A U.S. sales-agent company maintains a New York showroom-sales office exclusively for a related foreign manufacturer -- displaying/selling samples, soliciting orders that are filled entirely from the manufacturer's own out-of-state plant -- but the manufacturer keeps tight control over the office (approving its design, setting all sale terms, controlling hiring/firing). Does maintaining that showroom keep the manufacturer within P.L. 86-272's protected 'mere solicitation' safe harbor, or does it cross the line into taxable New York activity? And is the U.S. sales-agent company itself taxable for providing that agency service?

Date note: the document header prints "October 21, 1985" (matching the TSB-A publication numbering) while the sign-off reads "DATED: September 9, 1985" -- reflecting an internal determination signed on one date, formally issued/numbered weeks later (a pattern recurring across several nearby 1985 opinions, including the companion TSB-A-85(25)C, which shares the identical September 9, 1985 sign-off date). issued_date is set to the sign-off date, 1985-09-09.

Plain-English summary

Hauserman, Inc., an Ohio corporation, operates five U.S. showroom-sales offices (including one in New York, through its Sunar, U.S.A. division) as the EXCLUSIVE U.S. sales agent for furniture manufactured by the Sunar division of Hauserman, Ltd., a related Canadian corporation. All orders solicited at the New York showroom are accepted and filled entirely from Hauserman, Ltd.'s Canadian office and plant. Hauserman, Inc. leases the New York showroom space; Hauserman, Ltd. owns the sample furniture displayed there (used both for display and as office furniture, with no rental payment); about 30-40% of display furniture is periodically consigned for sale to an unrelated party (roughly $25,000/year in New York sales), against average annual New York sales of about $3,000,000. An Exclusive Sales Representative Agreement gives Hauserman, Ltd. the right to approve the showroom's design/location, set ALL prices/terms/conditions for solicited orders, retain control over hiring/firing of showroom personnel, and receive reporting from Hauserman, Inc.'s U.S. Sales Manager -- while Hauserman, Inc. is paid a 15% commission on accepted orders. (A later reorganization had a Hauserman, Inc. subsidiary, renamed Sunar Hauserman, Inc., take over both the showroom lease and Hauserman, Ltd.'s role of ultimate control.)

P.L. 86-272 (codified at 15 U.S.C. §§ 381-4) shields a foreign corporation from state net income tax if its only in-state activity is soliciting orders for tangible personal property that are approved and filled from outside the state -- Congress's response to Northwestern States Portland Cement Co. v. Minnesota, which had allowed states to tax out-of-state sellers with sufficiently continuous local sales activity. New York's regulations track the federal statute, including a NY Court of Appeals-endorsed broad reading of "solicitation" (Gillette Co. v. Tax Comm'n) that protects activities closely related to sales efforts, and an exception allowing an "independent contractor" to maintain a New York office without creating nexus -- but ONLY if that contractor represents MULTIPLE principals in the regular course of its business (20 NYCRR 1-3.4(b)(9)(iii)).

The Department held that using sample furniture for display, standing alone, is protected as merely ancillary to solicitation. But the New York SHOWROOM OFFICE itself exceeds P.L. 86-272's protection: the office-maintenance exception is reserved for genuine independent contractors serving MULTIPLE principals, and Sunar, U.S.A. represented only ONE principal (Hauserman, Ltd.) exclusively. Despite contract language expressly calling the arrangement an "independent contractor" relationship, the Department looked to substance over form (citing Jantzen v. District of Columbia): Hauserman, Ltd.'s pervasive control over the showroom's design, pricing/terms, personnel decisions, and reporting lines meant Sunar, U.S.A. was in substance a "representative," not a protected independent contractor -- and the office is therefore effectively maintained BY Hauserman, Ltd., exceeding the statutory safe harbor and subjecting Hauserman, Ltd. to New York franchise tax.

Separately, the Department found HAUSERMAN, INC. itself also taxable -- but on different reasoning. Hauserman, Inc.'s activities split into two: (1) providing the sales-representative SERVICE to Hauserman, Ltd. under the Exclusive Sales Representative Agreement, and (2) discharging that service by leasing the New York office and soliciting orders. The order-soliciting activities, performed ON BEHALF OF Hauserman, Ltd., don't themselves constitute Hauserman, Inc. "doing business" for its OWN purposes. But providing the representative service itself -- for which Hauserman, Inc. is paid a 15% commission -- IS Hauserman, Inc.'s own business purpose, and that makes Hauserman, Inc. subject to New York's franchise tax too.

