If an out-of-state parent corporation is mistakenly listed as the record owner of New York real property that its subsidiary actually purchased, operates, and pays taxes on, does the parent become subject to New York franchise tax merely because of that clerical title error?

Plain-English summary

Pressure Vessel Service, Inc. ("Petitioner"), a Michigan corporation, does not conduct business in New York and is not authorized to do so. Its wholly owned subsidiary, PVS Chemicals, Inc. (New York) ("PVS-NY"), is qualified to do business here and has owned and operated a sulfuric-acid manufacturing plant in Buffalo since 1981. In 1987, PVS-NY purchased an adjacent seven-acre parcel from the same seller. When part of that parcel was later put up for sale, a title search revealed that Petitioner, not PVS-NY, was listed as the parcel's record owner -- an unintended clerical mistake, since both companies had always intended PVS-NY (the actual owner and operator) to hold title, exactly as it did with the original plant purchase. PVS-NY had, in fact, reported the parcel as its own asset on its New York franchise tax filings and paid all local real estate taxes on it from the time of purchase.

The Department's answer: no franchise tax liability for Petitioner. Regulations section 1-3.2(d) provides that property held as nominee for the benefit of others creates taxable status for a foreign corporation -- but that principle requires the corporation to have actually functioned as a nominee. The Department distinguished this case from three prior rulings where the nominee arrangement was intentional: Eugene Strasser, TSB-A-88(18)C (title deliberately placed in a corporation's name to obscure the true owner from neighbors); Babson Bros., TSB-A-88(19)C (a corporation purposely took title as nominee for a joint venture); and Highmount Medical Building, TSB-A-91(12)C (a corporation specifically organized to hold nominee title so a lender's requirements could be met). Here, by contrast, the record title was purely an inadvertent mistake contrary to the parties' actual intent -- Petitioner never functioned as a nominee in substance. So Petitioner did not hold the parcel as a nominee within the meaning of section 1-3.2(d) and owes no Article 9-A tax for the years it inadvertently held legal title.

What this means for you

Corporate groups with out-of-state parents and New York subsidiaries

An out-of-state parent won't automatically be dragged into New York franchise tax merely because a title error puts its name on a deed -- what matters is whether the parent actually functioned as a nominee (i.e., held title for someone else's benefit while lacking the substance of ownership), not just whose name appears in the county records.

If you discover a title error like this

Document the inadvertent nature of the mistake and the consistent contrary conduct (who actually paid the taxes, reported the asset, operated the property, and intended to hold title) -- that evidentiary record is what distinguished this case from the deliberate-nominee cases the Department cited.

Accountants and tax professionals

This opinion draws a clean line between corporations that intentionally use nominee title arrangements (taxable, per Strasser, Babson Bros., and Highmount) and a corporation whose name appears on title purely by clerical accident with no nominee function in substance (not taxable).

Common questions

Q: Does having record title to New York property always create nexus for a foreign corporation?
A: Generally yes if the corporation functions as owner or nominee, but not where the title is an inadvertent clerical error contrary to the parties' actual intent and conduct.

Q: How is this different from the nominee cases the Department has taxed before?
A: In those cases, the corporation deliberately took nominee title for a specific purpose (obscuring ownership, satisfying a lender, holding for a joint venture). Here, there was no intentional nominee arrangement at all -- just a paperwork mistake.

Q: What facts mattered most to the Department's conclusion?
A: That the subsidiary, not the parent, purchased, operated, paid taxes on, and reported the property as its own asset -- and that both parties always intended the subsidiary to hold title.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax on foreign corporations)
• Business Corporation Franchise Tax Regulations section 1-3.2(d) (nominee property creates taxable status)

Prior opinions cited in the ruling:

• Eugene Strasser, TSB-A-88(18)C
• Babson Bros. Co. of New York Inc., TSB-A-88(19)C
• Highmount Medical Building Inc., TSB-A-91(12)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a91_24c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(24)C
Corporation Tax
November 14, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C910805C

On August 5, 1991, a Petition for Advisory Opinion was received from Pressure Vessel
Service, Inc., 11001 Harper Avenue, Detroit, Michigan 48213.
The issue raised by Petitioner, Pressure Vessel Service, Inc., is whether it is subject to tax
under Article 9-A of the Tax Law because it is the record title holder of a parcel of real property in
New York State.
Petitioner is a Michigan corporation. It does not conduct business in New York, has not
applied for authority to do so and is not authorized to conduct business in New York.
PVS Chemicals, Inc. (New York) (hereinafter "PVS-NY") is a wholly owned subsidiary of
Petitioner incorporated in Michigan and qualified to conduct business in New York.
On or about October 1, 1981, PVS-NY purchased a portion of a chemical manufacturing
facility from Allied Chemical Corporation (now, Allied-Signal) located in Buffalo, New York
(hereinafter "Plant"). PVS-NY has owned and operated the Plant since the time of this purchase. The
Plant is operated primarily for the production of sulfuric acid.
Sometime after its purchase of the Plant, PVS-NY decided that it would purchase an adjacent
parcel from Allied. This transfer of approximately seven acres occurred in 1987 (hereinafter
"Parcel"). Recently, a portion of the Parcel was offered for sale and a contract for the same was
entered into with a third-party. Upon the proposed purchaser's examination of title to the Parcel it
determined that Petitioner, not PVS-NY, was the owner of record. As such, the purchaser
determined that Petitioner had not filed franchise tax returns with New York State and, thus, the title
to the Parcel was encumbered. Record ownership by Petitioner of the Parcel was an inadvertent
mistake which was not discovered until the examination of title for the recent proposed transfer. In
fact, it was intended by Petitioner and PVS-NY, that the latter would hold record title upon the
transfer from Allied in 1987, just as it had upon the prior transfer of the Plant in 1981. Not only
would this form of ownership be consistent but it would accurately reflect the fact that PVS-NY was
the owner and operator of the Plant and the Parcel and Petitioner did not conduct any business in
New York.
All incidents of ownership of the Parcel remained in PVS-NY from the time of its purchase
from Allied until the present. For example, PVS-NY has reported the Parcel as an asset on its New
York State Franchise Tax Report from and after its acquisition in 1987.
TP-9 (9/88)

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TSB-A-91(24)C
Corporation Tax
November 14, 1991

In addition, PVS-NY, has paid all local real estate taxes levied upon the Plant and Parcel.
Section 209.1 of the Tax Law imposes a franchise tax on foreign corporations 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 for all or
any part of each of its fiscal or calendar years.
Section 1-3.2(d) of the Business Corporation Franchise Tax Regulations (hereinafter
"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 held as a nominee
for the benefit of others creates taxable status "
It has been held that where a partnership bought a number of vacant lots in New York City
and title to the lots was registered in the name of a foreign corporation to obscure from neighboring
property holders the true owner of the lots, such foreign corporation was holding property as
nominee for the partnership and was subject to tax under Article 9-A until the foreign corporation
was dissolved. Eugene Strasser, Adv 0p Comm T & F, September 1, 1988, TSB-A-88(18)C.
Likewise, in Babson Bros. Co. of New York Inc., Adv Op Comm T & F, September 1, 1988,
TSB-A-88(19)C, the Petitioner entered into a joint venture agreement to purchase real property
whereby the Petitioner purchased it for and on behalf of the Venture and took title to the property
as nominee for the members of the Venture. As a New York corporation, the Petitioner was held
subject to tax for all taxable years until it was dissolved.
In Highmount Medical Building Inc., Adv Op Comm T & F, May 7, 1991, TSB-A-91(12)C,
a corporation was organized in New York specifically to meet the requirements of a lending
institution so that a group of doctors could obtain a mortgage to erect a medical building and
immediately after the mortgage was obtained the property was to be conveyed back to the partners
and the corporation dissolved. Through an oversight, the corporation was not dissolved until several
years later. It was held that the corporation was subject to tax for the years it was incorporated.
Herein, PVS-NY already owned the Plant and the subsequent purchase of the Parcel,
contiguous real estate, was intended for its ownership and benefit. It was never the intention of
either Petitioner or PVS-NY that Petitioner would hold title to Parcel as nominee for the benefit of
PVS-NY. The record title was an unintended inadvertent mistake contrary to the intention of the
parties to the transaction.
Since in the instant case the record title was in the name of Petitioner as the result of an
unintended inadvertent mistake, it is distinguishable from Eugene Strasser, supra where the
corporation held title as nominee to obscure the true ownership from the neighboring property
holders; Babson Bros., supra where the corporation entered into a joint venture to purchase and hold
title to property as nominee for the members of the joint venture; and Highmount, supra

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TSB-A-91(24)C
Corporation Tax
November 14, 1991

where the corporation was specifically formed to hold title as nominee for the partners so they could
obtain a mortgage.
Accordingly, Petitioner did not hold the property as a nominee for the benefit of others as
contemplated in section 1-3.2(d) of the Regulations and therefore Petitioner is not subject to the
franchise tax under Article 9-A of the Tax Law for the taxable years that it held legal title to Parcel.

DATED: November 14, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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