New York advertising agencies sometimes buy materials -- like photoengraving plates and drawings -- as agent for an out-of-state client, and those materials end up owned by that out-of-state client while briefly located in New York. Does that client's ownership of such materials in New York, by itself, make the out-of-state client corporation subject to New York's Article 9-A franchise tax?

Plain-English summary

The American Association of Advertising Agencies, Inc. (AAAA) petitioned on behalf of member advertising agencies located in New York that perform services for non-New York clients -- some of which aren't otherwise subject to New York's Article 9-A franchise tax. In the course of that work, an agency may purchase materials as agent for its client -- for example, photoengraving plates and drawings used in producing advertisements -- and those materials become the property of the non-New York client. The question was whether the client's ownership of such materials, physically located in New York, would by itself subject that foreign client corporation to the Article 9-A franchise tax.

Tax Law § 209.1 imposes the franchise tax on foreign corporations for, among other privileges, owning property in New York. But the Department noted that property ownership in the state isn't always sufficient in magnitude to create tax liability. It pointed to two existing situations recognizing this principle: first, the Business Corporation Franchise Tax Regulations exempt a foreign corporation whose income derives from interstate commerce and whose New York activities don't exceed Public Law 86-272's protections, even where the corporation keeps samples or automobiles in the state used solely for solicitation (20 NYCRR § 1-3.4(a)(9)); second, it has been held that a foreign corporation that ships raw materials or partly finished goods to an unrelated New York contractor for processing isn't made taxable solely by that in-state property ownership, so long as the contractor returns the goods to the foreign corporation or ships them on to another out-of-state contractor.

Applying the same reasoning, the Department advised AAAA that a client's ownership, in New York, of materials purchased on its behalf by its New York advertising agency -- in the manner described -- is similarly minimal and would not, by itself, subject the client corporation to the Article 9-A franchise tax.

What this means for you

Brief, incidental property ownership in New York doesn't automatically create nexus

If your out-of-state business's only connection to property physically present in New York is that an agent (like an ad agency) purchased production materials on your behalf which you technically own, that alone is unlikely to trigger Article 9-A tax -- the Department treats this the same way it treats sales samples used for solicitation or raw materials sent out for processing.

The "minimal ownership" principle draws on -- but is broader than -- the P.L. 86-272 solicitation carve-out

This ruling isn't limited to sales solicitation; it extends the same "too minimal to matter" reasoning to production/marketing materials owned incidentally in the course of an agency relationship, suggesting the Department looks at the practical magnitude of an out-of-state client's property presence, not just whether it fits a named statutory exemption.

Common questions

Q: If my out-of-state company technically owns materials that are physically located in New York because our agency purchased them for us, are we now subject to New York's franchise tax?
A: Not by itself -- the Department treats this kind of incidental, agency-purchased property ownership as too minimal in magnitude to trigger Article 9-A nexus, similar to sales samples or goods sent out for processing.

Q: Does this apply beyond advertising agencies?
A: The ruling is framed around the advertising-agency fact pattern specifically, but its reasoning draws on general principles (P.L. 86-272 samples, raw-materials-to-contractor) that could apply to other similarly minimal, incidental property arrangements -- confirm your specific facts with a tax professional.

Citations and references

Statutes and guidance:

• Tax Law § 209.1
• 20 NYCRR § 1-3.4(a)(9)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/h80_32c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80 (32)C
Corporation Tax
November 14, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C800820A

On August 20, 1980, a Petition for Advisory Opinion was received from American
Association of Advertising Agencies, Inc. (AAAA), 200 Park Avenue, New York, New York
10017.
Advertising agencies located in New York perform services for non-New York customers,
some of which customers are not otherwise subject to New York's Franchise Tax on Business
Corporations imposed under Article 9-A of the Tax Law. In performing such services the advertising
agency may purchase, as agent for its customer, various materials used in the performance of such
services. These materials, for example photoengraving plates and drawings, become the property of
the non-New York customer. The issue raised in the Petition is whether the ownership of such
materials within this state by a foreign corporation would subject the corporation to the Franchise
Tax.
Section 209.1 of the Tax Law imposes a franchise tax on foreign corporations for the
privilege of, among other things, owning property within this state. However, there are situations
where the ownership of property in the state is not sufficient in magnitude to subject a corporation
to tax. For example, the Business Corporation Franchise Tax Regulations provide that a foreign
corporation whose income is derived from interstate commerce is not subject to tax if its New York
activities do not exceed those prescribed by Public Law 86-272, even where the corporation has
samples or automobiles in the state used exclusively for solicitation. 20 NYCRR l-3.4(a)(9).
Similarly, it has been held that a foreign corporation which ships raw materials or partially finished
goods to an unrelated contractor in this state, by whom the goods are processed or finished, is not
taxable solely because of the ownership of such property in New York, assuming that the contractor
returns the goods to the foreign corporation or ships them to another contractor outside the state.
Petitioner is advised that the ownership of property in New York by a foreign corporation
in the manner described by Petitioner is similarly minimal and would not in itself subject such
corporation to the Franchise Tax on Business Corporations imposed under Article 9-A of the Tax
Law.

Dated: November 7,1980

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR