For New York's alternative minimum-tax computation (which adds officer salaries back to income), does an employee's honorary or prestige job title -- like 'Managing Director' or 'Principal' -- make them an 'officer' whose salary must be added back, even if they don't actually perform officer functions?

Plain-English summary

Russell Reynolds Associates, Inc., an executive search firm, asked the Department which of fifteen different job titles used by its non-officer-functioning employees count as "elected or appointed officers" for purposes of New York's alternative tax base under Tax Law Section 210.1(a)(3) -- a computation that adds officer and 5%-plus-stockholder salaries back to entire net income. The firm explained that because client relationships are central to its recruiting business, it nominally awards impressive-sounding titles like "Managing Director" or "Principal" to some employees purely to boost their prestige with clients, even though those employees don't perform any actual corporate-officer functions, aren't elected by shareholders, and aren't appointed by the board.

Tax Law Section 208.12 defines "elected or appointed officer" two ways: (1) a fixed list of specific titles -- chairman, president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer, and comptroller -- included automatically "irrespective of...actual duties or functions," per Matter of Ter Bush and Powell; and (2) "any OTHER officer, irrespective of title, who is charged with and performs any of the regular functions" of an officer -- including, per Matter of Lampert Communications, simply "holding himself out" as an officer to clients, since persons held out by a corporation as officers can become de facto officers even if not de jure ones.

Applying that two-track test, the Department drew a clean line: employees with the STATUTORY titles (Assistant Secretary, Assistant Treasurer, Controller, in this Petitioner's case) are officers automatically, regardless of what they actually do. But employees with the NON-statutory titles Petitioner listed -- Managing Director, Director General, Managing Principal, Principal, Executive Director, Associate Director, Associate, Consultant, and various "Director of..." titles -- are NOT officers, because on these facts they don't perform any regular officer function and their titles exist purely for external prestige. The Department was careful to add a caveat: if any employee, regardless of title, performs even ONE officer-type duty -- including simply holding themselves out as an officer -- that employee becomes an officer and their salary must be included in the alternative tax base computation.

What this means for you

Employers who award prestige titles for client-facing purposes

A non-statutory title alone (Managing Director, Principal, Executive Director, etc.) doesn't automatically trigger New York's officer-salary add-back -- but if that employee performs ANY actual officer function, including simply presenting themselves to clients as an officer of the company, the add-back applies regardless of title. Document that title-holders genuinely have no officer-like authority or client-facing "officer" role if you want to keep them out of the computation.

Employers with employees holding the eight statutory titles

Don't bother arguing that an Assistant Secretary, Assistant Treasurer, or Comptroller doesn't "really" function as an officer -- these titles are officers automatically under Section 208.12 regardless of actual duties, per Ter Bush and Powell, unless their compensation is derived exclusively from commissions.

Accountants computing the Section 210.1(a)(3) alternative tax base

Review both the JOB TITLE and the ACTUAL DUTIES of every employee with any managerial or "director"-type title. The statutory-title list is a bright-line rule; everything else requires a facts-and-circumstances review, including whether the employee is ever held out to clients or the public as occupying an officer role.

Common questions

Q: Does giving an employee an impressive title like "Managing Director" automatically make them an "officer" for New York tax purposes?
A: Not by itself -- unless the title is one of the eight statutory titles (chairman, president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer, comptroller), the employee is an officer only if they actually perform an officer function, including holding themselves out as an officer.

Q: Is there any exception even for the statutory titles?
A: Yes -- an employee with a statutory title is NOT counted as an officer if their total compensation is derived exclusively from commissions.

Q: What counts as "performing an officer function" for a non-statutory title?
A: Under Lampert Communications, even simply holding oneself out as an officer in dealing with clients can be enough -- the test isn't limited to formal corporate-governance duties.

Q: Can another employer rely on this Opinion?
A: No. It binds the Department only as to Russell Reynolds Associates' own facts (its specific list of titles and how each is actually used) and cannot be relied upon by other taxpayers, even with similarly named positions.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 210.1(a)(3), § 208.12
• Business Corporation Franchise Tax Regulations § 3-3.2(d)
• Matter of Ter Bush and Powell, Inc. v. State Tax Commission, 58 A.D.2d 691 (1977)
• Matter of Lampert Communications, Inc. v. State Tax Commission (September 29, 1976)
• 19 Am. Jur. 2d Corporations § 1100

Date note: The document header and sign-off line both read "May 17, 1985" -- no discrepancy here.

