collecting delinquent accounts;
(d) taking inventory of the corporation's products for customers or
prospective customers;
(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.
(vi) Maintaining an office ... in New York State will make a corporation
taxable... A corporation will be considered to be maintaining an office in New York
State if the space is held out to the public as an office or place of business of the
taxpayer. For example, a salesperson uses his or her house for business. A
telephone, listed in the corporation's name, is maintained at the salesperson's house.
The salesperson makes telephone contacts from the house or receives calls and orders

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at the house. The residence will be treated as an office of the corporation, and the
corporation will be taxable.
Pursuant to section 1-3.4(b)(9) of the Regulations, a corporation is not subject to franchise
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. The solicitation
of orders includes ancillary activities such as the use of space at the salesperson's home solely for
the salesperson's convenience, as opposed to the salesperson maintaining an office for the
corporation.
Pursuant to section 1-3.4(b)(9)(vi) of the Regulations, a corporation's activities in New York
will exceed the immunity provisions of Public Law 86-272 if it is considered to be maintaining an
office in New York, and the corporation will be taxable under Article 9-A of the Tax Law. A
corporation will be considered to be maintaining an office in New York at its salesperson's residence
if its salesperson's home office is held out to the public as an office or place of business of the
corporation, such as listing a telephone in the corporation's name, and the salesperson makes
telephone contacts from the house or receives calls and orders at the house.
In this case, the job responsibilities of Rep 1 and Rep 2, including the use of product samples
only for display purposes, and the use of a company vehicle and company general office equipment
(i.e. a fax machine, computer, etc.) needed by the Reps in performing everyday duties, fit within the
scope of "solicitation of orders" pursuant to the provisions of Public Law 86-272. Company A states
that it does not own or lease any real property in New York. It also states that it reimburses Rep 1
for office supplies and other general expenses, but does not provide any other remuneration to Rep
1 with regards to his home office expenses. Company A does not represent itself as having an office
at Rep 1's home office address. Rep 1's business cards and letterhead use the out-of-state corporate
office address and phone number. Rep 1 receives voice-mail from the voice-mailbox at the out-of­
state office, and written correspondence to Rep 1 is sent to the out-of-state office and forwarded to
Rep 1. Therefore, it is determined that Company A would not considered to be maintaining an office
in New York at Rep 1's residence pursuant to section 1-3.4(b)(9)(vi) of the Regulations.
Since Company A would not be maintaining an office in New York at Rep 1's residence
pursuant to section 1-3.4(b)(9)(vi) of the Regulations, Company A's activities in New York would
constitute the solicitation of orders pursuant to the provisions of Public Law 86-272, and pursuant
to section 1-3.4(b)(9) of the Regulations, Company A would be exempt from the franchise tax
imposed under Article 9-A of the Tax Law. However, Company A would be required to annually

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file an activities report on form CT-245 - Maintenance Fee and Activities Return For a Foreign
Corporation Disclaiming Tax Liability, but it would not be liable for the maintenance fee.

DATED: March 1, 1999

NOTE:

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

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