Our company is technically incorporated in New York, but we have no office, sales representatives, or any physical connection to the state at all -- we operate entirely out of New Jersey and just ship products to customers nationwide, including some in New York. Are we stuck paying only the $250 minimum Article 9-A tax, or could our New York shipments push us above that?

Plain-English summary

Victor Hasselblad, Inc. was a New York corporation that had been completely inactive from its 1956 formation all the way through 1979. In January 1980, its Swedish parent -- a camera and photographic-accessories manufacturer -- terminated its exclusive U.S. distributorship with an independent distributor. Petitioner then bought the terminated distributor's inventories and became the exclusive U.S. distributor for its Swedish parent. Petitioner qualified to do business in New Jersey and leased a building in Fairfield, New Jersey, from which it conducted all of its business: administrative, sales, service, and storage functions. Its only other location was a small service branch in California. Critically, Petitioner had no office, sales representative, listing, or any other connection to or with New York State. It sold Hasselblad cameras and accessories to dealers and retailers across the country, including New York, but all orders were approved and processed through the New Jersey office and shipped directly from New Jersey to customers.

Tax Law § 209.1 imposes the Article 9-A franchise tax on every domestic business corporation for the privilege of exercising its corporate franchise, and Tax Law § 210.1(a) sets out four alternative methods for computing the basic tax, requiring use of whichever produces the largest tax (plus a separate tax on subsidiary capital). Except for the flat $250 minimum tax, the applicable computations generally involve a "business allocation percentage," one factor of which is based on receipts from sales of tangible personal property shipped to points within New York.

Because Petitioner made sales of cameras and accessories delivered to New York customers, the Department held its business allocation percentage was greater than zero -- which could result in tax liability above the $250 minimum. Whether it actually would exceed the minimum, and by how much, depends on (1) the size of Petitioner's tax bases computed under Tax Law § 210, and (2) its actual business allocation percentage. The Department didn't quantify the tax; it simply confirmed that Petitioner couldn't assume it was automatically limited to the $250 minimum just because it had no physical presence in New York.

What this means for you

Zero physical presence in New York doesn't guarantee the $250 minimum tax

Even a corporation with no New York office, employees, or sales representatives can be pushed above the minimum Article 9-A tax purely by shipping products to New York customers -- shipment destination is itself a business-allocation-percentage factor.

The minimum tax is a floor, not a cap, once any allocation factor is above zero

Once your business allocation percentage exceeds zero for any reason (here, shipments into New York), you must run the actual tax computation under Tax Law § 210 to see whether it exceeds $250 -- you can't simply default to the minimum.

Common questions

Q: If our company has no office, employees, or sales reps in New York, do we automatically pay only the minimum Article 9-A tax? A: No -- if you ship goods to New York customers, that alone can give you a business allocation percentage above zero, meaning your actual computed tax could exceed the $250 minimum depending on your overall tax base.

Q: Does it matter that all our order processing and shipping physically happens outside New York? A: Not for this purpose -- the business allocation percentage factor at issue here looks at where shipments are DELIVERED (into New York), not where they originate.

Citations and references

Statutes and guidance:

• Tax Law § 209.1
• Tax Law § 210.1(a)

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_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81(3)C
Corporation Tax
January 8, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C800902B

On September 2, 1980, a Petition for Advisory Opinion was received from Victor Hasselblad, Inc., 10 Madison Avenue, Fairfield, New Jersey 07006. The issue raised is whether a New York corporation whose sole activity in New York consists of the shipping of goods from its non-New York place of business to customers in New York may be required to pay more than the minimum tax due under Article 9-A of the Tax Law (Franchise Tax on Business Corporations). The Petitioner, a New York corporation, was completely inactive from 1956, when it was formed, through 1979. In January, 1980 its Swedish parent, a manufacturer of cameras and photographic accessories, terminated an exclusive U.S. distributorship with an independent U.S. distributor. Petitioner then purchased the inventories of the terminated distributor and became the exclusive U.S. distributor for its Swedish parent. Petitioner qualified to do business in New Jersey and leased a building in Fairfield, New Jersey from which it conducts all of its business, including its administrative, sales, service and storage functions. Its only location outside New Jersey consists of a service branch in California. Petitioner has no office, sales representative, listing, or other connection in or with New York State. Petitioner sells Hasselblad cameras and accessories to dealers and retailers throughout the United States, including New York State. All orders are approved and processed through the New Jersey office and shipped directly to the customers from the New Jersey location. Section 209.1 of the Tax Law imposes a franchise tax on every domestic business corporation for the privilege of exercising its corporate franchise. Section 210.1(a) of the Tax Law sets forth four methods of computing the basic tax and provides that the method which produces the largest tax shall be applicable. In addition there is a tax on subsidiary capital. Except with respect to the minimum tax of $250, the computations of tax possibly applicable to Petitioner would involve (on either a mandated or elective basis) the application of a business allocation percentage. One of the factors constituting the business allocation percentage is based on receipts from sales of tangible personal property where shipments are made to points within New York. Thus, since Petitioner makes sales of cameras and accessories delivered to customers in New York its business allocation percentage is greater than zero and may result in a tax liability in excess of $250. Whether this would be the case is dependent on (1)the magnitude of Petitioner's tax bases under section 210 of the Tax Law and (2) Petitioner's business allocation percentage. Accordingly, by virtue of its sales to New York customers Petitioner may be liable, in accordance with the considerations cited above, for a tax under Article 9-A of the Tax Law in excess of $250.

DATED:

October 28, 1980

JAMES H. TULLY., COMMISSIONER

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

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