Does a nonprofit that's incorporated under New York law but operates entirely out of Massachusetts have enough nexus with New York to be required to collect New York sales tax on mail-order merchandise shipped to New York customers?

Subject

New York and New England Apple Institute, Inc.

What this means for you

The New York and New England Apple Institute, Inc. is a nonprofit that promotes apples throughout eastern New York and New England. It was organized under New York's general corporation laws, but for over 25 years its actual offices, staff, and operations have been based entirely in Westfield, Massachusetts. It maintains no physical presence in New York. Its bylaws, however, require that its volunteer secretary be a New York resident, so that address is available if legal process is ever needed. Besides its main apple-promotion mission, the Institute sells promotional merchandise (roadside-market signs, etc.) to its members, with orders processed from Massachusetts and shipped via UPS or the U.S. Postal Service -- total annual sales under $300,000.

The question was whether the Institute has enough connection ("nexus") with New York to be required to collect New York sales tax on merchandise mailed to New York customers, given it has no offices, employees, or property in the state. The Department found there's no case law squarely addressing whether a corporation automatically has nexus in its state of incorporation alone (the classic Supreme Court mail-order nexus cases it reviewed -- National Bellas Hess, Quill v. North Dakota, and others -- all dealt with foreign, out-of-state corporations, not domestic ones). But because the Institute is a New York corporation, and its own bylaws require a New York-resident secretary whose address can be used for legal process, the Department held that this combination gives it nexus with New York. It must collect New York State and local sales tax on all merchandise shipped to New York customers, regardless of the delivery method.

Q&A

Q: We're incorporated in New York but have never had an office, employee, or property there -- do we automatically have nexus?
A: This opinion says the Department can find nexus from New York incorporation combined with a New York contact point like a resident officer/agent -- here, a bylaw-required New York-resident secretary. The opinion doesn't resolve whether incorporation status alone (with zero New York contacts of any kind) would be enough.

Q: Doesn't the U.S. Constitution require a physical presence for a state to require sales-tax collection?
A: The mail-order nexus cases the Department reviewed (Due Process/Commerce Clause cases like Quill Corp. v. North Dakota and National Bellas Hess) all involved out-of-state (foreign) corporations selling into a state where they had no other contacts. The Department found no case law on whether a state's own domestic corporation is different -- treating incorporation itself as a form of in-state presence.

Q: If we drop the New York-resident-secretary bylaw requirement and reincorporate our registered agent out of state, would that change the analysis?
A: This opinion doesn't say -- it was decided on the specific combination of New York incorporation plus the bylaw-mandated New York-resident secretary. Any org considering restructuring around this fact pattern should get its own advisory opinion rather than relying on this one.

Citations

• 20 NYCRR § 526.15(b)(1) -- any corporation incorporated under New York law is a "resident" for sales tax purposes.
• State of Wisconsin v. J.C. Penney Co., 311 U.S. 435; Miller Brothers Co. v. Maryland, 347 U.S. 340; Scripto, Inc. v. Carson, 4 L. Ed. 2d 660; National Bellas Hess, Inc. v. Department of Revenue of Illinois, 18 L. Ed. 2d 505; National Geographic Society v. California Board of Equalization, 51 L. Ed. 2d 631; Quill Corp. v. North Dakota, 119 L. Ed. 2d 91 -- reviewed as the body of case law on Due Process/Commerce Clause nexus for out-of-state (foreign) corporations; none directly addressed a domestic corporation's nexus by virtue of its own state of incorporation.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_53s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (53)S
Sales Tax
December 20, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940624B

On June 24, 1994 a Petition for Advisory Opinion was received from The New York and
New England Apple Institute, Inc., 32 Char Drive, Westfield, MA 01085-1468.
The issue raised by Petitioner, The New York and New England Apple Institute, Inc., is
whether Petitioner has sufficient nexus with the State of New York to require Petitioner to collect
sales tax on receipts from sales of merchandise which is shipped from Petitioner's Massachusetts
location and delivered by either United Parcel Service or the U.S. Postal Service to customers
located within New York State.
Petitioner is a nonprofit corporation that was organized under the general laws of the State
of New York to promote apples throughout eastern New York State and New England.
Petitioner's offices are located in Westfield, Massachusetts and have been located in
Massachusetts for over 25 years. Petitioner maintains no physical presence in the State of New
York. The officers and board of directors are elected by the membership. The bylaws require that
the secretary (a volunteer) of the corporation be a resident of New York in order that his address can
be used in the event that it is necessary for legal process.
While Petitioner's primary purpose is to promote apples, Petitioner also sells various tangible
property as an additional service to its members (i.e., signs like "Open for Business", "Fresh Cider",
etc. as well as other merchandise for them to sell in their roadside markets).
Members' orders are received and processed at Petitioner's Massachusetts offices and are sent
to members through UPS or in the U.S. Postal Service. Petitioner's total annual sales are under
$300,000 per year.
Section 526.15 of the Sales and Use Tax Regulations states, in part:
Resident.
(b) Others. (1) Any corporation incorporated under the laws of New York, and any
corporation, association, partnership or other entity doing business in the State or
maintaining a place of business in the State, ... is a resident.
In State of Wisconsin v J.C. Penney Company, 311 US 435, Miller Brothers Company v
State of Maryland, 347 US 340, Scripto, Inc v Dale Carson, 4 L ed 2d 660, National Bellas Hess v
Department of Revenue of the State of Illinois, 18 L ed 2d 505, National Geographic Society v
California Board of Equalization, 51 L Ed 2d 631, and Quill Corporation v North Dakota,

-2­
TSB-A-94 (53)S
Sales Tax
December 20, 1994

119 L Ed 2d 91, the issues mainly dealt with whether out of state (foreign) corporations had the
required minimum amount of contact within each state to create sufficient nexus to satisfy the Due
Process and Commerce Clauses of the United States Constitution, thereby causing the corporations
to be liable to collect a use tax on receipts from mail order sales to customers in each state where
delivery of such mail order sales occurred either by common carrier or the US mail. There is no
apparent case law authority regarding the issue as to whether a domestic corporation automatically
has nexus for sales tax purposes in the state of its incorporation by virtue of such incorporation.
In the instant matter, Petitioner is a corporation organized under the laws of New York State.
Since Petitioner is a domestic corporation and since Petitioner's bylaws require that Petitioner's
volunteer secretary must be a resident of New York State in the event Petitioner requires use of the
secretary's New York address for legal process purposes, Petitioner is considered to have nexus with
New York State. Accordingly, Petitioner is required to collect State and local sales tax on sales of
tangible personal property where delivery occurs within New York State regardless of method of
delivery.

DATED: December 20, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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