What this means for you

Foreign manufacturers using an exclusive U.S. sales representative with a New York showroom

Merely calling your sales arrangement an "independent contractor" relationship in the contract won't protect a New York showroom office from creating nexus if your representative works EXCLUSIVELY for you and you retain substantial control over the office's operation, pricing, and personnel -- P.L. 86-272's office exception requires the contractor to genuinely serve MULTIPLE principals.

Sales agent/representative companies earning commissions from foreign principals

Even if your own solicitation activities on a principal's behalf don't create your own New York tax exposure, providing the SALES-REPRESENTATIVE SERVICE itself (for a fee) is your own business purpose and can independently subject you to New York franchise tax -- a distinct theory from your principal's own nexus exposure.

Common questions

Q: Does displaying sample products in a New York showroom, by itself, exceed P.L. 86-272's protection?
A: No -- using samples in connection with solicitation remains protected as merely ancillary/incidental to offering property for sale.

Q: Why doesn't the "independent contractor" label in the sales agreement protect the arrangement?
A: Because P.L. 86-272's independent-contractor office exception requires the contractor to represent MULTIPLE principals in the regular course of business; a sales agent working exclusively for one principal doesn't qualify, regardless of contract labeling, especially when the principal retains substantial control.

Q: Is the U.S. sales agent company (not just the foreign manufacturer) also subject to New York tax?
A: Yes -- on a separate theory: providing the paid sales-representative service itself is the agent's own business purpose, constituting "doing business" in New York independent of whether its solicitation activities (performed for the principal) would themselves create nexus.

Q: Can another manufacturer/sales-agent pair rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other manufacturer/agent arrangements, even similarly structured exclusive representative agreements.

Citations and references

Statutes and regulations:

• Tax Law § 209.1
• 20 NYCRR 1-3.2(e), 1-3.4(b)(9), 1-3.4(b)(9)(ii)-(iii), 1-3.4(b)(9)(iv)(a), 1-3.4(b)(9)(vi)
• 15 U.S.C. §§ 381-4 (P.L. 86-272)
• Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959)
• Gillette Co. v. Tax Comm'n, 56 A.D.2d 475 (1977), aff'd 45 N.Y.2d 846 (1978)
• Jantzen Inc. v. District of Columbia, 395 A.2d 29 (D.C. 1978)
• National Tires, Inc., TSB-H-80(28)C; American Association of Advertising Agencies, TSB-H-80(32)C

Related rulings:

• TSB-A-87(7)C -- another P.L. 86-272 showroom case (an out-of-state manufacturer selling through independent commissioned reps loses protection once it rents a small NY showroom), decided about two years later on similar office-maintenance reasoning
• TSB-A-84(11)C -- a contrasting result about a year earlier: a foreign typesetting company with NO New York office, only traveling salesmen and messengers picking up/delivering materials, stayed fully within P.L. 86-272's protection -- illustrating that ancillary courier-type activities are protected while maintaining an actual New York office (as here) is not
• TSB-A-84(10)C -- an earlier ruling applying the SAME office-maintenance regulation (20 NYCRR § 1-3.4(b)(9)(vi)) to a very different fact pattern: a Florida homebuilder's officer using his own Long Island residence, with an advertised phone number, as a pre-formal-office sales point

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_26c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (26) C
Corporation Tax
October 21, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C820628A

