Can New York force an out-of-state affiliate to collect sales tax just because its sister company operates in New York?

Plain-English summary

Levitz Furniture Co. of the Eastern Region, Inc. planned to form a new corporation in New Jersey, owned by Levitz Furniture Corporation — the same parent that owns the petitioner. Both the petitioner and the parent already do business in New York. The new corporation would operate a store in New Jersey, would not do business in New York, and when it sold to New York residents it would deliver only by independent common carrier. Levitz asked whether the new corporation would have to collect New York sales or use tax. The Department framed this as two questions: (1) is there enough nexus with New York under the U.S. Constitution, and (2) if so, is the new corporation a "vendor" required to collect.

Issue 1 — Nexus (a "definite link, some minimum connection").

• On its own facts, the new corporation would have no nexus. A state can require an out-of-state seller to collect tax only where there is a constitutionally sufficient connection. Selling in New Jersey and delivering into New York by common carrier is the classic no-nexus situation (National Bellas Hess; Miller Brothers v. Maryland).
• But a controlled affiliate's nexus can be imputed. Corporations are normally separate entities, and a parent's presence in a state does not automatically create presence for a subsidiary. However, where a parent or affiliate so dominates and controls a corporation that it is the parent's alter ego, the separate-entity rule is disregarded, and one company's New York nexus supplies nexus for the other (Franklin Mint; CIT Financial; Lincoln Center). The Department listed the usual alter-ego factors — overlap of personnel, business discretion, independent operation, stock ownership, who caused the incorporation, and whether the companies hold themselves out to the public as separate.
• Not enough facts yet. Levitz hadn't described the intended structure or degree of control, so the Department could not decide — but warned that if the parent or the New York affiliate controls the new corporation enough to make it their alter ego, there will be sufficient New York nexus. (The opinion also assumed no agency relationship; an agency relationship could independently establish nexus.)

Issue 2 — Vendor status. Even with nexus, the company must fall within the Tax Law's definition of "vendor" (§ 1101(b)(8)) and the collection duty of § 1131. Under 20 NYCRR 526.10(c), a seller "maintains a place of business" in New York if it has a store, warehouse, office, and the like directly or through a subsidiary. The petitioner and its parent clearly maintain New York places of business and are vendors; so if the new corporation is their alter ego, it too is treated as maintaining a New York place of business and is a vendor required to collect and remit tax.

What this means for you

Delivering into New York by common carrier, by itself, doesn't create a collection duty — but structure can. An out-of-state seller whose only New York contact is common-carrier shipments generally isn't required to collect. The risk here comes from affiliation: a commonly owned New York company that dominates the out-of-state seller can pull it into New York's tax net.

"Alter ego" is about real control, not just common ownership. Shared ownership, officers, or offices are relevant but not enough on their own. New York looks at whether the New York company actually dominates the finances, policies, and practices of the out-of-state entity and whether the two genuinely operate as separate businesses. A reorganization used to dodge tax is exactly what the doctrine targets.

This ruling predates modern nexus law. The constitutional test for taxing remote sellers has changed since 1986 — most importantly through Quill and Wayfair. Treat this opinion as guidance on New York's alter-ego / affiliate-nexus reasoning, not as a current statement of the constitutional threshold for out-of-state collection.

Common questions

Q: Our out-of-state company only ships into New York by common carrier. Must it collect New York tax?
A: On those facts alone, generally no. But if a commonly owned New York affiliate so dominates and controls your company that it's your alter ego, New York can impute the affiliate's presence and require collection.

Q: We share a parent with a New York company. Does that alone create nexus?
A: No. Common ownership isn't enough by itself. The question is whether the New York affiliate actually controls your company to the point that it's your alter ego — a facts-and-circumstances inquiry.

Q: Is this still the law?
A: The New York alter-ego reasoning remains instructive, but the underlying constitutional nexus standard has since changed (Quill, Wayfair). Check current law before relying on the 1986 framework.

Citations and references

Statutes and regulations:

• Tax Law § 1131(1) — every vendor of tangible personal property or services must collect the tax
• Tax Law § 1101(b)(8) — defines "vendor," including a person maintaining a place of business in New York and making taxable sales
• Tax Law § 1101(a) — "person" includes a corporation or combination of corporations
• 20 NYCRR 526.10(c) — a vendor maintains a place of business in New York if, directly or through a subsidiary, it has a store, warehouse, office, or similar facility here
• 20 NYCRR 526.10(e)(1) — when an interstate vendor must collect on property delivered in New York

Key decisions cited:

