A small company provides both a telephone answering service and a telex/fax relay service — does owning no transmission equipment of its own keep it out of New York's Article 9 telegraph/telephone tax, or does the telex/fax activity still count as a taxable transmission business?

Subject

Whether CCC Telex Service, Inc. is subject to tax under sections 183 and 184 of Article 9 as a transportation and transmission corporation, or under Article 9-A as a general business corporation.

Plain-English summary

CCC Telex Service ran a small three-employee office providing two services to small-business clients: a telephone answering service (taking calls and relaying messages) and a telex/fax relay service (receiving telex/fax messages and forwarding them by phone or mail). The company owned no telephone or telex transmission equipment or lines beyond ordinary office equipment — all actual transmission ran through outside carriers like New York Telephone, AT&T, RCA, and Swift Global. The company argued it was providing only a "clerical service" and shouldn't be taxed under Article 9's sections 183/184 telegraph/telephone corporation tax at all.

The Department drew a sharp line between the two services: a telephone answering service may be an Article 9-A activity, but a telex/fax service is an Article 9 activity regardless of whether the company owns any transmission equipment or lines — the relevant statutory test looks at the nature of the activity (relaying telex/fax messages), not whether the company itself owns the wires. Applying the standard 50%-of-receipts "principally engaged" test, and looking at the company's own reported gross sales figures (telex/fax revenue dwarfing the small or nonexistent answering-service revenue across the three years at issue), the Department observed it "appears" the company was principally engaged in the telex/fax business and thus taxable under Article 9. But because the final classification is a factual determination that an advisory opinion can't conclusively resolve, the Department left the ultimate call to be confirmed based on the actual facts — Article 9 if telex/fax turns out to be the principal activity, Article 9-A if the answering service is.

What this means for you

Telephone answering, telex, fax, or message-relay service businesses

Don't assume that not owning transmission equipment keeps you out of New York's Article 9 telegraph/telephone corporation tax. The Department looks at the substance of the activity — relaying telex/fax messages counts as a telegraph/telephone business under sections 183/184 even if all the actual transmission runs through third-party carriers like the phone company.

Businesses running multiple services with different tax classifications

If your company earns revenue from more than one activity that falls on different sides of the Article 9 / Article 9-A line, track receipts separately for each — your overall classification turns on which activity produces more than 50% of total receipts, the same test used across the Department's transportation/transmission-corporation rulings (see also TSB-A-89(14)C and TSB-A-89(11)C for the analogous transportation-corporation version of this test).

Accountants and tax professionals

This ruling reinforces that "clerical service" framing doesn't control the tax classification — the Department looks past how a company characterizes its own business to what the activity actually is under the statute. As with the parallel transportation-corporation rulings, an advisory opinion can identify which category each activity falls into but can't make the final "principally engaged" factual call when the numbers are genuinely close or unclear.

Common questions

Q: Does owning transmission equipment matter for Article 9 telex/fax classification?
A: No. The Department found telex/fax relay service taxable under Article 9 "regardless of whether the corporation owns the telephone transmission equipment or lines."

Q: If most of my revenue comes from a telephone answering service instead of telex/fax, am I taxed differently?
A: Potentially yes — a telephone answering service may be an Article 9-A activity, so if that's your principal (more than 50% of receipts) activity, you'd likely be classified as a general business corporation rather than a transmission corporation.

Q: Can another answering-service or telex/fax 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 — and even here, the Department did not make the final factual classification.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax)
• Tax Law § 209.4 (Article 9 taxpayers excluded from Article 9-A)
• Tax Law § 183, § 184 (Article 9 franchise tax on telegraph/telephone businesses)
• Tax Law § 171(24); 20 NYCRR § 901.1(a) (advisory opinions limited to specified facts, cannot resolve disputed factual questions)

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_9c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-89(9)C
Corporation Tax
July 18, 1989

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890104C

On January 4, 1989, a Petition for Advisory Opinion was received from CCC Telex Service,
Inc., 1009 Glen Cove Avenue, Glen Head, New York 11545.
The issue raised is whether Petitioner is subject to tax under sections 183 and 184 of Article
9 of the Tax Law as a transportation and transmission corporation or subject to tax under Article 9-A
of the Tax Law as a general business corporation.
Petitioner states that it is engaged in a service business, wherein it maintains a small office
staffed by three employees. Petitioner is not organized under the Transportation Corporation Law.
The primary function of Petitioner is to provide telephone answering services and telex/fax
services for small business clients. Petitioner states that it receives telephone calls and telex
messages for clients and forwards same to them either by telephone or mail or both. Petitioner
stresses that it does not have any telephone or telex equipment, lines, etc., except for the normal
telephone or telex equipment found in any office. Further, Petitioner does not furnish or have any
telephone transmission equipment or lines and all messages received or sent are transmitted through
outside transmission companies such as N.Y. Telephone, A.T.T., R.C.A., Swift Global and others.
In a letter from Jay Garfinkel, Garfinkel & Company (Petitioner's representative), to Mr. John
J. Ferris of the New York State Department of Taxation and Finance, Audit Division, dated
November 13, 1987, Mr. Garfinkel stated that with regard to the operations of Petitioner:
Gross sales from business activities were as follows:
YEAR ENDING

TELEX/FAX

ANSWERING SERV.

06/30/85

$173,133

06/30/86

185,320

0

06/30/87

186,616

26,000

$

0

Petitioner contends that it is furnishing only a clerical service and that it should not be taxed
under sections 183 and 184 of Article 9 as a transportation and transmission corporation.
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.
TP-9 (9/88)

-2­
TSB-A-89(9)C
Corporation Tax
July 18, 1989

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 telegraph or telephone
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.
To determine the classification and proper taxability of a corporation under either Article 9
or Article 9-A, an examination of the nature of the corporation's activities is necessary, regardless
of the purposes for which the corporation was organized. See Matter of McAllister Bros., Inc. v.
Bates, 272 AD 511, 517 (3d Dept. 1947). While a telephone answering service may be construed
to be an activity taxable under Article 9-A, a telex/fax service, regardless of whether the corporation
owns the telephone transmission equipment or lines, is an activity taxable under Article 9.
The determination of whether Petitioner is subject to tax under Article 9-A or Article 9,
hinges 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 Comm, July 23, 1981, TSB-A-81(5)C.
Herein, Petitioner provides both a telephone answering service as well as a telex/fax service.
Based on the amounts presented as Petitioner's gross sales from business activities, it appears that,
for years ended June 30, 1985, June 30, 1986 and June 30, 1987, Petitioner was principally engaged
in a telex/fax service business and thereby taxable under Article 9.
However, the actual determination of whether Petitioner is principally engaged in a telex/fax
service business is a question of fact not susceptible of determination in an Advisory Opinion. An
Advisory Opinion merely sets forth the applicability of pertinent statutory and regulatory provisions
to "a specified set of facts" Tax Law, § 171, subd. twenty-fourth, 20 NYGRR 901.1(a).
Accordingly, if it determined that Petitioner is principally engaged in the telex/fax service,
Petitioner will be classified as a transportation and transmission corporation subject to tax under

-3­
TSB-A-89(9)C
Corporation Tax
July 18, 1989

Article 9. If it is determined that Petitioner is principally engaged in a telephone answering service,
Petitioner may be classified as a general business corporation subject to tax under Article 9-A.

DATED: July 18, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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