Is an out-of-state fuel distributor subject to New York's corporate franchise tax merely because its New York-based parent company keeps its books and provides a shared officer, when the subsidiary itself has no New York office or employees -- but does take title to petroleum within New York before shipping it out of state?

Plain-English summary

Moore Brothers Oil Company, a New Jersey corporation, is a wholly owned subsidiary of W.W. Griffith Oil Company, a New York corporation, and files a consolidated federal return with its parent. Moore Brothers operates a petroleum wholesale/retail business entirely out of a New Jersey facility -- a small bulk storage plant and truck depot -- with all five of its employees (one administrative staffer, three drivers, one sales manager) based in New Jersey. The New Jersey-based sales manager calls on and solicits New York customers, but approves all orders from New Jersey and doesn't maintain any office in New York; Moore Brothers rents no property in New York. Its accounting data is compiled in New Jersey but transmitted to Griffith, whose own employees maintain Moore Brothers' general ledger and pay its expenses (which Moore Brothers reimburses) from Griffith's New York headquarters. A Griffith officer who lives in New York also holds an officer title at Moore Brothers, but isn't its employee and isn't paid by it. Moore Brothers argued it had no taxable New York presence and shouldn't have to file an Article 9-A return.

The Department agreed with part of that argument but not the conclusion. It confirmed that the specific activities Moore Brothers pointed to -- a non-employee officer maintaining an office in New York, and books/records kept in New York by the PARENT's employees rather than Moore Brothers' own -- fall within narrow statutory exceptions and, standing alone, would NOT create nexus. But the Department identified a different, independently sufficient fact buried in Moore Brothers' own description: it buys petroleum FROM WITHIN New York State and takes TITLE to that petroleum while it's still located in New York, before transporting some of it to customers in New York and the rest to its New Jersey facility. Taking title to property located in New York -- even briefly, even before immediately moving it elsewhere -- constitutes both "owning property" in New York and "employing capital" in New York under the regulations, which is sufficient on its own to trigger Article 9-A nexus regardless of the absence of any New York office, employees, or leased space. Because that activity independently satisfied the nexus test, the Department found Moore Brothers subject to the franchise tax, making its second question (how to seek a refund of past taxes paid) moot.

What this means for you

Out-of-state distributors or wholesalers buying goods located in New York

Simply taking title to inventory while it's physically located in New York -- even as a brief step in a larger interstate supply chain, even without any New York office or payroll -- can independently create New York corporate franchise tax nexus. Don't focus only on where your employees and offices are; also examine where you take legal title to goods.

Subsidiaries whose parent handles back-office functions from New York

Having your parent company's New York-based employees keep your books, or having a shared, non-employee officer maintain an office in New York, are specifically carved out by regulation and won't by themselves create nexus -- but that protection doesn't extend to substantive business activities like taking title to property or having capital actually employed in the state.

Multi-state operators with property that briefly transits New York

Property "held, stored, or warehoused" in New York, or property to which a taxpayer takes title in New York (even for immediate onward shipment), can create taxable status -- this is a comparatively low bar compared to needing a physical office or employees present in the state.

Common questions

Q: Would Moore Brothers have avoided New York tax if it only had the parent-company bookkeeping and shared-officer arrangement, with no title-taking in New York?
A: Based on the Department's analysis, yes -- those two specific activities are carved out by regulation and wouldn't by themselves create nexus.

Q: Does the parent-subsidiary relationship itself create nexus?
A: No -- the Department's analysis didn't attribute the PARENT's New York presence to the subsidiary; the nexus finding rested entirely on the subsidiary's OWN activity of taking title to petroleum in New York.

Q: Can another out-of-state distributor 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, even similarly structured related-company fuel distributors.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (foreign corporation nexus activities); § 209.2 (limited exceptions)
• Business Corporation Franchise Tax Regulations § 1-3.2, § 1-3.2(c) (employing capital), § 1-3.2(d) (owning/leasing/holding property)
• Business Corporation Franchise Tax Regulations § 1-3.3(d) (non-employee officer office exception); § 1-3.3(e) (books/records exception)

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_15c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (15) C
Corporation Tax
June 12, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C861121B

