For a printing company's New York receipts factor, should printed materials shipped in bulk to a customer's New York locations be sourced to New York even if the CUSTOMER isn't itself based in New York, and how should mailings to third-party consumers (not the direct customer) be sourced?

Plain-English summary

W.A. Krueger Company runs web offset printing plants in Arizona, Wisconsin, Illinois, Mississippi, and Arkansas (plus a New York City sales office) and produces books, magazines, and commercial catalogs for customers nationwide, delivered F.O.B. point of manufacture. Some orders are bulk-shipped directly to a customer's specified locations; others are general mailings, where the customer supplies pre-addressed labels or magnetic tape and Krueger simply hands the finished product to the Postal Service at its printing plant for delivery to individual end consumers who are NOT Krueger's direct customers.

For its New York State and City franchise tax returns, Krueger included in its receipts factor numerator (1) all bulk shipments delivered directly to customer locations within New York -- regardless of whether that particular CUSTOMER was itself a New York-based company -- and (2) a census-based allocation representing the portion of its general mailings that actually reached individual New York consumers, even though those consumers weren't Krueger's direct customers. Krueger wanted the Department to confirm this two-part method was correct.

The Department confirmed both pieces. Under the regulation governing receipts from sales of tangible personal property, a sale is sourced 100% to New York if the property is shipped via common carrier or company truck to a point in New York designated on the shipping documents -- REGARDLESS of the F.O.B. point, and regardless of where the purchasing customer happens to be headquartered. What matters is the shipping destination, not customer domicile: a New Jersey-headquartered customer that has product delivered to a New York location still generates a New York-sourced receipt. Applying that same destination principle, bulk shipments of books, magazines, and catalogs delivered to customers or their designees within New York are properly included in the receipts factor numerator. For the general mailings that go to individual end consumers rather than Krueger's direct customers, the Department accepted Krueger's census-based statistical allocation as an appropriate way to approximate the New York-destined share of those receipts, as long as that allocation method accurately reflects Krueger's actual sales into New York.

What this means for you

Printers, publishers, and other manufacturers shipping to multiple locations for a single customer

The receipts factor sourcing rule looks at where the PRODUCT physically ends up, not where your customer's headquarters or billing address is. A shipment to a New York location is New York-sourced even if the company that ordered it is based entirely outside New York.

Businesses fulfilling bulk mail orders to individual end consumers

When your direct customer isn't the ultimate recipient (e.g., a publisher whose customer provides a mailing list of individual subscribers), a reasonable statistical or census-based method for estimating what portion of those mailings went to New York addresses can properly substitute for tracking each individual delivery, as long as the method is accurate.

Multi-state manufacturers generally

F.O.B. point of manufacture doesn't determine sourcing for the receipts factor -- actual shipping destination does. Don't assume that structuring sales F.O.B.-origin moves receipts out of New York if the goods are still physically delivered there.

Common questions

Q: Does it matter that Krueger's customer wasn't based in New York?
A: No -- the Department was explicit that shipments to New York points must be included in the numerator "whether or not the customer is a New York based 'purchaser.'" Destination controls, not customer domicile.

Q: Is a census-based allocation always acceptable for mail-order sourcing?
A: The Department accepted it here conditioned on accuracy -- "as long as the census-based allocation used by Petitioner accurately reflects sales into New York State." A method that doesn't track actual New York deliveries reasonably well wouldn't satisfy this standard.

Q: Can another printing or publishing company 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 taxpayers, though the underlying destination-sourcing rule (Regulation § 4-4.2) applies generally to sales of tangible personal property.

Citations and references

Statutes and regulations:

• Tax Law § 209 (Article 9-A franchise tax); § 210 (business allocation percentage)
• Business Corporation Franchise Tax Regulations § 4-4.2 (destination-based sourcing for tangible personal property sales)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (13) C
Corporation Tax
May 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C870205B

On February 5, 1987, a Petition for Advisory Opinion was received from W.A. Krueger
Company, 7301 E. Helm Drive, Scottsdale, Arizona 85260.
The issue raised involves the correct method of allocation of income derived from a
printing operation for purposes of the Franchise Tax on Business Corporations imposed under
Article 9-A of the Tax Law.
Petitioner is a web offset printing operation with plants in Arizona, Wisconsin, Illinois,
Mississippi and Arkansas and sales offices throughout the country including a sales office in the
City of New York. Petitioner produces books, magazines, and commercial catalogs for its
various customers on an F.O.B. point of manufacture basis. The finished products are shipped or
mailed per instructions received from the customers. In the case of general mailings, the
customer provides Petitioner with pre-addressed pressure-sensitive labels or magnetic tape
detailing the addresses and Petitioner delivers the finished product to the Postal Service at its
printing plant site.
In filing its New York State and New York City income tax returns, Petitioner has
included in its sales factor numerator all books, magazines and commercial catalogs bulk­
shipped directly to each customer's locations within the State of New York, whether or not the
customer is a New York based "purchaser". Petitioner has also included in its sales factor
numerator a census-based allocation of books, magazines and commercial catalogs which have
been delivered to the Postal Service at its various points of manufacture for mailing to consumers
other than Petitioner's customers.
Section 209 of Article 9-A of the Tax Law imposes a franchise tax on business
corporations "[f]or the privilege of exercising its corporate franchise, or of doing business, or of
employing capital, or of owning or leasing property in this state in a corporate or organized
capacity, or of maintaining an office in this state. . . ." The tax is computed, pursuant to the
provisions of section 210 of the Tax Law, in part, upon the highest of four alternatives. The first
alternative is on the entire net income or the portion thereof allocated within the state. The
portion of the entire net income of a taxpayer to be allocated within the state is determined by
multiplying its business income by a business allocation percentage determined by a three factor
formula consisting of tangible property, receipts and payroll. The receipts factor of the business
allocation percentage is computed pursuant to the provisions of Business Corporation Franchise
Tax regulation subpart 4-4.
Receipts from a printing operation such as Petitioner's (other than when a printer provides
printing service on paper supplied by its customer) are allocated pursuant to the provisions of
regulation section 4-4.2 That section provides:
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-87 (13) C
Corporation Tax
May 29, 1987

4-4.2 Receipts from sale of tangible personal property. Receipts from sale of tangible
personal property are allocable 100 percent to New York State where shipments are made to
points in this State. Tangible personal property is considered to be shipped to a point in New
York State if:
(a)
the property is shipped via common carrier or via taxpayer's truck to a point in
New York State designated on the bill of lading or other shipping document, regardless of
the F.O.B. point; or
(b)

the property is delivered to a purchaser at a point in New York State.

Example 1:

A taxpayer has its factory in New York State. A customer located in New
Jersey comes into New York State in its own truck or one rented by it and
picks up its purchase at the taxpayer's factory. The receipts from such sale
must be allocated to New York State.

Where books, magazines and catalogs are shipped by Petitioner to its customers or to
designees of its customers in bulk via common carrier or through the mails as described above,
the receipts from such sales are properly allocated to New York State and must be included in the
numerator of Petitioner's receipts factor.
Accordingly, it is determined that as long as the census-based allocation used by
Petitioner accurately reflects sales into New York State, Petitioner's method of allocation of
receipts from books, magazines and catalogs as described above was correct.

DATED: May 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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