• National Geographic Society v. California Board of Equalization, 430 US 551 — nexus is a "definite link, some minimum connection"
• National Bellas Hess, Inc. v. Illinois, 386 US 753 — mail-order delivery by common carrier, without more, is insufficient nexus
• Miller Brothers Co. v. Maryland, 347 US 340 — occasional deliveries into a state are insufficient nexus
• Franklin Mint Corp. v. Tully, 94 AD2d 877, aff'd 61 NY2d 980; CIT Fin. Services v. Director, Div. of Taxation; Lincoln Center v. State Tax Commission, 113 Misc. 2d 329 — affiliate/alter-ego nexus

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(38)S
Sales Tax
September 18, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830729A

On July 29, 1983, a Petition for Advisory Opinion was received from Levitz Furniture Co.
of the Eastern Region, Inc., 212 High Street, Pottstown, Pennsylvania 19464.
The issue raised is whether a corporation created by Petitioner will be required to collect and
remit New York State sales or compensating use taxes. In order to make this determination, two
issues must be addressed: (1) whether sufficient nexus will exist between such corporation and New
York State to satisfy the Due Process and Commerce Clauses of the United States Constitution and
(2) if there will be sufficient nexus, whether such corporation will be a "vendor" for purposes of the
New York State Sales and Use Tax Law and therefore required to collect New York State sales or
use tax on sales made to New York residents.
Petitioner proposes to form a new corporation in New Jersey. The new corporation will be
owned by Levitz Furniture Corporation which also owns the Petitioner. Petitioner and Levitz
Furniture Corporation presently conduct business in New York and New Jersey.
The new corporation will do business in New Jersey but will not do business in New York.
Such business will include the operation of a store in New Jersey. If sales are made in the New
Jersey store to New York residents, deliveries will be made by independent trucking companies. For
purposes of this Advisory Opinion, it is presumed that those independent trucking companies will
be common carriers.
ISSUE 1 - Nexus
A state can require an out-of-state seller to collect the state's sales or use tax only when there
is a sufficient nexus between the seller and the taxing state, as required by the Commerce Clause of
the United States Constitution (Art. I, 8, cl. 3) and the Due Process Clause of the Fourteenth
Amendment to the United States Constitution. National Geographic Society v. California Board of
Equalization, 430 US 551.
The test to determine whether a particular state exaction violates the Commerce Clause by
invading the exclusive authority of Congress to regulate trade between the states, and the test to
determine whether a state has complied with the requirements of due process in this area, are similar.
National Bellas Hess, Inc. v. Department of Revenue, 386 US 753. "[T]he relevant constitutional
test to establish the requisite nexus for requiring an out-of-state seller to collect and pay the use tax
is not whether the duty to collect the use tax relates to the seller's activities carried on within the
State, but simply whether the facts demonstrate some definite link, some minimum connection,

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

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

-2­
TSB-A-86(38)S
Sales Tax
September 18, 1986

between [the State and] the person it seeks to tax." National Geographic Society v. California Board
of Equalization, 430 US at 561.
Activities in a state that have been found to be constitutionally sufficient to establish nexus
to require an out-of-state corporation to collect state taxes include the operation of retail stores of
the corporation in the state, Nelson v. Sears, Roebuck and Co., 312 US 359; Nelson v. Montgomery
Ward, 312 US 373; the presence of traveling salesmen in the state, General Trading Co. v. Tax
Commission, 322 US 335; and the presence of independent contractors or agents of the corporation
in the state, Scripto, Inc. v. Carson, 362 US 207. In the most recent United States Supreme Court
opinion on the issue of nexus for use tax collection purposes, National Geographic Society v.
California Board of Equalization, supra, the corporation, National Geographic, operated two offices
in California. Although, the activities in those offices were unrelated to the corporation's mail order
activities, the Court held that it was permissible to impose the administrative burden of collecting
use taxes on National Geographic. Since the two California offices, regardless of the nature of their
activities, had the advantage of the same services, e.g., fire and police protection, as they would have
had their activities included assistance to the mail order operations that generated the use taxes, there
was a definite link between National Geographic and the State of California.
Activities in a state that have been held insufficient to establish the necessary nexus to
impose the duty to collect use taxes include mail order sales where delivery of the goods was made
from out-of-state by common carrier or United States mail, National Bellas Hess, Inc. v. Illinois,
supra, and over the counter sales made in a bordering state to state residents with only occasional
deliveries being made into that state, Miller Brothers Co. v. Maryland, 347 US 340. In both these
cases, the Court found that the requisite relationship between the state and the out-of-state seller was
lacking.
To determine whether there will be sufficient nexus for New York State to impose a
requirement to collect use taxes on the new corporation formed by Petitioner, it is necessary first to
determine whether there will be some relationship or minimum connection between the new
corporation and New York State. Under the facts presented here, the new corporation will not
operate directly in New York State, nor will it have any offices in this state. Its sales will be made
in New Jersey with delivery into New York by common carrier. Under the holdings of the National
Bellas Hess and Miller Brothers cases cited above, on these facts alone the new corporation will not
be required to collect tax. However, Levitz Furniture Corporation, the parent corporation of
Petitioner and the new corporation, and Petitioner have nexus with New York State because they
conduct business in the state. The question thus becomes whether the presence in New York of a
parent or an affiliated corporation, e.g., another corporation such as Petitioner owned by a common
parent, will be sufficient to establish nexus for the new corporation with New York.
This opinion will assume that no agency relationship exists between the new corporation
and Petitioner and any of their affiliated corporations. If an agency relationship did exist, it might
establish that there was a definite nexus between the state and the new corporation. Taca
International Airline S.A. v. Rolls Royce of England Ltd., 15 NY2d 97; Frummer v. Hilton Hotels,
Inc., 19 NY2d 533; see also, McCray, "Overturning Bellas Hess," 1985 Brigham Young Univ. L.
Rev. 265, 287.

