Is a freight forwarder that owns no trucks or planes taxed as a New York transportation corporation under Tax Law Sections 183-184, or as an ordinary business corporation under Article 9-A?

Plain-English summary

Preferred Air Freight, Inc., a New Jersey freight-forwarding corporation, owned no transportation equipment of its own -- it purchased the services of cargo airlines and truckers to move its customers' goods. It asked the Department whether it should be taxed as a "transportation corporation" under Tax Law Sections 183 and 184 (which apply to corporations formed for or principally engaged in aviation, trucking, or similar businesses) or as an ordinary business corporation under Article 9-A. The two regimes are mutually exclusive: Section 209.4 excludes anyone taxable under Sections 183-186 from Article 9-A.

The Department explained that not owning planes or trucks doesn't automatically get a freight forwarder out of transportation-corporation status. Under People ex rel. N.Y. & A.L. Co. v. Cantor, a company that provides services directly connected with transportation -- not just one that owns and manages the means of transportation -- can still be a "transportation corporation" for Sections 183-184 purposes. The real test is the forwarder's relationship to the shipment:

• Acting as principal: the forwarder assumes control of and full responsibility for the property, issues its own bill of lading, and pays the underlying carriers itself. This looks enough like a common carrier's role that it is taxed under Sections 183-184.
• Acting as agent: the forwarder assumes no responsibility for the goods, the shipper issues the bill of lading and pays the carriers directly, and the forwarder is paid only for arranging the transportation. This is taxed under Article 9-A instead.

Because the Petition didn't specify which role Preferred Air Freight actually played, the Department gave a conditional answer: agent status means Article 9-A, principal status means Sections 183-184. It also declined to specify the exact allocation formula that would apply under Section 184.4(f) if the transportation-corporation classification applied, since factual allocation determinations belong in an audit, not an Advisory Opinion.

What this means for you

Freight forwarders and logistics companies

Not owning trucks, planes, or ships doesn't exempt a forwarder from New York's transportation-corporation franchise tax. What matters is whether you take on a carrier-like role for the shipment -- issuing your own bill of lading and being responsible for the goods and paying the underlying carriers -- versus simply acting as an agent who arranges transportation on the shipper's behalf while the shipper stays on the hook for the bill of lading and carrier payments.

Accountants and tax professionals structuring forwarder contracts

Review your client's actual contracts and bills of lading, not just their business description. A forwarder that issues its own bills of lading and pays carriers as principal will be pushed into Sections 183-184 (transportation corporation) even with zero owned equipment; one that stays a pure booking agent, with the shipper on the bill of lading and paying carriers, stays under Article 9-A. If Sections 183-184 apply, the exact allocation percentage is an audit-stage factual question, not something this Opinion resolves.

Common questions

Q: Does a freight forwarder need to own trucks or airplanes to be taxed as a transportation corporation?
A: No. Under Cantor, providing services directly connected with transportation can be enough, even without owning the means of transport, if the forwarder otherwise acts like a carrier.

Q: How do I know if my forwarder is acting as "principal" or "agent"?
A: Look at who issues the bill of lading and who pays the underlying carriers. If the forwarder does both and bears responsibility for the property, it's acting as principal (Sections 183-184). If the shipper does both and the forwarder is paid only to arrange transport, the forwarder is acting as agent (Article 9-A).

Q: What allocation formula applies if a forwarder is taxed under Sections 183-184?
A: The Department didn't decide that here -- Section 184.4(f) allocation for "other types of transportation and transmission corporations" is determined by the Tax Commission based on facts developed in an audit, which is outside the scope of an Advisory Opinion.

