An out-of-state typesetting company's New York salesmen solicit orders, pick up customer manuscripts for delivery to the out-of-state plant, and deliver the finished typeset negatives back to New York customers. Does that combination of activities stay within Public Law 86-272's protected 'solicitation' safe harbor, or does it create New York franchise tax nexus?

Plain-English summary

A foreign corporation ("Corporation") runs a typesetting operation from outside New York, with its management, commercial domicile, and manufacturing all located out of state. Although it has customers in many states, most of its sales go to New York customers, who place orders by mail, phone, or through salesmen Corporation employs to solicit sales in New York on a regular, continuous basis -- all orders are then sent outside the state for approval or rejection. Customer manuscripts are physically delivered to Corporation's out-of-state typesetting plant by salesmen, messengers, or common carriers; there they're typeset and photographed, and the resulting negatives are delivered either back to the New York customer or directly to the customer's publisher elsewhere.

New York imposes its Article 9-A franchise tax on foreign corporations doing business in the state (Tax Law § 209.1), but Public Law 86-272 exempts a corporation whose only in-state activity is soliciting orders for tangible personal property that are sent outside the state for approval and, if approved, filled by shipment from outside the state. The Department first established that the "underlying object of the transaction" here is the customer's purchase of a typeset negative -- itself a form of tangible personal property (citing Walker Engraving) -- bringing the whole arrangement within P.L. 86-272's scope of concern.

The Department then walked through Corporation's three New York activities one by one: (1) soliciting orders is pure protected solicitation; (2) picking up manuscripts for delivery to the out-of-state plant is, in substance, the act of "sending the order outside the state for approval" -- itself an expressly protected activity under the statute -- and is additionally protected because it's performed as a convenience to the customer, following the "act of courtesy" doctrine from Kimberly-Clark, consistent with New York's own liberal reading of "solicitation" in Gillette Co.; and (3) delivering the finished negatives back to New York customers qualifies as "delivery from a point outside the state," a form of protected activity that doesn't depend on whether the delivery vehicle is a common carrier, the postal service, or the vendor's own trucks/salesmen -- the test is the shipment's point of origin, not who carries it. Since none of Corporation's three New York activities exceeded the P.L. 86-272 safe harbor, Corporation is exempt from the Article 9-A franchise tax for the period at issue.

What this means for you

Out-of-state manufacturers whose product requires picking up customer materials

Physically collecting a customer's materials (manuscripts, samples, specifications) for use in an out-of-state manufacturing process can be treated as part of "sending the order outside the state for approval" -- and remain protected solicitation -- rather than an independent taxable service, especially when done as a customer convenience.

Delivery method doesn't determine nexus -- the shipment's origin does

Whether your finished product is delivered by common carrier, mail, or your own salesmen/messengers, delivery from a point outside New York stays within P.L. 86-272's protection; using your own personnel for delivery, instead of an independent carrier, does not by itself create nexus.

Contrast with a company that maintains a New York office

This ruling turns on Corporation having NO physical presence in New York beyond traveling salesmen and messengers -- compare the contrary result in TSB-A-85(26)C, where a foreign manufacturer lost P.L. 86-272 protection specifically because its sales arrangement involved maintaining a New York showroom-sales OFFICE, which the regulations treat as exceeding solicitation regardless of how protected the underlying sales activity itself would otherwise be.

Common questions

Q: Does picking up a customer's materials and delivering finished goods back defeat P.L. 86-272 protection?
A: Not on these facts -- both were treated as ancillary to protected solicitation (in substance, sending the order out of state for approval, and delivering from a point outside the state), especially since they were performed as a courtesy to the customer.

Q: Does it matter whether delivery is by common carrier or the company's own employees?
A: No -- the protected-delivery test looks to the shipment's point of origin (outside the state), not who physically carries it.

Q: Would maintaining a New York office change this result?
A: Yes -- maintaining an office in New York (even one operated through a sales representative) independently exceeds P.L. 86-272's protection under the regulations, regardless of how the solicitation itself is characterized; see the contrasting result in TSB-A-85(26)C.

Q: Can another typesetting or similar company rely on this specific ruling?
A: No. It binds the Department only as to this petitioner's own facts and can't be relied upon by other taxpayers, even those with similar pickup-and-delivery arrangements.

Citations and references

Statutes, regulations, and case law:

• Tax Law § 209.1
• Public Law 86-272, 15 U.S.C. § 381(a)
• Walker Engraving Corp. v. State Tax Commission, 268 N.Y. 648 (1935)
• Gillette Co. v. State Tax Commission, 56 A.D.2d 475 (3d Dept. 1977), aff'd, 45 N.Y.2d 846 (1978)
• Indiana Department of Revenue v. Kimberly-Clark Corp., 416 N.E.2d 1264 (Ind. 1981)
• Hervey v. AMF Beaird, Inc., 250 Ark. 147, 464 S.W.2d 557 (1971)
• North American Car Corp. v. State Tax Commission, 94 A.D.2d 880 (3d Dept. 1983)
• J. Hellerstein, State Taxation, Vol. I, p.238 (1983)

Related rulings:

• TSB-A-85(26)C -- a contrasting P.L. 86-272 result about a year later: a foreign manufacturer that maintained a New York showroom-sales office through an exclusive (single-principal) sales representative LOST protection, illustrating the line between activities ancillary to solicitation (protected, as here) and maintaining a New York office (not protected, regardless of how the underlying sales activity is characterized)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a84_11c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84 (11) C
Corporation Tax
September 14, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C821029A

On October 29, 1982 a Petition for Advisory Opinion was received from Touche Ross and
Company, 1700 Market Street, Philadelphia, Pa. 19103.
At issue is whether a foreign corporation is subject to the Franchise Tax on Business
Corporations imposed under Article 9-A of the Tax Law, under the following circumstances.
The corporation ("Corporation"), which conducts a typesetting operation, has its seat of
management and commercial domicile, and conducts its manufacturing operations outside the State.
Although Corporation has customers in many states, the majority of its sales are to New York
customers. Customers in New York place orders by mail, by telephone, or through salesmen
employed by Corporation to solicit sales in New York on a regular and continuous basis. All such
orders are sent outside the State for approval or rejection.
The customer's manuscripts are delivered to Corporation's typesetting plant, located outside
New York, by salesmen, messengers, or common carriers. There the manuscripts are typeset and
photographed. The salesmen, messengers, or common carriers then deliver the negatives either back
to the customer in New York or directly to the customer's publisher at some other location.
New York State imposes a franchise tax on foreign corporations that are, among other things,
doing business in the State. Tax Law, §209.1. Pursuant to Public Law 86-272, however, no state may
impose a net income tax on a foreign corporation where the corporation's only activities in that state
are:
"(1) the solicitation of orders by such person, or his representative, in
such state for sales of tangible personal property, which orders are
sent outside the state for approval or rejection, and, if approved, are
filled by shipment or delivery from a point outside the state;..."
Act of Sept. 14, 1959, Pub. L. No. 86-272, 1959 U.S. Code Cong. & Ad. News (73 Stat.) 613.
The term "tangible personal property" refers to corporeal personal property. Walker
Engraving Corp. v. State Tax Commission, 268 N.Y. 648 (1935). In the present case, customers
relinquish manuscripts in return for a typeset negative. The underlying object of the transaction is
the purchase of the negative, a form of tangible personal property, thus bringing the business of
Corporation within the ambit of concern of P.L. 86-272.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84 (11) C
Corporation Tax
September 14, 1984

Petitioner's activities in New York are three-fold: (1) soliciting orders, (2) picking up
manuscripts for delivery to its typesetting plant outside New York, and (3) delivering typeset
negatives to customers in New York.
The activities in New York that constitute pure solicitation may not be made the basis for an
assertion of jurisdiction to tax under Article 9-A, by virtue of Public Law 86-272. Although the
courts have varied significantly on precisely what activities ancillary to pure solicitation are protected
by P.L. 86-272 (See, e.g., Gillette Co. v. State Tax Commission, 56 A.D.2d 475 (3d Dept. 1977),
aff'd, 45 N.Y.2d 846 (1978), Hervey v. AMF Beaird, Inc., 250 Ark. 147, 464 S.W.2d 557 (1971)),
such issue is not of concern herein.
Next, P.L. 86-272 specifically includes, as part of the protected activities, the sending of
orders "outside the State for approval or rejection." In the present case, the delivery of the manuscript
to the typesetting location outside New York is in essence the placing of the order. Thus, picking up
and delivering the manuscript for the purpose of placing the order is a protected activity. Further, this
service is provided for the convenience of the customer. "[W]hen a corporate representative performs
[such] an 'act of courtesy' in order to accommodate a customer, he has not ventured beyond the realm
of 'solicitation'"Indiana Department of Revenue v. Kimberly - Clark Corp, 416 N.E.2d 1264, 1268
(Ind., 1981). This view is consistent with the relatively liberal construction New York courts have
put on the term "solicitation" in the context of P.L. 86-272. Gillette Co. v. State Tax Commission,
56 A.D.2d 475 (3d Dept. 1977), aff'd, 45 N.Y.2d 846 (1978); North American Car Corp. v. State Tax
Commission, 94 A.D.2d 880 (3d Dept. 1983).
Finally, delivering the completed typeset negative to customers in New York constitutes
"delivery from a point outside the State" as defined in P.L. 86-272, and falls within the scope of
activities protected by its provisions. This interpretation is supported by a recent commentary on
Public Law 86-272 in which it was noted that "[p]resumably, the protected area includes not only
delivery by common carrier or the post office, but also by the vendor's trucks, for the test appears to
be the point of origin of the shipment." J. Hellerstein, State Taxation, Vol. I, p.238 (1983). In the
present case, therefore, such deliveries are protected regardless of whether they are made by
Petitioner's salesmen, messengers, or common carriers.
Based on the foregoing considerations, Corporation's described New York activities fall
within the ambit of Public Law 86-272. Therefore, Corporation is exempt from the Franchise Tax
on Business Corporations, imposed under Article 9-A of the Tax Law.

DATED: September 11, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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