-3­
TSB-A-86(38)S
Sales Tax
September 18, 1986

As a general rule, corporations are treated as separate legal entities, Rapid Transit Subway
Const. Co. v. City of New York, 259 NY 472, and the presence of a parent corporation in one state
does not require a finding of presence in that state for its wholly-owned subsidiary. However, under
certain circumstances in order to prevent fraud or injustice, the corporate structure will be
disregarded and the separate entity rule discarded. Astrocom Electronics, Inc. v. Lafayette Radio
Electronics Corp, 63 AD2d 765; Giblin v. Murphy 97 AD2d 668; Berkey v. Third Ave. Railway Co.,
244 NY 84. In Nelson v. Sears, Roebuck and Co., supra, the Supreme Court held that the
departmentalization of the corporation's operations (i.e., the mail order and retail stores operations
were separately administered) did not preclude the finding of sufficient nexus. In New York, there
has been a "steady movement towards holding that in determining whether a corporation has engaged
in activities in the state it is immaterial whether these are conducted through a branch or through a
subsidiary corporation," Boryk v. de Haviland Aircraft Co., 341 F2d 666, 668. In certain cases, this
concept should be applied to corporate reorganizations. It would be unjust to permit a corporation
to use a corporate reorganization as a cloak for the evasion of its tax obligations.
The status of the subsidiary as a separate entity should be ignored in situations where the
parent so dominates and controls the affairs of the subsidiary that the subsidiary is an instrumentality
of the parent. Coastal States Trading, Inc. v. Zenith Nav. SA, 446 F. Supp. 330; Fiur Co. v. Ataka
& Co., 71 AD2d 370. In such situations, the subsidiary should be considered to be the alter ego of
the parent. See, Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., Inc., 30 NY2d
34.
While "New York law in this area is hardly as clear as a mountain lake in springtime,"
Brunswick Corp. v. Waxman, 599 F2d 34, 35, in order to invoke this alter ego doctrine, the parent
corporation must dominate the finances, policy and business practices of the controlled corporation.
Fisser v. International Bank, 282 F2d 231. Indicia such as common officers and directors, common
offices and telephone numbers between corporate entities are relevant but are not sufficient by
themselves to show that one corporation is the alter ego of another. Consideration must also be
given to factors such as the degree of overlap of personnel, the amount of business discretion
displayed by the corporations, whether the entities operate independently of each other, whether the
parent corporation owns all or most of the stock of the subsidiary and whether the parent corporation
causes the incorporation of the subsidiary. United States Barite Corp. v. M. V. Haris, 534 F. Supp.
328; Ioviero v. CIGA Hotels, Inc., 101 AD2d 852; Lincoln Center v. State Tax Commission, 113
Misc. 2d 329; Worldwide Carriers, Ltd. v. Aris Steamship Co., 301 F Supp 64. Also significant is
whether the corporations trade under their own names and whether they hold themselves out to the
public as separate and distinct businesses. Mangan v. Terminal Transportation System, Inc., 247 AD
853; Matter of Sbarro Holding, Inc., 111 Misc. 2d 910, aff'd 91 AD2d 613; Matter of Typhoon
Industries, Inc., 6 BR 886; see, also, Plainview Realty v. Board of Managers, 86 Misc. 2d 515; Henn
and Alexander, Laws of Corporations and Other Business Enterprises 3d Ed. (1983), pp. 354-356.
Note that while many of the cases relating to this alter ego doctrine concern parent and subsidiary
corporations, this same reasoning should be applicable to affiliated corporations, i.e., corporations

