Is a corporation dissolved by proclamation, which only holds record title to real property as nominee, subject to the Article 9-A franchise tax before and after its dissolution?

Plain-English summary

Perlinda Realty, Inc. was a New York corporation that, after being dissolved by proclamation (in December 1969), continued only to hold record title to real property as a nominee. The corporation was formed in 1962 only to own a Brooklyn building; after dissolution it kept record title, but all rent went directly to its sole shareholder, who personally paid the taxes, and the corporation kept no bank account, elected no officers and filed no returns. It asked whether it is subject to the Article 9-A franchise tax.

The Department drew a two-period line:

• While incorporated (before dissolution). Under section 209.1, the franchise tax applies for the privilege of exercising a corporate franchise, or owning or leasing property in a corporate capacity. So Perlinda Realty, Inc. is subject to the Article 9-A franchise tax for the taxable years it was incorporated, up to its dissolution -- even though it never actively conducted business -- because it held its corporate franchise and owned property in a corporate capacity.
• After dissolution. Under section 209.3 (and 20 NYCRR 1-2.4(c)), a dissolved corporation that is merely a record title holder of New York real property as nominee for others, and is otherwise inactive, is not conducting business. So after dissolution Perlinda Realty, Inc. is not subject to the Article 9-A tax.

What this means for you

The corporate franchise itself is taxable

Before dissolution, simply holding the corporate franchise and owning property in a corporate capacity triggers the franchise tax, regardless of whether the corporation actively operated.

Dissolution plus bare nominee title ends the tax

Once dissolved, a corporation that does nothing but hold record title as nominee for others is not doing business under section 209.3 and owes no Article 9-A tax for that period.

This sits in the Department's dissolved-nominee line

The result follows a consistent line of opinions treating a dissolved, inactive record-title holder as not doing business.

Common questions

Q: Does the corporation owe franchise tax for the years before it was dissolved? A: Yes. Holding the corporate franchise and owning property in a corporate capacity makes it subject to the tax for those years.

Q: Does it owe tax after dissolution?
A: No. As a dissolved, inactive nominee holding only record title, it is not doing business under section 209.3.

Q: Does never having actively operated change the pre-dissolution result? A: No. The franchise and property ownership in a corporate capacity are enough for the pre-dissolution years.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 209.1 (Article 9-A franchise tax; privilege of exercising a corporate franchise; owning property)
• Tax Law section 209.3 (dissolved corporation not doing business not subject to tax)
• 20 NYCRR 1-2.4(c) (dissolved corporation limited to winding up not subject to tax)
• Rubin Brothers Holding Company, TSB-A-97(27)C (Dec. 4, 1997)
• Perlinda Realty, Inc., TSB-A-99(5)C (Jan. 26, 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_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(5)C
Corporation Tax
January 26, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C981007B

On October 7, 1998, a Petition for Advisory Opinion was received from Perlinda Realty, Inc., 917 Gates Avenue, Brooklyn, New York 11221. The issue raised by Petitioner, Perlinda Realty, Inc., is whether it is subject to franchise tax under Article 9-A of the Tax Law subsequent to its dissolution by proclamation. Petitioner submits the following facts as the basis for this Advisory Opinion. Petitioner was incorporated on October 22, 1962 expressly for the purpose of owning the real property located at 917 Gates Avenue, Brooklyn, New York. Petitioner was dissolved by proclamation in December 1969 for non-payment of franchise taxes. Following its dissolution, Petitioner continued to own the above described real property at 917 Gates Avenue. The sole shareholder of Petitioner was Frances Roberts. Petitioner states that Ms. Roberts' daughter indicates that Petitioner never received rental income from the premises. During the entire period of time that the house at 917 Gates Avenue was under corporate ownership, the rental income from any and all tenants was paid directly to Frances Roberts and not to Petitioner. All real estate taxes and other assessments paid to New York City and New York State, were paid by the individual, Frances Roberts, not by Petitioner. Petitioner indicates that Ms. Roberts' daughter also states that Petitioner did not maintain a corporate bank account; it did not elect officers or directors; it never obtained a formal taxpayer identification number; it never made or received disbursements; it did not remit taxes to New York City or New York State; nor did it file tax returns to either taxing agency. For purposes of this opinion, it is assumed that the facts provided Petitioner by Ms. Roberts' daughter are correct. 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.

-2­
TSB-A-99(5)C
Corporation Tax
January 26, 1999

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(c) 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. 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. Rubin Brothers Holding Company, Adv Op Comm T & F, December 4, 1997, TSB-A-97(27)C; W.R.H.R.E Corp., Adv Op Comm T & F, March 3, 1995, TSB-A-95(4)C; Highmount Medical Building Inc., Adv Op 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, pursuant to section 209.1 of the Tax Law, Petitioner is subject to the franchise tax imposed by Article 9-A for the taxable years during which Petitioner was incorporated. After its dissolution by proclamation in December 1969, Petitioner is merely holding property as nominee for the benefit of others and is 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 26, 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.