20 CRR-NY 1-3.4NY-CRR
20 CRR-NY 1-3.4
20 CRR-NY 1-3.4
1-3.4 Corporations not subject to tax.
Tax Law, §§ 3, 8, 13, 208(9)(i), 209(4), (9), (10)
(a) A corporation which is subject to any of the following taxes is not subject to tax under article 9-A of the Tax Law:
(1) transportation and transmission corporations and associations subject to tax under sections 183 and 184 of the Tax Law;
(2) farmers, fruit growers and other like agricultural corporations organized and operated on a cooperative basis subject to tax under section 185 of the Tax Law;
(3) continuing section 186 taxpayers subject to tax under former section 186 of the Tax Law as it was in effect on December 31, 1999 (section 44 of part Y of chapter 63 of the Laws of 2000);
(4) bank holding companies filing a combined return in accordance with Subpart 21-2 of this Title;
(5) banking corporations subject to the franchise tax on banking corporations imposed by article 32 of the Tax Law;
(6) insurance corporations subject to the franchise taxes on insurance corporations imposed by article 33 of the Tax Law; and
(7) cooperative corporations subject to the annual fee imposed by section 77 of the Cooperative Corporations Law.
(b) The following corporations are exempt from taxation under article 9-A:
(1) limited-profit housing companies organized pursuant to article 2 of the Private Housing Finance Law, effective for taxable years beginning on or after January 1, 1974;
(2) limited-dividend housing companies organized pursuant to article 4 of the Private Housing Finance Law;
(3) any trust company organized under a law of New York State, all of the stock of which is owned by not less than 20 savings banks organized under a law of New York State;
(4) the Urban Development Corporation and subsidiary corporations of the Urban Development Corporation. A corporation is deemed a subsidiary of the Urban Development Corporation whenever and so long as:
(i) more than one half of any voting shares of the subsidiary are owned or held by the Urban Development Corporation; or
(ii) a majority of the subsidiary's directors, trustees or members are designees of the Urban Development Corporation;
(5) domestic corporations exclusively engaged in the operation of one or more vessels in foreign commerce.
(i) The domestic corporation must operate the vessels regardless of whether it owns them or has leased them from another person or corporation. Operation of the vessels means the direction and supervision of the crew and of the actual movements or routes of the vessels. The commissioner generally deems the furnishing of the crew as the operation of the vessel.
(ii) A domestic corporation exclusively engaged in the operation of vessels in foreign commerce remains exempt (a) where it has investments in other domestic corporations exclusively engaged in the operation of vessels in foreign commerce or (b) where average investments (other than investments in a domestic corporation qualifying for this exemption) are minimal in comparison to overall activities. Generally, where other investments are 10 percent or less of average total assets, these investments will be considered minimal.
(iii) A domestic corporation engaged in other activities (except as described in subparagraph [ii] of this paragraph) is not exempt. A domestic corporation is not exempt if it acts as an agent for others by selling tickets, purchasing supplies and services, providing services for others, or operating any other business (e.g., a restaurant);
(6) corporations organized other than for profit which do not have stock or shares or certificates for stock or for shares and which are operated on a nonprofit basis no part of the net earnings of which inures to the benefit of any officer, director, or member, including Not-for-Profit Corporations and Religious Corporations.
(i) A corporation organized other than for profit, as described in this paragraph, which is exempt from Federal income taxation pursuant to subsection (a) of section 501 of the Internal Revenue Code, will be presumed to be exempt from tax under article 9-A. If a corporation organized other than for profit is denied exemption from taxation under the Internal Revenue Code, such corporation will be presumed subject to tax under article 9-A.
(ii) The determination of the Internal Revenue Service, denying or revoking exemption from Federal taxation under the Internal Revenue Code, will ordinarily be followed;
(7) certain DISCs.