-4­
TSB-A-86(38)S
Sales Tax
September 18, 1986

owned by a common parent. CIT Fin. Services Consumer Discount Co. v. Director, Div. of
Taxation, 4 N.J. Tax 349, CCH 201-026; Frummer v. Hilton Hotels, Inc., 19 NY2d 533; Matter of
Bowen Transports, Inc., 551 F2d 171.
If the affairs of the subsidiary or affiliated corporation are so dominated and controlled by
its parent of affiliate that the dominated and controlled corporation is the alter ego of the other, then
the nexus of one with New York State for tax jurisdiction purposes will provide sufficient nexus
with New York State for the other. CIT Fin. Services Consumer Discount Co. v. Director, Div. of
Taxation, supra; Minnesota Tribune Co. v. Commissioner of Taxation, 37 NW2d 737; Franklin Mint
Corp. v. Tully, 94 AD2d 877, aff'd, 61 NY2d 980. (Other cases supporting a finding of nexus
premised on a parent/subsidiary relationship include Aldens, Inc. v. Tully, 49 NY2d 525; Reader's
Digest Association, Inc. v. Mahin, 44 Ill. 2d 354, 255 NE2d 458, appeal dismissed, 399 US 919;
Appeal of Dresser Industries, Inc., California State Board of Equalization, CCH 400-485. See
Barber, "Piercing the Corporate Veil," 17 Willamette L. Rev. 371, 397.)
Under the facts presented in this Petition, it is not clear whether the new corporation will be
operating as a corporation separate and distinct from its New York affiliate, Petitioner, or its New
York parent, Levitz Furniture Corporation. No information has been provided regarding the
proposed structure of the transactions between the corporations and the intended degree of
dominance and control that Petitioner or its parent will have over the new corporation. However,
if its parent or Petitioner exercise such a degree of dominance and control over the new corporation
that the new corporation will be in reality the alter ego of its parent or Petitioner, then there will be
sufficient nexus with New York to compel the new corporation to collect New York State sales and
use taxes.
ISSUE 2 - Status as a Vendor
In addition to establishing the constitutionally required nexus with New York, in order to
compel a corporation to collect New York State tax, it must also be determined that such corporation
is subject to the provisions of the New York State Sales and Use Tax Law. Section 1131 of the Tax
Law requires, in pertinent part, that every vendor of tangible personal property or services is required
to collect sales and use taxes imposed under Article 28. Tax Law 1131(1). The term "vendor" is
defined under section 1101(b)(8) to include among others
"(A) A person making sales of tangible personal property or services,
the receipts from which are taxed by this article;
(B) A person maintaining a place of business in the state and making
sales, whether at such place of business or elsewhere, to persons
within the state of tangible personal property or services, the use of
which is taxed by this article;" Tax Law, 1101(b)(8)(i)(A) and (B).

-5­
TSB-A-86(38)S
Sales Tax
September 18, 1986

The term person includes a corporation or combination of corporations. Tax Law, 1101(a).
If the affairs of a subsidiary or affiliated corporation are dominated and controlled by its
parent or other affiliate to such a degree that it will be considered the alter ego of the parent or
affiliated corporation and the parent or affiliated corporation qualifies as a "vendor", then the new
corporation will also be considered a "vendor". Lincoln Center v State Tax Commission, 113 Misc.
2d 329.
Section 526.10 of the Sales and Use Regulations expounds upon the activities that bring a
person within the definition of "vendor". Section 526.10(e)(1) specifically concerns interstate
vendors and provides that a person outside New York is required to collect tax on tangible personal
property delivered in New York if that person:
(1)

makes sales to persons within the state, and

(2)

either (a) solicits such sales in New York as
defined in Regulation section 526.10(d), or

(b)

maintains a place of business in New York as defined
in Regulation section 526.10(c). 20 NYCRR
526.10(e)(1)

Section 526.10(c) provides that a vendor shall be considered to maintain a place of business
in the state if he, directly or through a subsidiary, has a store, salesroom, sampleroom, showroom,
distribution center, warehouse, service center, factory, credit and collection office, administration
office or research facility in the state. 20 NYCRR 526.10(c). Petitioner and its parent corporation
are maintaining a place of business in New York and clearly qualify as vendors. 20 NYCRR
526.10(a)(2); 526.10(c). Consequently, the new corporation, if determined to be the alter ego of
either its parent corporation or Petitioner, will, as a result of that relationship, be considered to be
maintaining a place of business in New York and qualify as a vendor under this section of the
Regulations. As a vendor, the new corporation will be required to collect and remit tax.

DATED: September 18, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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