A Delaware holding company, wholly owned abroad, does nothing but hold the stock of two operating subsidiaries based in New York City. It has no salaried employees, pays its two officers nothing, and doesn't pay rent for the unpaid mailing-address space it uses at one subsidiary's New York office -- but it keeps its books and records in New York and has its taxes and administrative work handled there. Is that enough to make it subject to New York's Article 9-A franchise tax?

Plain-English summary

Noga Holding (USA), Inc. was a Delaware corporation, wholly owned by a non-U.S. corporation, whose only activity was holding 100% of the stock of two other Delaware corporations -- Noga Commodities (Overseas) Inc. and Noga Realty Inc. -- both engaged in business in New York City with their principal offices there. Noga itself made no loans to and guaranteed no obligations of its subsidiaries. It had five directors (one a New York-resident secretary, the other four nonresident aliens abroad) and two unpaid officers: a nonresident-alien president and the New York secretary, an attorney at the law firm representing Noga who was elected mainly to handle corporate paperwork. Noga had no vice-president, treasurer, or salaried employees.

Noga maintained bank accounts in New York City, had its tax returns and administrative matters handled there by its New York lawyers, accountants, and its subsidiaries' administrative staff, and kept all of its books and records in New York City as a result. It also maintained an office at One World Trade Center -- the address of its subsidiary Noga Commodities (Overseas) Inc. -- paying no rent, using the space principally as a mailing address.

Article 9-A of the Tax Law taxes foreign corporations for "the privilege of ... doing business, or of employing capital, or of owning or leasing property in this state ... or of maintaining an office in this state" (Tax Law § 209.1). The regulations broadly deem "every corporation organized for profit and carrying out any of the purposes of its organization" to be doing business (20 NYCRR § 1-3.2(b)(1)), assessed case by case under a six-factor test: the nature/continuity/frequency of New York activities versus elsewhere; the corporation's organizational purpose versus its New York activities; the location of its offices; the portion of income from New York activities; the New York employment of agents, officers, and employees; and the location of its actual seat of management or control (20 NYCRR § 1-3.2(b)(2)). An "office" is broadly defined as "any area, enclosure, or facility which is used in the regular course of the corporate business" (20 NYCRR § 1-3.2(e)).

The Department held that Noga maintained an office in New York -- the fact that the space was neither owned nor rented, and used only for limited purposes, didn't take it outside the regulation's broad "office" definition. And Noga's activities, limited as they were, constituted doing business in New York: one of its two officers was located there, its books and records were kept there, and its tax preparation, administrative matters, and corporate documentation were all handled there. That combination subjected Noga to the Article 9-A franchise tax.

What this means for you

An unpaid, unrented mailing address still counts as a taxable "office"

If your out-of-state or foreign holding company uses a subsidiary's New York address for mail -- even paying no rent and using it minimally -- expect the Department to treat that as "maintaining an office" under 20 NYCRR § 1-3.2(e), which alone can trigger Article 9-A nexus.

Passive stock ownership plus New York-based administration adds up to doing business

Having no salaried employees and no active operations doesn't shield a holding company if its books/records, tax preparation, and one of its two officers are based in New York -- the Department will weigh those facts under the six-factor test even for a company whose only "business" is holding stock.

Common questions

Q: If our holding company has no employees and doesn't rent office space in New York, are we safe from Article 9-A tax?
A: Not necessarily -- even a free, lightly used mailing address at a subsidiary's location can count as an "office" under 20 NYCRR § 1-3.2(e), and keeping your books, records, and tax/administrative work in New York can independently establish doing business.

Q: Does it matter that our only New York-based officer serves without pay?
A: No -- the ruling treated the unpaid New York secretary's presence as one of several facts supporting doing-business nexus, regardless of compensation.

Citations and references

Statutes and guidance:

• Tax Law § 209.1
• 20 NYCRR § 1-3.2(b)(1)
• 20 NYCRR § 1-3.2(b)(2)
• 20 NYCRR § 1-3.2(e)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/h81_12c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81(12)C
Corporation Tax
March 5, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C800827A

On August 27, 1980 a Petition for Advisory Opinion was received from Noga
Holding (USA), Inc., c/o Joseph Bernstein, Rosenman, Colin, Freund, Lewis and
Cohen, 575 Madison Avenue, New York, New York 10022.
The issue raised is whether Petitioner's proposed activities will render
it subject to the Franchise Tax on Business Corporations imposed under Article
9-A of the Tax Law.
Petitioner describes its proposed activities as follows: "Noga Holding
(USA), Inc., ("Noga"), a Delaware corporation wholly owned by a non-U.S,
corporation, owns 100% of the stock of two other Delaware corporations, Noga
Commodities (Overseas) Inc. and Noga Realty Inc., both of which are engaged in
business in New York City and have their principal offices in New York City. Noga
does not and will not engage in any active business in New York City other than
the holding of the stock of its subsidiaries. Noga does not plan to make loans
to its subsidiaries or to guarantee loans obtained by its subsidiaries. Noga
plans to qualify to do business in New York under the relevant corporate
statutes, if it is required to do so.
"Noga presently has five directors, one of which is also Secretary of the
company and a resident of New York City. The other four directors of Noga are
nonresident aliens residing in a foreign country. The officers of Noga consist
of a President, who is one of the nonresident alien directors, and the New York
resident Secretary. Both officers function in a non-paying capacity. The
Secretary-Director is an attorney associated with the law firm which represents
Noga, and this individual was elected as Secretary solely to facilitate corporate
documentation. Noga currently has no Vice-President or Treasurer and has no
salaried employees.
"Noga plans to maintain bank accounts in New York City and will have all
of its tax returns and administrative matters taken care of in New York City by
its New York lawyers and accountants and by administrative personnel employed by
Noga's subsidiaries. For this reason, Noga will keep all of its books and records
in New York City. Finally, Noga will maintain an office in New York City at the
address of one of its subsidiaries, Noga Commodities (Overseas) Inc., which is
located at One World Trade Center, New York, New York. No rent will be paid by
Noga to its subsidiary in connection with the use of such office, which will be
maintained by Noga principally as a mailing address."
Article 9-A of the Tax Law imposes a tax on foreign corporations
for,"...the privilege of...doing business, or of employing capital, or of owning
or leasing property in this state in a corporate or organized capacity, or of
maintaining an office in this state .... " Tax Law, §209.1. The Franchise Tax
Regulations, noting that the term "doing business" is used in the statute in a
comprehensive sense provides that "...every corporation organized for profit and
carrying out any of the purposes of its organization is deemed to be 'doing
business' for the purposes of the tax" imposed under Article 9-A. 20 NYCRR
§1-3.2(b)(1).

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-81(12)C
Corporation Tax
March 5, 1981

Whether it is doing business in New York is a matter to be determined on a case
by case basis,giving consideration to the following factors:
"(i)

the nature, continuity, frequency, and regularity of the
activities of the corporation in New York State, compared with
the nature, continuity, frequency, and regularity of its
activities elsewhere;

(ii)

the purposes for which the corporation was organized, compared
with its activities in New York State;

(iii)

the location of its offices and other places of business;

(iv)

the income of the corporation and the portion thereof derived
from activities in New York State;

(v)

the employment in New York State of agents, officers, and
employees; and

(vi)

the location of the actual seat of management or control of
the corporation" 20 NYCRR §1-3.2(b)(2)

The same Regulation define the term office as "...any area, enclosure, or
facility which is used in the regular course of the corporate business." 20 NYCRR
§1-3.2(e)
The activities described by Petitioner would render it subject to the
Franchise Tax on Business Corporations imposed under Article 9-A of the Tax Law.
First, Petitioner by its own admission maintains an office in New York. The fact
that the office is neither owned nor rented, and that it is used only for limited
purposes, does not render it something other than an office within the meaning
of the Tax Law. Second, Petitioner's activities in New York constitute the doing
of business. The facts stated in the Petition indicate that Petitioner is a
passive holding company whose business activities, limited as they may be, are
conducted largely, if not wholly, in New York. Indicative of its doing business
is the fact that one of Petitioner's two officers is located in New York, that
it is in New York that Petitioner keeps its books and records and that such
matters as the preparation of tax returns, administrative matter and corporate
documentation are handled in New York.
Accordingly, inasmuch as the activities described by Petitioner would
constitute the maintenance of an office in New York and the doing of business in
New York, the performance of such activities would render Petitioner subject to
the Franchise Tax on Business Corporations imposed under Article 9-A of the Tax
Law.
DATED:

January 16, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau