Does a California company that sells computerized movie-theater management systems nationwide, with a New York sales footprint limited to about 4% of revenue and just 13 installation trips over five years, owe New York Article 9-A franchise tax for sending an employee to install and train customers on each system sold there?

Plain-English summary

Theatron Data Systems, Inc., a California corporation, produces and nationally markets an automated management system for movie theaters -- hardware, customized hardware, and software. Every employee was California-based except one salesman working from his Massachusetts home; all orders were accepted and shipped F.O.B. from California. But when a system was sold for installation anywhere -- including New York -- Theatron sent one of its eight California-based installation employees to the site to connect the hardware, load the software, test the system (one to two days), and often spend another one to two days training unfamiliar customers, all at no separate installation charge (customers only reimbursed travel expenses). Theatron also sold maintenance contracts, with software support by phone from California and hardware maintenance dispatched to unrelated third-party providers.

New York's share of Theatron's business was genuinely small. Over 1983-1987, New York customers generated just 3.7% of total revenue ($408,718 of $10,968,855), and Theatron made only 13 installation trips totaling 40 days in New York across those five years (3.9% of all installations). Theatron had no New York office, assets, or based employees, and didn't actively solicit New York business.

None of that smallness mattered -- the installation activity itself defeated the Public Law 86-272 exemption. The regulations list "making repairs to or installing the corporation's products" and "giving technical advice on the use of the corporation's products" as textbook examples of activity that goes beyond "mere solicitation" of orders -- and Theatron's on-site hardware connection, software loading, system testing, and customer training checked exactly those boxes. Because Theatron wasn't employing capital or owning/leasing property in New York either, the case turned on the general multi-factor "doing business" test (continuity/frequency of New York activity, purpose of the corporation vs. its New York activities, location of offices, New York-derived income, employment of agents/employees in the state, seat of management). Even with New York representing under 4% of revenue and only a handful of short trips per year, the Department found Theatron's activities -- viewed comprehensively -- constituted "doing business" in New York, making it subject to Article 9-A franchise tax for 1983 through 1987 and all subsequent years it continues installing systems there.

What this means for you

Out-of-state hardware/software vendors who install and train customers on-site

Sending your own employees into New York to physically install, connect, or configure a product -- even briefly, even without a separate installation charge, even as a tiny fraction of your overall business -- takes you outside the Public Law 86-272 safe harbor. There's no revenue-percentage or trip-frequency threshold that keeps installation activity protected; the nature of the activity, not its volume, is what disqualifies it.

Contrast with ROP Color (TSB-A-91(8)C)

Compare this to a company whose New York activity is limited to sales solicitation with orders shipped from outside the state -- that stays protected. The dividing line the Department consistently draws is between solicitation-adjacent activities (which can stay protected) and installation/repair/technical-advice activities (which cannot), regardless of how minor either category is in your overall business.

Accountants and tax professionals

Don't assume a small New York sales percentage or infrequent trips will save a client from nexus once on-site installation or training is involved -- this ruling shows the Department applying the doing-business test even to genuinely minimal activity once the underlying activity type (installation) is disqualifying. Structure remote-installation or self-install options if avoiding New York nexus is the goal.

Common questions

Q: Does a very small percentage of revenue from New York protect a company from Article 9-A nexus?
A: Not by itself -- as here, even with under 4% of total revenue coming from New York, the nature of the on-site installation/training activity was enough to establish doing-business nexus.

Q: Is training customers on a product's use the same as "mere solicitation" of orders?
A: No. The regulations specifically list giving technical advice on product use as activity beyond mere solicitation, defeating the Public Law 86-272 exemption.

Q: Would remote or customer-self-install options avoid this outcome?
A: This ruling doesn't address that scenario directly, but the underlying principle -- that on-site installation/training activity (not solicitation) triggers nexus -- suggests eliminating in-state hands-on installation would remove the specific activity the Department relied on here.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax); section 210 (tax computation)
• Business Corporation Franchise Tax Regulations section 1-3.2(b) (doing-business multi-factor test)
• Business Corporation Franchise Tax Regulations section 1-3.4(b)(9)(i), (v) (Public Law 86-272 exemption; activities beyond mere solicitation, including installation and technical advice)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a90_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(10)C
Corporation Tax
April 16, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C891205C

On December 5, 1989, a Petition for Advisory Opinion was received from Theatron Data
Systems, Inc., 2633 N. San Fernando Boulevard, Burbank, California 91504.
The issue raised is whether Petitioner, Theatron Data Systems, Inc.'s sale of automated
management systems for movie theaters in New York State makes it subject to franchise tax under
Article 9-A of the Tax Law.
Petitioner is incorporated in and has its principal place of business in the State of California.
Petitioner produces an automated management system for movie theatres, which it markets
nationwide. All of its production and administrative functions are completed in California. All
employees of Petitioner are based in California, except for one sales representative who works out
of his home in Massachusetts. All orders for Petitioner's systems are accepted in California and
shipped FOB California via common carrier.
Petitioner's systems consist of basic computer hardware, customized hardware, and software.
When a new system is sold, the customer prepares the installation site, including all necessary
wiring, before the system arrives. When the system arrives, Petitioner sends an employee to the
installation site. Petitioner's employee connects the hardware, loads the software, and tests the
system to ensure that it is functioning properly. This typically takes one or two days. Petitioner's
employee may also spend an additional one or two days training customers who are unfamiliar with
the system. Petitioner's employees conduct no further activities at the installation site.
Petitioner has eight employees who install new systems, all of whom reside in California and
work out of Petitioner's office there. Petitioner does not charge separately for installation, regardless
of whether training is required. Customers reimburse Petitioner for travel expenses incurred by its
employees to, from, and at the installation site.
Petitioner sells maintenance service contracts to nearly all purchasers of its systems. These
contracts cover both software support and hardware maintenance. Theatron's technical support staff
provides software support by telephone from the California office. Petitioner contracts with several
third parties who provide hardware maintenance. When a customer encounters a problem, the
customer calls Petitioner's technical support staff in California. If Petitioner's personnel determine
that the problem involves the system hardware, they dispatch a third party maintenance provider to
the customer's place of business.

TP-9 (9/88)

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TSB-A-90(10)C
Corporation Tax
April 16, 1990

Petitioner has no offices or assets located in New York, and no employees based there. The
corporation does not actively solicit business in the state and no employees enter the state on a
regular basis. Petitioner has sold just one system to a Customer based in New York. Petitioner's
only other connections with New York result from the sale of systems to customers headquartered
outside New York for installation at a site inside the state. Petitioner's sales volume during the years
in issue were as follows:

Year

Total
Revenues

New York
Revenues

Ratio of N.Y.
Revenues to
Total Revenues

Income
Allocable
To N.Y.

1983
1984
1985
1986
1987

$

897,163
1,232,925
2,542,607
2,708,733
3,587,427

$ 35,083
29,924
37,443
183,146
123,122

3.9%
2.4%
1.5%
6.8%
3.4%

$ (234)
(144)
413
2,902
1,734

Total

$10,968,855

$408,718

3.7%

$ 4,671

As with other sales, on those occasions when Petitioner sells a system that will be installed
in New York, the corporation sends an employee to New York to install the system and to train the
customer's employees in its use. The number and length of these trips in the years at issue were as
follows:

Year

Total
Installations

N.Y.
Installations

Percentage of
Installations
in New York

1983
1984
1985
1986
1987

27
46
81
86
92

1
1
2
5
4

3.7%
2.2%
2.5%
5.8%
4.3%

3
3
5
15
14

Total

332

13

3.9%

40

Total Days
in N.Y.

Petitioner's employees make no other visits to the installation sites. Maintenance for Petitioner's
systems in New York is provided by Sorbus, Inc. and Computer Smith, neither of which is related
to Petitioner or its shareholders.

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TSB-A-90(10)C
Corporation Tax
April 16, 1990

Section 209.1 of Article 9-A of the Tax Law imposes the business corporation franchise tax
on every foreign corporation, unless specifically exempt, for the privilege of doing business, or of
employing capital, or of owning or leasing property in New York State in a corporate or organized
capacity, or of maintaining an office in New York State.
Section 1-3.2(b) of the Business Corporation Franchise Tax Regulations (hereinafter "Article
9-A Regulations") provides that:
(1) [t]he term doing business is used in a comprehensive sense and
includes all activities which occupy the time or labor of men for
profit. Regardless of the nature of its activities, every corporation
organized for profit and carrying out any of the purposes of its
organization is deemed to be doing business for the purposes of the
tax. In determining whether a corporation is doing business, it is
immaterial whether its activities actually result in a profit or a loss.
(2) Whether a corporation is doing business in New York State is
determined by the facts in each case. Consideration is given to such
factors as:
(i) the nature, continuity, frequency, and regularity of the activities
of the corporation in New York State, compared with the nature,
continuity, frequency, and regularity of its activities elsewhere;
(ii) the purposes for which the corporation was organized, compared
with its activities in New York State;
(iii) the location of its offices and other places of business;
(iv) the income of the corporation and the portion thereof derived
from activities in New York State;
(v) the employment in New York State of agents, officers and
employees; and
(vi) the location of the actual seat of management or control of the
corporation. 20 NYCRR 1-3.2(b)