Q: Can another freight forwarder rely on this Opinion?
A: No. It binds the Department only as to Preferred Air Freight's own facts, and even here the Department couldn't finally classify the company without knowing whether it acted as principal or agent.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 183, § 184 (transportation corporation franchise tax); § 184.4(f) (allocation)
• Tax Law § 209.4 (mutual exclusivity of §§ 183-186 and Article 9-A)
• Tax Law § 171(24); 20 NYCRR 901.1(a) (Advisory Opinion scope)
• People ex rel. N.Y. & A.L. Co. v. Cantor, 239 N.Y. 64

Related rulings:

• TSB-A-85(3)C -- leased tractors/trailers classification, same §§183-184/Article 9-A doctrine
• TSB-A-85(4)C -- ambulance company classification, same doctrine

Date note: The document header repeats "October 10, 1985" four times, but the sign-off line reads "DATED: October 8, 1985." This two-day gap is consistent with the opinion being signed internally before the header/publication date, so issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_19c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (19) C
Corporation Tax
October 10, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C840921A

On September 21, 1984, a Petition for Advisory Opinion was received from Preferred Air
Freight, Inc., 2414 Morris Avenue, Union, New Jersey 07083.
The issue raised is whether Petitioner is subject to taxation as a transportation corporation
under Sections 183 and 184 of the Tax Law or as a business corporation under Article 9-A of the Tax
Law.
Petitioner, a New Jersey corporation, is engaged in business as a freight forwarder. It owns
no transportation equipment but purchases the services of cargo airlines and truckers. Petitioner
contends that the allocation factors set forth for "aviation corporations" do not apply directly to
freight forwarders not owning airlines. Petitioner maintains that it should not be subject to tax as
a transportation corporation under Sections 183 and 184 of the Tax Law.
Section 209.4 of the Tax Law states, in part:
"Corporations liable to tax under Sections 183 to 186, inclusive, .
. . shall not be subject to tax under this article."
Sections 183 and 184 impose franchise taxes on transportation corporations:
"formed for or principally engaged in the conduct of aviation,. . .
trucking, . . . or formed for or principally engaged in the conduct of two
or more of such businesses...."
A freight forwarder may, depending upon the nature of its activities, be considered a
"transportation corporation" for purposes of Sections 183 and 184 of the Tax Law. In People ex rel.
N.Y. & A.L. Co. v. Cantor, 239 N.Y. 64, a corporation engaged in a general lighterage and
forwarding business without engaging in the transportation of freight as a common carrier was
classified as a transportation corporation within the meaning and intent of Section 184. The Court
thus construed the statute to include as a transportation corporation taxable under Sections 183 and
184 not only a corporation owning and managing the means of transportation but also a corporation
which provides services directly connected with such transportation.
The relationship between the freight forwarder and the shipper must be examined in
determining whether a forwarder is subject to Sections 183 and 184 of the Tax Law as a
"transportation corporation" or to Article 9-A of the Tax Law as a general business corporation.

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

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

-2­
TSB-A-85 (19) C
Corporation Tax
October 10, 1985

A freight forwarder acting as principal in the transportation of property assumes control of
and full responsibility for the property being shipped. The forwarder issues the bill of lading and
pays all transportation charges made by the carriers. Its activities are similar to those of a common
carrier except that it does not own the means used to transport the property. This type of freight
forwarder is a transportation corporation subject to Section 183 and 184 of the Tax Law.
Conversely, a freight forwarder acting as an agent of the shipper assumes no responsibility
for the property being shipped. The shipper issues the bill of lading and pays the transportation
charges made by the carriers. The forwarder is paid only to perform the service of arranging for the
transportation of the property. A forwarder acting as an agent is subject to Article 9-A of the Tax
Law.
If Petitioner is acting as an agent, as described herein, it is subject to Article 9-A of the Tax
Law. However, if Petitioner is acting as principal, it is subject to Sections 183 and 184 of the Tax
Law. The method of allocation to be used will be determined in accordance with Section 184.4(f)
of the Tax Law.
Section 184.4(f) of the Tax Law states, in part:
"With respect to other types of transportation and transmission
corporations. . . the tax commission shall prescribe methods of
allocation or apportionment which fairly and equitably reflect gross
earnings from all sources within this State."
The method of allocation to be prescribed by the Tax Commission cannot be determined
within the scope of an Advisory Opinion. An Advisory Opinion merely sets forth the applicability
of pertinent statutory and regulatory provisions to "a specified set of facts." Tax Law, section 171,
subd. twenty-fourth; 20 NYCRR 901.1(a). Inasmuch as the method of allocation to be used arises
within the content of an Audit, the necessary factual determinations must be made within such
context.

DATED: October 8, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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