On November 21, 1986, a Petition for Advisory Opinion was received from Moore
Brothers Oil Company, Inc., c/o W. W. Griffith Oil Company, Inc., Route 19, Wyoming, New
York 14591.
The issues raised are (1) whether Petitioner is required to file a New York corporation tax
franchise tax return, pursuant to Article 9-A of the Tax Law, and (2) if Petitioner is not subject to
tax, what procedure should be followed to recover taxes paid in previous years.
Petitioner presents the following facts Petitioner was incorporated in New Jersey on March 8, 1957 and is a wholly owned
subsidiary of W. W. Griffith Oil Company, Inc., a New York corporation (hereinafter
"Griffith"). Petitioner files a consolidated federal return with Griffith.
Petitioner is a New York registered fuel distributor that sells petroleum products as a
wholesaler and retailer from its facility located in Mahwah, New Jersey. The facility
contains a small bulk storage plant and a truck depot. Petitioner buys petroleum from
within New York State and takes title to such petroleum within New York State. Upon
receipt of the product, some is shipped to its customers in New York State while the
remainder is immediately transported to the New Jersey facility. From there, the product
is shipped to customers in New Jersey and in New York State. Petitioner purchases some
of its inventory from its parent, Griffith, but such inventory is not stored at Griffith's Oil
facilities in New York.
All of Petitioner's payroll is located in New Jersey. Petitioner employs five individuals in
New Jersey: one administrative person, three drivers and one sales manager. Only the
sales manager has the authority to accept orders and approve sales. The sales manager
resides in New Jersey and calls on customers in New York State and solicits orders. The
orders are approved in New Jersey. The sales manager does not maintain an office in New
York State. Petitioner does not rent any property in New York State.
Petitioner accumulates accounting data (sales, payroll, A/P, A/R etc.) in New Jersey and
transmits this data to Griffith, which maintains Petitioner's general ledger. On behalf of
Petitioner, Griffith pays Petitioner's expenses, including payroll, from Griffith's
Wyoming, New York headquarters. These expenses are reimbursed to Griffith by
Petitioner. The accounting services provided for Petitioner by Griffith are performed by
Griffith's employees.

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

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

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TSB-A-87 (15) C
Corporation Tax
June 12, 1987
Griffith sets corporate strategy and goals but Petitioner has its own management team that
is responsible for implementing corporate policy. In this regard, Petitioner's management
has total operating authority to direct company activities.
A Griffith officer, who resides in New York, is also an officer of Petitioner. However, he
is not an employee of Petitioner and is not paid by Petitioner.
Petitioner contends that pursuant to sections 1-3.2 and 1-3.3(d) and (e) of the Business
Corporation Franchise Tax Regulations (hereinafter "Article 9-A regulations") it is not required
to file a New York franchise tax return, since it does not have a physical presence in New York
or engage in any activities in New York which would subject a foreign corporation to the New
York State franchise tax.
Section 209.1 of the Tax Law and section 1-3.2 of the Article 9-A regulations provide
that the franchise tax is imposed on a foreign corporation whose activities include one or more of
the following:
(i) doing business in New York State in a corporate or organized capacity or in a
corporate form; or
(ii) employing capital in New York State in a corporate or organized capacity or in a
corporate form; or
(iii) owning or leasing property in New York State in a corporate or organized capacity
or in a corporate form; or
(iv) maintaining an office in New York State.
Section 1-3.2(c) of the Article 9-A regulations states that:
The term "employing capital" is used in a comprehensive sense. Any of a
large variety of uses, which may overlap other activities, may give rise to
taxable status. In general, the use of assets in maintaining or aiding the
corporate enterprise or activity in New York State will make the
corporation subject to tax. Employing capital includes such activities as:
(1) maintaining stockpiles of raw materials or inventories; or
(2) owning materials and equipment assembled for construction.
Section 1-3.2(d) of the Article 9-A regulations states that:
The owning or leasing of real or personal property within New York State
constitutes an activity which subjects a foreign corporation to tax. Property
owned by or held for the taxpayer in New York State, whether or not used
in the taxpayer's business, is sufficient to make the corporation subject to
tax. Property held, stored, or warehoused in New York State creates

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TSB-A-87 (15) C
Corporation Tax
June 12, 1987
taxable status. Property held as a nominee for the benefit of others creates
taxable status. Also, consigning property to New York State may create
taxable status if the consignor retains title to the consigned property.
Section 209.2 of the Tax Law and section 1-3.3(d) of the Article 9-A regulations provides
that the maintenance of an office in New York State by one or more officers or directors of the
corporation who are not employees of the corporation, does not subject the foreign corporation to
tax if the corporation is not otherwise doing business or employing capital in New York State
and does not own or lease property in New York State.
Section 209.2 of the Tax Law and section 1-3.3(e) of the Article 9-A regulations provides
that the keeping of books or records of a foreign corporation in New York State does not subject
the foreign corporation to tax if such books or records are not kept by the employees of such
corporation and if such corporation is not otherwise doing business or employing capital in New
York State and does not own or lease property in New York State.
Accordingly, the mere keeping of the books and records of Petitioner in New York by
Griffith which are maintained by Griffith employees and the maintenance of an office in New
York by an officer of Petitioner who is not an employee of Petitioner, is not sufficient activity in
New York to subject Petitioner to tax.
However, the facts presented by Petitioner indicate that, pursuant to section 209.1 of the
Tax Law and section 1-3.2 of the Article 9-A regulations, Petitioner is employing capital in New
York and does own property in New York when it takes title to petroleum in New York State and
ships such petroleum to customers within New York State.
Therefore, it is determined that Petitioner's activities in New York are of a nature that
renders Petitioner subject to the Franchise Tax on Business Corporations pursuant to Article 9-A
of the Tax Law.
Since Petitioner is subject to the franchise tax, the second issue raised is moot.

DATED: June 12, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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