A not-for-profit corporation that merely holds title to real property for an exempt labor union local -- but HAS issued stock to the union's trustees -- has no net earnings and wants its New York corporate tax capped at the flat $250 minimum. Does issuing stock disqualify it from the non-profit exemption, and can a company simply elect the $250 minimum regardless of what the other computation methods produce?

Plain-English summary

1049 Management Corporation is a Not-For-Profit corporation affiliated with Local 1049 I.B.E.W., a federally tax-exempt labor union. Petitioner merely holds title to real property used exclusively for the Local's business, with the Local paying all property expenses -- Petitioner describes itself as just a conduit through which mortgage payments pass to the mortgagee, with its checking account balance staying static (receipts equal mortgage payments) and no true earnings of its own. Unlike the pure title-holding corporation in TSB-A-86(7)C, however, Petitioner has ISSUED STOCK -- to the trustees of the Local. Because of the affiliation, the IRS advised Petitioner that no federal corporate income tax filing is required. Petitioner argued that since it has no earnings, its New York tax should be capped at the flat $250 minimum.

The Department rejected the exemption claim outright: 20 NYCRR 1-3.4(b)(6) exempts only non-STOCK, non-profit corporations -- and Petitioner has issued stock, which takes it outside that exemption regardless of its affiliation with an exempt entity or its lack of actual profits (citing its own prior Cape Pond, Inc. decision on the same point). This is a sharp contrast with TSB-A-86(7)C's title-holding corporation for a different union local, which WAS exempt precisely because it had no stock at all.

Having found Petitioner taxable, the Department then rejected the request to simply elect the $250 minimum. Article 9-A requires computing tax under all FOUR statutory methods -- (1) 10% of entire net income; (2) 10% of 30% of (entire net income plus officer/5%-stockholder compensation, minus $30,000, minus any net loss); (3) 1.78 mills on business-plus-investment capital; or (4) the flat $250 -- and paying whichever amount is LARGEST. There is no provision letting a taxpayer bypass methods 1-3 and simply pay the $250 minimum because it believes it has no profits; the $250 floor applies only when the other three computations independently produce a smaller amount.

What this means for you

Title-holding or "shell" corporations affiliated with tax-exempt organizations

Whether you issue STOCK is a bright-line factor for New York's non-profit corporate exemption -- a stock corporation doesn't qualify for the 20 NYCRR 1-3.4(b)(6) exemption even if it's affiliated with an exempt entity, holds no real earnings, and functions purely as a pass-through conduit. Compare your structure to TSB-A-86(7)C's exempt, non-stock title-holding corporation if you're trying to preserve exemption.

Assuming "no profit" means minimum tax

Don't assume that having no net earnings automatically limits your New York franchise tax to the $250 minimum -- you must actually run all four statutory computation methods (including the business-and-investment-capital method, which can produce tax even with zero income) and pay the largest result.

Common questions

Q: Does issuing stock to a union's trustees disqualify a title-holding corporation from New York's non-profit exemption?
A: Yes -- 20 NYCRR 1-3.4(b)(6) only exempts non-stock corporations; issuing any stock takes a corporation outside that exemption regardless of its affiliation or lack of profits.

Q: Can a corporation with no earnings simply elect to pay the $250 minimum tax?
A: No -- it must compute tax under all four statutory methods and pay whichever is largest; the $250 minimum applies only when it happens to be the biggest of the four.

Q: How does this ruling differ from TSB-A-86(7)C, which found a similar title-holding corporation exempt?
A: The key difference is stock: TSB-A-86(7)C's corporation had NO stock, while this Petitioner had issued stock to the union trustees -- that single fact controlled the outcome.

Q: Can another affiliated title-holding corporation 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 corporations, even those with similar union affiliations.

Citations and references

Statutes and regulations:

• Tax Law § 209.1, § 210.1(a)
• 20 NYCRR 1-3.4(b)(6), 3-1.2(a)
• Matter of Cape Pond, Inc., TSB-H-80(20)C

Related rulings:

• TSB-A-86(7)C -- a contrasting title-holding corporation found EXEMPT, having issued no stock

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (1) C
Corporation Tax
December 23, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C850103A

On January 3, 1985 a Petition for Advisory Opinion was received from 1049 Management
Corporation, 745 Kings Highway, Hauppauge, New York 11788.
The issue raised is whether a Not-For-Profit Corporation's tax due under Article 9-A of the
Tax Law should be limited to the minimum tax of $250.
Petitioner is a corporation that is an affiliate of Local 1049 I.B.E.W., an exempt organization
for Federal income tax purposes. Petitioner states that it merely holds title to real property that is
used exclusively for Local 1049 I.B.E.W. business. The local pays all expenses of the property.
Petitioner is a Not-For-Profit corporation that has issued stock of the corporation to the trustees of
the Local. Because of its affiliation with the exempt entity, Local 1049 I.B.E.W., Petitioner has been
advised by the Internal Revenue Service that no Federal corporation income tax or any other Federal
form is required to be filed.
Petitioner states that it is merely a conduit through which mortgage payments are made to
the mortgagee. The balance in its corporate checking account remains static since its receipts equal
the mortgage payments. Petitioner has no earnings and therefore believes that it should not be taxed
on profits and that its tax should be limited to the minimum tax of $250.
Section 209.1 of Article 9-A of the Tax Law imposes a franchise tax on every domestic or
foreign corporation "For the privilege of exercising its corporate franchise, or of doing business, or
of employing capital, or of owning or leasing property in this State. . . ." Section 1-3.4(b)(6) of the
Business Corporation Franchise Tax regulations exempts from the franchise tax non-stock corpora­
tions which are organized and operated exclusively for non-profit purposes, including Not-For-Profit
Corporations. However, Petitioner has issued stock and thereby does not come within such
exemption. (See: Matter of Cape Pond, Inc., Decision of the State Tax Commission, July 18, 1980,
TSB-H-80(20)C).
Section 209.1 of Article 9-A further states that "...every domestic or foreign corporation...
shall annually pay a franchise tax, upon the basis of its entire net income or upon such other basis
as may be applicable as hereinafter provided...." Section 210.1(a) of Article 9-A sets forth four
methods of computing such tax and provides that the method which produces the largest tax shall
be applicable. Section 3-1.2(a) of the Business Corporation Franchise Tax regulations describes the
four methods as follows:
(1)
10 percent of its entire net income, or the portion thereof allocated to
New York State;

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86 (1) C
Corporation Tax
December 23, 1985

(2)
10 percent of an amount equal to 30 percent of the balance remaining
after adding to entire net income compensation paid to officers and to stockholders
owning in excess of five percent of its issued capital stock and deducting therefrom
$30,000... and any net loss for the reported year, or the portion of such amount
allocated to New York State;
(3)
1.78 mills... of the total of its business capital and investment capital,
or
the portion thereof allocated to New York State; or
(4)

$250.

There is no provision in Article 9-A or the Business Corporation Franchise Tax
regulations promulgated thereunder, that allows a taxpayer to limit its tax liability to the
minimum tax of $250 unless such amount is the largest of the four alternative methods.
Accordingly, pursuant to sections 209.1 and 210.1(a) of Article 9-A of the Tax Law,
Petitioner must compute the tax for each of the four alternative methods and Petitioner's tax
liability is the largest amount. The minimum tax of $250 is applicable only when it is the
largest of the four computations.

DATED: December 23, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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