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TSB-A-90(10)C
Corporation Tax
April 16, 1990

Section 1-3.2(c) of the Article 9-A Regulations provides that:
[t]he 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.
20 NYCRR 1-3.2(c)
Section 1-3.2(d) of the Article 9-A Regulations provides that:
[t]he 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 taxable status. Property held as a nominee
for the benefit of others creates taxable status .... 20 NYCRR 1­
3.2(d).
Section 1-3.4(b)(9) of the Article 9-A regulations provides an exemption from taxation under
Article 9-A for corporations which are exempt pursuant to the provisions of Public Law 86-272 (15
U.S.C.A. §§ 381-384). Such section provides that:
(i) A foreign corporation whose income is derived from interstate
commerce is not subject to tax under article 9-A if the activities of the
corporation in New York State are limited to either, or both of the
following:
(a) the solicitation of orders by employees or
representatives in New York State for sales of
tangible personal property and the orders are sent
outside New York State for approval or rejection; and,
if approved, are filled by shipment or delivery from a
point outside New York State, and

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TSB-A-90(10)C
Corporation Tax
April 16, 1990

(b) the solicitation of orders by employees or
representatives in New York State in the name of or
for the benefit of a prospective customer of such
corporation if the customer's orders to the corporation
are sent outside the State for approval or rejection;
and, if approved, are filled by shipment or delivery
from a point outside New York State.
Section 1-3-4(b)(9)(v) of the Article 9-A regulations provides that:
[a]ctivities beyond mere solicitation will subject a corporation to tax
in New York State. In general, activities of employees in New York
State which are intended or designed to promote or encourage the
marketing of the corporation's products in New York State or
intended or designed to maintain a market already established in New
York State are beyond mere solicitation and will make a corporation
taxable. In determining whether a corporation's activities exceed
mere solicitation, all of the corporation's activities in New York State
will be considered. Examples of activities which go beyond mere
solicitation include:
(a) making repairs to or installing the corporation's products;
(b) making credit investigations;
(c) collecting delinquent accounts;
(d) taking inventory of the corporation's products for
customers or prospective customers;
(e) setting up displays of the corporation's products for
customers;
(f) giving technical advise on the use of the corporation's
products.
Petitioner's principal place of business is in California and all production and administrative
functions are completed in California. All employees are based in California except for one sales
representative working out of his home in Massachusetts. Petitioner has no offices or assets located
in New York and no employees based in New York.
Petitioner produces an automated management system for movie theatres that is marketed
nationwide. All orders for Petitioner's systems are accepted in California and shipped FOB
California via common carrier. When a new system is sold, an employee of Petitioner is sent to the
installation site to connect the hardware, load the software, test the system and may train customers

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Corporation Tax
April 16, 1990

who are unfamiliar with the system. Consequently, Petitioner's activities in New York State go
beyond the mere solicitation of orders and Petitioner is not exempt from tax by virtue of Public Law
86-272.
Petitioner is not employing capital in New York, does not own or lease property in New York
and does not maintain an office in New York. Therefore, the pertinent question in determining
whether Petitioner is subject to tax under Article 9-A is whether Petitioner is "doing business' in
New York State.
Giving due consideration to the factors set forth in section 1-3.2(b)(2) of the Article 9-A
Regulations, and viewing Petitioner's activities as set forth above in a comprehensive sense, such
activities in New York State constitute "doing business" within the meaning of section 209.1 of the
Tax Law.
When a corporation is doing business in New York State pursuant to section 209.1 of the Tax
Law, such corporation is subject to tax under Article 9-A of the Tax Law.
Accordingly, pursuant to section 209.1 of the Tax Law and section 1-3.2(b) of the Article 9-A
Regulations, Petitioner is subject to the franchise tax imposed under Article 9-A of the Tax Law for
taxable years 1983 through 1987 and for all subsequent taxable years Petitioner is doing business
in New York State. Petitioner must compute its tax under Article 9-A pursuant to section 210 of the
Tax Law.

DATED: April 16, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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