When a company sells stone and gravel and also delivers it to customers, which parts of its revenue count as "transportation" for deciding whether it's taxed as a transportation corporation under Article 9 instead of a general business corporation under Article 9-A?

Subject

Which items are considered transportation, and included in the calculation of whether a corporation is principally engaged in a transportation business and thereby subject to tax under Article 9, section 184 of the Tax Law.

Plain-English summary

A company buys stone and gravel and both sells it and delivers it to job sites, billing customers in three different ways: (1) pure delivery — the customer buys the material directly at the quarry and only pays the company for delivery; (2) material and delivery billed as separate line items; (3) material and delivery bundled into one lump-sum bid (common for municipal contracts, where the material typically makes up over 85% of the bid). The company asked which parts of its revenue count toward the "transportation" side of the ledger, since whether it's taxed as an Article 9 transportation corporation (under sections 183/184) or a general Article 9-A business corporation turns on whether more than 50% of its total receipts come from transportation activity.

The Department ruled that the delivery/hauling portion is transportation revenue in all three billing setups, while the value of the material itself is not. In situation 1, the entire fee is a transportation receipt since the company is just hired to haul someone else's stone. In situation 2, the separately billed delivery charge is the transportation receipt (the material sale is not). In situation 3, even though everything is billed as one lump sum, the Department still requires isolating the portion of that lump sum attributable to delivery — that slice counts as transportation revenue even though it's not separately itemized on the bill. Whether the company as a whole ends up taxed under Article 9 (as a transportation corporation) or Article 9-A depends on whether all this delivery-attributable revenue, added together, exceeds 50% of the company's total receipts.

What this means for you

Building material suppliers who also deliver

The way you bill customers (separately itemized delivery vs. lump-sum) does not change what counts as "transportation" revenue for New York tax classification purposes — the Department will look through a lump-sum bid to isolate the delivery-attributable share. Keep records that let you allocate lump-sum contract revenue between material value and delivery/hauling value, since you'll need that breakdown to run the 50%-of-receipts test.

Municipal contractors bidding lump sum

Even if a municipality requires lump-sum bids (as noted here, common where material is over 85% of the bid), that billing structure doesn't exempt the delivery component from the transportation-revenue calculation — you still have to carve it out.

Accountants and tax professionals

This is a direct companion to TSB-A-89(11)C (Raymond Rizzo Associates, same year, decided about three months later), which works through the same 50%-of-receipts "principally engaged" test in more detail for a demolition/excavation/hauling contractor — read together for the fuller picture of what activities count on which side of the Article 9 / Article 9-A line, including the operator-vs-no-operator distinction for truck/machine leasing.

Common questions

Q: If I bill a customer a single lump sum for materials and delivery, does the delivery portion still count as transportation revenue?
A: Yes. The Department requires allocating the lump sum between the material's value and the delivery-attributable value, even without separate line items.

Q: Does hauling my own inventory of stone and gravel count as a transportation activity?
A: Not automatically excluded here — the ruling treats the delivery of materials the company itself sold (situations 2 and 3) as transportation revenue for this purpose, distinguishing it from the later TSB-A-89(11)C ruling's separate point that hauling one's own property (as opposed to a paying customer's property) can fall outside the transportation-revenue calculation in a different fact pattern.

Q: Can another building materials company rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax)
• Tax Law § 209.4 (corporations taxable under Article 9 sections 183/184 excluded from Article 9-A)
• Tax Law § 183, § 184 (Article 9 franchise tax on transportation corporations)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a89_14c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89(14)C
Corporation Tax
December 14, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890724A

On July 24, 1989, a Petition for Advisory Opinion was received from Paul Carucci &
Company, 9 Scott Drive, New City, New York 10956.
The issue raised by Petitioner, Paul Carucci & Company, is which items are considered
transportation and are to be included in the calculation to determine if a corporation is principally
engaged in a transportation business and thereby subject to tax under section 184 of Article 9 of the
Tax Law under the facts hereinafter set forth.
A corporation buys stone and gravel, sells it to its customer, and transports it to the job site.
The sales and billing procedure are of the following three types:
1.
The customer purchases the material at a quarry, pays for it and has the corporation
deliver it. The corporation bills the customer for delivery charges only.
2.
The corporation purchases the material at a quarry and delivers it to its customer. The
corporation bills its customer for the material and delivery separately.
3.
The corporation purchases the material at a quarry and delivers it to its customer. The
corporation bills its customer on a lump sum basis. This is done for municipalities that will only
accept lump sum bids. The value of the material is usually in excess of 85% of the total bid price.
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax on domestic
or foreign corporations for the privilege of exercising a corporate franchise, doing business,
employing capital, owning or leasing property in a corporate or organized capacity, or maintaining
an office, in New York State. Section 209.4 of the Tax Law, provides that corporations liable to tax
under sections 183 and 184 of Article 9 of the Tax Law are not subject to tax under Article 9-A.
Sections 183 and 184 of Article 9 of the Tax Law impose franchise taxes, on a domestic or
foreign corporation formed for or principally engaged in the conduct of a transportation business,
for the privilege of exercising its corporate franchise, doing business, employing capital, owning or
leasing property in a corporate or organized capacity or maintaining an office, in New York State.
In RVA Trucking Inc. v State of New York State Tax Commission, 135 AD2d 938, affirming
State Tax Commission decision in Matter of RVA Trucking Inc., Dec St Tax Comm, June 12, 1986,
TSB-H-86(24)C, the Court stated that the State Tax Commission "quite reasonably defined
'transportation' as comprehending 'any real carrying about or from one place to another' and
TP-9 (9/88)

-2­
TSB-A-89(14)C
Corporation Tax
December 14, 1989

'trucking' as generally involving 'the process or business of carting goods on trucks' (Matter of Joseph
A. Pitts Trucking, Dec St Tax Comm, July 18, 1984, TSB-H-84(34)C; see, Newton Creek Towing
Co. v Law, 205 App Div 209, 211, affd 237 NY 578)."
The determination of whether Petitioner is subject to tax under Article 9-A or Article 9,
depends on what activity the taxpayer is principally engaged in. Ordinarily, a corporation is deemed
to be principally engaged in the activity from which more than 50% of its receipts are derived. See,
e.g. Re Joseph Bucciero Contracting Inc., Advisory Op St Tax Comm, July 23, 1981, TSB-A­
81(5)C.
Herein, in situation 1, the corporation is hired to deliver stone and gravel that its customer
owns. The receipt is from a transportation business, an Article 9 activity. In situation 2, the
corporation is selling stone and gravel and delivering the material to its customer. The separate
receipt from the delivery of the material is from a transportation business, an Article 9 activity. In
situation 3, the corporation sells and delivers stone and gravel pursuant to a lump sum bid. The
portion of the receipt attributable to the delivery of the material is from a transportation business, an
Article 9 activity.
If more than 50% of the corporation's receipts are from the delivery business it will be
considered a transportation corporation subject to tax under sections 183 and 184 of Article 9 of the
Tax Law. Otherwise, the corporation will be subject to tax under Article 9-A of the Tax Law.

DATED: December 14, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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