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_7c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (7) C
Corporation Tax
May 17, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C830526B

On May 26, 1983 a Petition for Advisory Opinion was received from Russell Reynolds
Associates, Inc., 245 Park Avenue, New York, New York 10167.
At issue is which of the following titles of non-officer functioning employees are deemed
titles of "elected or appointed officers" under Article 9-A of the Tax Law for purposes of computing
the alternative method of taxation pursuant to section 210.1(a)(3) of the Tax Law. The titles in
question are Assistant Secretary, Assistant Treasurer, Controller, Managing Director, Director
General, Managing Principal, Principal, Executive Director, Associate Director, Associate,
Consultant, Director of Management Information Systems, Director of Corporate Research
Operations, Director Client Services, Director Regional Research Operations and Director Corporate
Administrative Services.
Petitioner presents the following facts. Petitioner is in the business of recruiting executives
for employment positions in the United States and overseas. Employee titles are an important part
of establishing effective business relationships because an important aspect of Petitioner's business
is the contact such employees establish and maintain with clients and prospective clients. Therefore,
some employees are nominally awarded titles solely for the purpose of enhancing their status and
standing with current and prospective clients. Such employees do not perform any of the regular
functions of corporate officers, are not elected by shareholders and are not appointed by the
Petitioner's Board of Directors. The Petitioner also has employees who do function as officers and
have officer titles such as President and Vice President.
Section 210.1(a)(3) of the Tax Law states, in part:
"(a) a tax. . . (3) computed at the rate of ten per centum on thirty per
centum of the taxpayer's entire net income plus salaries and other compensation
paid to the taxpayer's elected or appointed officers and to every stockholder
owning in excess of five per centum of its issued capital stock minus thirty
thousand dollars (except as hereinafter provided) and any net loss for the reported
year, or on the portion of such sum allocated within the state as hereinafter
provided for the allocation of entire net income, subject to any modification
required by paragraphs (d) and (e) of subdivision three of this section. . ."
Section 208.12 of the Tax Law states:
"The term elected or appointed officer shall include the chairman, president, vice­
president, secretary, assistant secretary, treasurer, assistant treasurer, comptroller,

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

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

-2­
TSB-A-85 (7) C
Corporation Tax
May 17, 1985

and also any other officer, irrespective of his title, who is charged with and performs any of the
regular functions of any such officer, unless the total compensation of such officer is derived
exclusively from the receipt of commissions. A director shall be considered an elected or appointed
officer only if he performs duties ordinarily performed by an officer."
Section 3-3.2(d) of the Business Corporation Franchise Tax Regulations provides that, such
term also includes any other officer, irrespective of title, who is charged with and performs any of
the regular functions of any such office.
In the Matter of Ter Bush and Powell, Inc. v. State Tax Commission, 58 AD2d 691 (1977)
the court held that the statute is not ambiguous and clearly provides for the inclusion of salary and
compensation paid to "elected or appointed officers" without regard to the actual duties or functions
of such individuals in computing the alternative method of taxation based on entire net income plus
salaries and other compensation paid to taxpayer's elected or appointed officers pursuant to section
210.1(a)(3) of the Tax Law. The court also held that the statute should not be read so as to include
an implied exemption for compensation paid to individuals who hold the titles of executive positions
but arguably do not fulfill the functions thereof. Therefore, the salaries of individuals who were
given "honorary" titles to assist them in their sales efforts but did not function as officers are
included in such computation.
In the Matter of Lampert Communications, Inc. v. State Tax Commission, September 29,
1976, the Commission determined that an "elected or appointed officer" includes any officer,
irrespective of title, who is charged with and performs any of the regular functions of any such
officer and that a regular function of the Vice-President of a business corporation is to hold himself
out as a Vice-President. Persons held out by the corporation as officers in the conduct of business
for the corporation may become de facto officers whether de jure or not (19 Am. Jur. 2d Corporations 1100.) Therefore, account representatives who were given the title "Vice-President"
to enhance their prestige with potential customers are officers whose salaries are included for
purposes of computing the alternative method of taxation pursuant to section 210.1(a)(3) of the Tax
Law.
Based on the aforementioned statute, regulations and decisions, it is determined that an
employee who has the title of Chairman, President, Vice- President, Secretary, Assistant Secretary,
Treasurer, Assistant Treasurer or Comptroller is an "elected or appointed officer" pursuant to section
208.12 of the Tax Law regardless of his duties or functions unless the total compensation of such
officer is derived exclusively from the receipt of commissions. Any other officer, irrespective of his
title, is an "elected or appointed officer" if he is charged with and performs any of the regular
functions of any such officer or office, unless the total compensation of such officer is derived
exclusively from the receipt of commissions. A director is an "elected or appointed officer" only if
he performs duties ordinarily performed by an officer.

-3­
TSB-A-85 (7) C
Corporation Tax
May 17, 1985

Accordingly, Petitioner's employees who have the titles of Assistant Secretary, Assistant
Treasurer and Controller are "elected or appointed officers" and must be included in the computation
of the alternative method of taxation pursuant to section 210.1(a)(3) of the Tax Law regardless of
their actual duties or functions. Petitioner's employees who have the titles of Managing Director,
Director General, Managing Principal, Principal, Executive Director, Associate Director, Associate,
Consultant, Director of Management Information Systems, Director of Corporate Research
Operations, Director Client Services, Director Regional Research Operations and Director Corporate
Administrative Services are not "elected or appointed officers" and therefore not included in the
computation of such alternative method of taxation because such titles are nominally awarded solely
for the purpose of enhancing their status and standing with current and prospective clients and are
not performing any of the regular functions of any such officer or office.
However, if any employee, irrespective of title, performs any of the duties, even one,
ordinarily performed by an officer, including holding himself out to be an officer, such employee
would be an "elected or appointed officer" and the salary of such employee would be included in the
computation of the alternative method of taxation pursuant to section 210.1(a)(3) of the Tax Law.

DATED: May 17, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

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