On June 28, 1982, a Petition for an Advisory Opinion was received from Hauserman, Inc.,
5711 Grant Avenue, Cleveland, Ohio 44105.
At issue is whether Petitioner, a foreign corporation which rents a showroom-sales office in
New York to display the products of and act as the sole sales agent for a related alien corporation,
is subject to the Franchise Tax on Business Corporations imposed under Article 9-A of the Tax Law.
Petitioner also inquires whether the related alien corporation would be subject to such tax.
Hauserman, Inc., an Ohio corporation, operates five showroom-sales offices in the United
States, including one in New York, through its division Sunar, U.S.A.. Hauserman, Inc. is the
exclusive sales agent in the United States for the furniture products manufactured by the Sunar
division of a related Canadian corporation, Hauserman, Ltd.. All contracts or orders solicited by the
Sunar, U.S.A. division of Hauserman, Inc. at the New York showroom-sales office are accepted at
and filled from the office and plant of Hauserman, Ltd. in Canada.
Hauserman, Inc. leases a showroom-sales office in New York. Leasehold improvements are
owned by its division, Sunar, U.S.A.. Hauserman, Ltd. owns the furniture located in the New York
showroom-sales office, such furniture being both displayed for sale and used as office furniture. No
payment is made by Hauserman, Inc. to Hauserman, Ltd. for such usage. Furniture so used is used
solely in connection with the above-described solicitation activities. The display products in the New
York showroom-sales office are, on occasion, offered for sale to dealers when the display furniture
is changed, as when a new line is introduced. Approximately thirty to forty percent of the display
furniture is consigned each year to an unrelated party for sale. Approximately $25,000 is received
each year from such sales, which are made in New York. Petitioner's average total annual sales to
New York purchasers is approximately $3,000,000.
The relationship between Hauserman, Ltd. and Hauserman, Inc. is governed by an Exclusive
Sales Representative Agreement. Section 3 of this agreement grants to Hauserman, Ltd. the right to
disapprove the design, location, and appointments of the New York showroom. Section 4 of the
agreement provides that Hauserman, Ltd. is to set all prices, terms, and conditions for orders to be
solicited at the New York showroom, such orders and bids to be taken on standard forms approved
by Hauserman, Ltd.. Section 5 provides that Hauserman, Inc. is to negotiate contracts with individual
sales representatives, with the proviso that the negotiation and execution of such contracts is to be
made in consultation with Hauserman, Ltd.. Further, Hauserman, Ltd. retains control over the hiring
and firing of personnel working at or out of the New York showroom. Finally, the U.S.A. Sales
Manager of Hauserman, Inc., who is responsible for the operation of all five showrooms, including
the one in New York, reports to the President of the Sunar Division of Hauserman, Ltd.. Hauserman,
Ltd. retains ultimate control over the operations conducted at or out of the New York showrooms
including the hiring and firing of individuals, as well as the manner in which operations are

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

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

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Corporation Tax
October 21, 1985

to be conducted. Under Section 6 of the agreement, Hauserman, Ltd. will pay Hauserman, Inc. fifteen
percent of the final accepted contract price of each order obtained in its territory for the performance
of Hauserman, Inc.'s sales service.
Subsequent to the submission of its Petition for Advisory Opinion, Petitioner submitted
additional facts with respect to which it also requests a ruling. Effective on and after March 1, 1984
the E. F. Hauserman, Co., subsidiary of Hauserman Inc., changed its corporate name to Sunar
Hauserman, Inc.. Sunar Hauserman, Inc. vacated its former branch sales office and moved into and
operates out of the Sunar, U.S.A. New York showroom-sales office at 730 Fifth Avenue, New York,
New York 10019. Sunar Hauserman, Inc. rents this office space from Sunar, U.S.A. for use in the
sale of its Interior Building Partition & Wall Products as well as for the sale of Sunar of Canada's
furniture products. Through this reorganization, Sunar Hauserman, Inc. is replacing Hauserman, Ltd.
as the ultimate control over operations conducted at or out of the Sunar New York showroom-sales
office.
The franchise tax at issue is imposed on every foreign corporation, not otherwise specifically
exempted, which is doing business, employing capital, owning or leasing property or maintaining
an office in New York (Tax Law, § 209.1; 20 NYCRR 1-3.2). Notwithstanding the imposition of the
franchise tax, however, a foreign corporation whose income is derived solely from interstate
commerce is not subject to tax if its New York activities do not exceed those prescribed by Public
Law 86-272, which is codified at 15 U.S.C. §§381-4. (20 NYCRR §1-3.4(b)(9)). P.L. 86-272 was
enacted in order to overcome the U.S. Supreme Court decision in Northwestern States Portland
Cement Co. v. Minnesota, 3 L. Ed. 2d 421 (1959). In Northwestern, the U.S. Supreme Court for the
first time permitted the application of a state net income tax to the income of a taxpayer engaged
exclusively in interstate commerce, holding that such a tax satisfies the Due Process Clause of the
U.S. Constitution where a corporation's activities in the taxing state are such that there is created a
sufficient nexus between such activities and the tax imposed; that is, that the corporation is
"sufficiently included in local events to forge 'some definite link, some minimum connection'
sufficient to satisfy due process requirements." (Id. at 431).
The corporations in the two cases consolidated for decision in Northwestern were engaged
in the taxing states in the solicitation of orders for tangible personal property, such orders being
accepted, filled, and delivered from a location outside of the taxing state. Activities closely related
to solicitation were also carried on, such as leasing and operating offices for the use of salesmen and
secretarial staff, as well as the furnishing of cars to the salesmen. In one of the two cases salesmen
received and transmitted claims against the corporation for loss or damage. The Court held that in
each case the derivation of income from "vigorous and continuous sales campaigns run through a
central office located in the [taxing] State" satisfied the nexus requirement of the Due Process
Clause. Id. It was as a reaction to this extension of the States' taxing powers that Congress enacted,
within seven months of the decision, Public Law 86-272. This legislation created a statutory
minimum for the nexus required to permit imposition of state net income taxes on businesses

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October 21, 1985
engaged in the taxing state exclusively in interstate commerce, in certain limited situations. The
statute thus prohibits state net income taxes (including taxes, like New York's franchise tax,
measured by net income) on foreign corporations whose sole contact with the taxing state consists
of either, or both, of the following:
(1) the solicitation of orders by such person [viz., the
corporation], 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; and
(2) the solicitation of orders by such person, or his
representative, in such State in the name of or for the benefit of a
prospective customer of such person, if orders by such customer to
such person to enable such customer to fill orders resulting from such
solicitation are orders described in paragraph (1). (15 U.S.C. §
381(a)).
One of the defects of P.L. 86-272 is its failure to define the term "solicitation". The courts
of various jurisdictions have grappled with this issue, giving rise to two broad and contrary views
of the matter. One such view is that the Congress intended the term "solicitation" to be narrowly
construed, in which case ancillary activities such as promoting sales or scanning the inventory of
retailers would take the selling corporation's activities outside the ambit of the statutory protection.
See, Hervey v. A.M.F. Beaird, 464 S.W.2d 557 (Ark. 1971); See also, Clairol, Inc. v. Kingsley, 262
A.2d 213 (N.J. 1970). A more liberal approach has been taken by other jurisdictions, such as
Pennsylvania. See, U.S. Tobacco Co. v. Commonwealth, 386 A.2d 471 (Pa. 1978). The New York
State Court of Appeals has apparently opted for a liberal view, bringing within the concept of
solicitation those sundry activities which are closely related to the efforts of solicitation taken in the
narrow sense. Gillette Co. v. Tax Comm'n., 56 A.D.2d 475 (1977), aff'd, 45 N.Y.2d 846 (1978). The
Gillette Company, in addition to "pure" solicitation, had its representatives in New York engage in
advising certain retailers, who did not order directly from Gillette, on display techniques. Id. The
court held such activities not to transcend the limits of P.L. 86-272, stating that:
although it is not possible to state a general rule demarcating
solicitation from merchandising, certainly where, as here, the
complaining taxpayer owns no real or personal property (except
salesmen's samples) in the State and makes no repairs on its goods
after sale, the purpose of Public Law 86-272 would be frustrated by
permitting the tax. Advice to retailers on the art of displaying goods
to the public can hardly be more thoroughly solicitation, i.e., in this
context, an effort to induce purchase of Gillette products. Making the
evanescent distinctions which would be necessary to justify the
imposition of the tax upon petitioner herein would, if indulged in by
the several States, tend to "balkanize the American economy", a result
which it was Congress' purpose to prevent.

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Corporation Tax
October 21, 1985
Id. at 482. The court also grounded its conclusion on a finding that "some sort of calls upon indirect
accounts was expressly anticipated and condoned by the statute .... " For an instance of the Tax
Commission's application of this approach, see National Tires, Inc., Decision of the State Tax
Commission, October 17, 1980, TSB-H-80(28)C.
In the present case, Hauserman, Ltd's ownership of the furniture held as samples is purely
ancillary to its solicitation and, therefore, does not of itself give rise to a basis for taxation. (See 20
NYCRR 1-3.4(b)(9)(iv)(a)).Using samples in connection with solicitation is merely incidental to
offering tangible personal property for sale and will not make the corporation taxable. (See also,
American Association of Advertising Agencies, State Tax Commission Advisory Opinion,
November 7, 1980, TSB-H-80(32)C). However, the maintenance of the New York showroom-sales
office by Sunar, U.S.A. on behalf of Hauserman, Ltd. exceeds the statutorily prescribed minimum
activities protected by Public Law 86-272, and thereby subjects Hauserman, Ltd. to tax. The
embodiment of the Public Law exemption in the Franchise Tax Regulations specifically provides
that maintenance of an office in New York exceeds the scope of the federally protected solicitation
activities, and renders a corporation subject to tax. (20 NYCRR §l-3.4(b)(9)(vi)). The regulations
further define an 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 New York showroom-sales office operated by
Sunar, U.S.A. falls within the contemplation of the regulations as an "office", and it is, in effect,
maintained by Hauserman, Ltd., via the Exclusive Sales Representative Agreement between
Hauserman, Ltd. and Hauserman, Inc. This conclusion flows from the extent of Hauserman, Ltd's
control over the operations of the office by Hauserman, Inc.
The regulations, tracking the federal statute, do provide the following exception to taxability
based solely on the maintenance of an office:
[A] corporation will not be considered to have engaged in taxable
activities in New York State by reason of maintaining an office in
New York State by one or more independent contractors whose
activities on behalf of the corporation in New York State consist
solely of making sales, or soliciting orders for sales, of tangible
personal property. (emphasis added) (20 NYCRR 1-3.4(b) (9) (ii).
The regulations further provide, in accordance with the federal statutory provisions, that:
[t]he term independent contractor means a commission agent, broker,
or other independent contractor who is engaged in selling, or in
soliciting orders for the sale of tangible personal property for more
than one principal who holds himself out as such in the regular course
of his business activities. The term representative does not include an
independent contractor. (emphasis added) (20 NYCRR 1-3.4(b) (9)
(iii)).

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October 21, 1985
While the maintenance of an office by such an independent contractor is protected by the
statute, the same is not true where an office is maintained by an agent or employee of the foreign
corporation. (See, Jantzen Inc. v. District of Columbia, 395 A.2d 29 (D.C. 1978)). In Jantzen, the
court went on to conclude that the "fact that the statute allows the maintenance of an office by an
independent contractor, but makes no such express allowance with respect to a sales representative,
supports the inference that the latter is not permitted such an exemption." (Id. at 31).
In the present case, the Exclusive Sales Representative Agreement expressly provides, in
section eight, that "[i]t is understood and agreed that the Representative is an independent contractor
and is not in any manner an agent or employee of the Company .... " The statutory definition
provided in Public Law 86-272, however, requires an independent contractor to be engaged in a
representative capacity for more than one principal. (20 NYCRR §1-3.4 (b)(9)(iii)). On the facts
presented, Hauserman, Inc. represents only one principal -- that being Hauserman, Ltd.. Therefore,
despite the obvious intent of the parties Sunar, U.S.A. is a representative of, not an independent
contractor for, Hauserman, Ltd., for purposes of Public Law 86-272. Further, the term independent
contractor generally signifies "one who, exercising an independent employment, contracts to do a
piece of work according to his own methods, and without being subject to the control of his
employer, except as to the result of the work." Ostrander v. Billie Holm's Village Travel, Inc., 87
Misc. 2d 1049, 1051 (1976), citing Hogan v. Comac Sales, 245 A.D. 216, 221 (3d Dept. 1935)
(Heffernan, J., dissenting), aff'd, 271 N.Y. 562 (1936). Despite the terminology employed, Sunar,
U.S.A. is not in substance an independent contractor, as Hauserman, Ltd. maintains control over
essentially all aspects of the services performed by Sunar, U.S.A.
As to Sunar Hauserman, Inc., not only has this corporation replaced Hauserman, Ltd. in its
possession of ultimate control over the activities carried on in the New York showroom, under the
new arrangement it is Sunar Hauserman, Inc. which itself rents the real property in question and thus
clearly falls within the ambit of Article 9-A's jurisdictional standard.
The activities of Hauserman, Inc. performed in new York are two-fold: (1) providing the
service of acting as sales representative for Hauserman, Ltd. pursuant to the "Exclusive Sales
Representative Agreement," and (2) discharging this agency obligation by, among other things,
leasing the New York showroom-sales office and actually soliciting orders for the goods. These
activities are properly to be evaluated separately, for purposes of determining taxability under Article
9-A of the Tax Law.
As previously noted, the Franchise Tax is imposed on a corporation for, among other things,
doing business in New York State. (Tax Law, §209). In the instant case, those activities performed
in the discharge of agency obligations are performed on behalf of Hauserman, Ltd., and accordingly
do not constitute doing business for Hauserman, Inc. However, by providing its services as sales
representative to Hauserman, Ltd. and creating the agency, Hauserman, Inc. is specifically carrying
out a (its) business purpose. Further, Hauserman, Inc. is being remunerated for its services by

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October 21, 1985
Hauserman, Ltd. in accordance with the Exclusive Sales Representative Agreement. Thus, it must
be concluded that it is "doing business" for purposes of the Franchise Tax. (20 NYCRR §1-3.2(b)).
Accordingly, Hauserman, Inc. is subject to the New York State Franchise Tax on Business
Corporations.

DATED: September 9, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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