Does a New Jersey printing company that only solicits orders in New York, ships from out of state, and occasionally delivers finished goods through its salesmen owe New York's Article 9-A corporate franchise tax?

Plain-English summary

ROP Color, Inc., a New Jersey corporation running a computerized typesetting and color-separation business, asked whether its New York activities made it subject to the Article 9-A corporate franchise tax. Its manufacturing plant, management, and commercial domicile were all outside New York, and it had no office, property, or capital in the state. In New York, ROP Color only: (1) had salesmen solicit orders, (2) picked up customer mechanicals/photographs for delivery to its out-of-state plant, and (3) delivered the finished negatives back to New York customers. Orders were always sent outside New York for approval and, once approved, filled by shipment from outside the state. Salesmen occasionally delivered merchandise, fielded customer complaints, and arranged returns of defective goods for inspection at the New Jersey plant -- but had no technical repair authority and could not grant credit themselves.

The Department ruled ROP Color was exempt. Public Law 86-272 and Regulations section 1-3.4(b)(9) shield a foreign corporation from Article 9-A tax if its only New York activity is soliciting orders that are approved and filled from outside the state. The regulations list activities that go beyond "mere solicitation" and would defeat the exemption -- making repairs or installations, credit investigations, collecting delinquent accounts, taking inventory, setting up product displays, giving technical advice. ROP Color's salesmen did none of these: they couldn't make repairs, weren't technically proficient, didn't collect delinquent accounts or deposits, and all substantive decisions (credit approval, defective-goods credit) were made at the New Jersey plant. Occasional deliveries and passing along complaints didn't cross the line, so the company stayed within the safe harbor.

What this means for you

Out-of-state manufacturers and printers selling into New York

If your only New York presence is sales staff who take orders (sent elsewhere for approval and shipped from outside the state), you can likely rely on Public Law 86-272 to avoid Article 9-A tax -- even if those salespeople occasionally deliver goods or smooth over customer complaints, as long as they can't actually fix products, extend credit, or make other substantive business decisions in New York.

Accountants and tax professionals

The key line is between activities that support solicitation (goodwill, complaint pass-through, incidental delivery) and activities that "promote or encourage the marketing" or "maintain a market already established" beyond solicitation -- the latter defeats the exemption under Regulations section 1-3.4(b)(9)(v). Watch especially for repairs, credit decisions, and inventory/display work performed in New York; any of those can convert a PL 86-272-protected seller into a taxable one.

Common questions

Q: Does having salesmen visit New York customers automatically create Article 9-A nexus?
A: No. Order solicitation alone -- with orders approved and filled from outside New York -- is protected by Public Law 86-272, regardless of how often salesmen visit.

Q: What tips a solicitation-only business into taxable status?
A: Activities beyond solicitation, such as making repairs, credit investigations, collecting delinquent accounts, taking inventory for customers, setting up product displays, or giving technical advice on using the product.

Q: Can this ruling be relied on by another out-of-state seller with salesmen in New York?
A: No. This is a private advisory opinion binding the Department only for ROP Color, Inc. on these specific facts. Another business's facts -- even if similar -- must be separately analyzed.

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax)
• Public Law 86-272, 15 USCA sections 381-384 (interstate-commerce solicitation exemption)
• Business Corporation Franchise Tax Regulations section 1-3.4(b)(9)(i) and (v) (mere-solicitation exemption; activities beyond mere solicitation)

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_8c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91(8)C
Corporation Tax
March 22, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C901211A

On December 11, 1990, a Petition for Advisory Opinion was received from ROP Color, Inc.,
501 Bergen Street, Harrison, New Jersey 07029.
The issue raised by Petitioner, ROP Color, Inc., is whether its activities in New York State
in connection with its computerized typesetting and color separation business make it subject to the
franchise tax imposed on business corporations under Article 9-A of the Tax Law.
Petitioner conducts a computerized typesetting and color separation business. It conducts
its manufacturing operations outside New York State and its seat of management and commercial
domicile are outside New York State. Petitioner does not maintain an office, own or lease property
or employ capital in New York State.
Petitioner's activities in New York consist of: (1) soliciting orders, (2) picking up
mechanicals for delivery to its manufacturing plant outside New York, and (3) delivering completed
negatives to customers in New York.
Petitioner has customers in several states. However, the majority of its sales are to New York
customers. Customers in New York place orders by mail, by telephone, or through salesmen
employed by Petitioner. These salesmen solicit sales in New York on a regular and continuous basis.
All purchase orders are sent outside New York State for approval, and if approved, are filled by
shipment or delivery from a point outside New York State. All credit is approved outside New York
State.
The customer's manuscripts, mechanicals or photographs are delivered to Petitioner's plant
located outside New York by the customer, salesmen, Petitioner's van, messenger, or common
carrier. There the mechanicals are typeset, photographed and color separated for color reproductions.
The resulting negatives are delivered to the customer by the salesmen, Petitioner's own vans,
messengers, or common carriers. Salesmen when delivering merchandise may deal with customer
complaints and arrange for the repair of defective goods in order to encourage future sales.
Petitioner salesmen's duties consist of the following:
1.

The salesmen take orders from customers which they send to the New Jersey office
for credit check and approval.

2.

The salesmen attempt to maintain goodwill and continuous customer relations.

TP-9(9/88)

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Corporation Tax
March 22, 1991

3.

The salesmen, in order to facilitate "1" and "2" above, on occasion, deliver
merchandise to a customer. A very small percentage of merchandise is delivered by
salesmen.

4.

If a customer is dissatisfied with the product, and the salesman is present or made
aware of the problem, he will try to soothe the customer. He may on occasion
arrange for the products return to the New Jersey plant for inspection by Petitioner's
plant supervisors. No repairs are made, or can be made outside the plant. The
salesmen are not technically proficient. Credit for defective merchandise is granted
by technicians in the New Jersey plant.

5.

Salesmen neither collect delinquent accounts, nor do they collect customer deposits.

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 1-3.4(b)(9)(i) 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 USCA §§ 381-384). Such section provides that:
[a] 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
(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

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Corporation Tax
March 22, 1991

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.
Herein, Petitioner's manufacturing operations and seat of management are located outside
New York State. Petitioner does not maintain an office in New York State, does not own or lease
property or employ capital in New York State. Petitioner's sole activities in New York are the
soliciting of orders, picking up manuscripts, mechanicals or photographs for delivery to the plant
outside New York and the delivery of the completed negatives from outside to New York to
customers in New York. Petitioner's salesmen may forward customers complaints to offices outside
New York and return defective goods to be repaired. All decision making regarding these activities
are conducted outside New York State.
Consequently, Petitioner's activities in New York State do not go beyond the mere
solicitation of orders and Petitioner is exempt from the franchise tax imposed by Section 209.1 of
Article 9-A of the Tax Law by virtue of Public Law 86-272 and section 1-3.4(b)(9) of the Article 9-A
Regulations.

DATED: March 22, 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.