(See Subpart 3-9 of this Title—Domestic International Sales Corporation [DISC].) A DISC will be exempt from taxation under article 9-A for any taxable year in which it:
(i) received more than five percent of its gross sales from the sale of inventory or other property which it purchased from its stockholders; or
(ii) received more than five percent of its gross rentals from the rental of property which it purchased or rented from its stockholders; or
(iii) received more than five percent of its total receipts other than sales and rentals from its stockholders;
(8) trusts which are not conducting a business (passive trusts). Where the functions of a trustee are only to hold property and collect and distribute income the trust is not subject to tax under article 9-A of the Tax Law. The power to sell, invest and reinvest must be clearly and expressly limited. For example, a power to sell stock and reinvest the proceeds if the bid price of the stock drops below a certain level will not make the trust taxable;
(9) corporations which are exempt pursuant to the provisions of Public Law 86-272 (15 U.S.C.A. §§ 381-384).
(i) A foreign corporation whose income is derived from interstate commerce is not subject to tax under article 9-A of the Tax Law 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 for sales of tangible personal property 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.
(ii) For purposes of this exemption, a corporation will not be considered to have engaged in taxable activities in New York State during the taxable year merely by reason of sales in New York State or the solicitation of orders for sales in New York State, of tangible personal property on behalf of the corporation by one or more independent contractors. A corporation will not be considered to have engaged in taxable activities in New York State by reason of maintaining an office in New York State by one or more independent contractors whose activities on behalf of the corporation in New York State consist solely of making sales, or soliciting orders for sales, of tangible personal property.
(iii) The term independent contractor means a commission agent, broker, or other independent contractor who is engaged in selling, or in soliciting orders for the sale of tangible personal property for more than one principal and who holds himself out as such in the regular course of his business activities. The term representative does not include an independent contractor.
(iv) In order to be exempt by virtue of Public Law 86-272, the activities in New York State of employees or representatives must be limited to the solicitation of orders. The solicitation of orders includes offering tangible personal property for sale or pursuing offers for the purchase of tangible personal property and those ancillary activities, other than maintaining an office, that serve no independent business function apart from their connection to the solicitation of orders. Examples of activities performed by such employees or representatives in New York State that are entirely ancillary to the solicitation of orders include:
(a) the use of free samples and other promotional materials in connection with the solicitation of orders;
(b) passing product inquiries and complaints to the corporation's home office;
(c) using autos furnished by the corporation;
(d) advising customers on the display of the corporation's products and furnishing and setting up display racks;
(e) recruitment, training and evaluation of sales representatives;
(f) use of hotels and homes for sales-related meetings;
(g) intervention in credit disputes;
(h) use of space at the salesperson's home solely for the salesperson's convenience. (However, see subparagraph [vi] of this paragraph as to loss of immunity for maintaining an office.);
(i) participating in a trade show or shows, provided that participation is for not more than 14 days, or part thereof, in the aggregate during the corporation's taxable year for Federal income tax purposes. (However, see subparagraph [vi] of this paragraph as to loss of immunity for maintaining an office.)
(v) Activities in New York State beyond the solicitation of orders will subject a corporation to tax in New York State unless such activities are de minimis. Activities will not be considered de minimis if such activities establish a nontrivial additional connection with New York State. Solicitation activities do not include those activities that the corporation would have reason to engage in apart from the solicitation of orders but chooses to allocate to its New York State sales force. In determining whether a corporation's activities exceed the solicitation of orders, all of the corporation's activities in New York State will be considered. Examples of activities which go beyond the solicitation of orders 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) replacing the corporation's stale or damaged products;
(f) giving technical advice on the use of the corporation's products after the products have been delivered to the customer.
(vi) Maintaining an office, shop, warehouse or stock of goods in New York State will make a corporation taxable. However, a corporation will not be made taxable solely by maintaining a supply of goods in New York State if such goods are used only as free samples in connection with the solicitation of orders. A corporation will be considered to be maintaining an office in New York State if the space is held out to the public as an office or place of business of the taxpayer. For example, a salesperson uses his or her house for business. A telephone, listed in the corporation's name, is maintained at the salesperson's house. The salesperson makes telephone contacts from the house or receives calls and orders at the house. The residence will be treated as an office of the corporation, and the corporation will be taxable;
(10) an industrial development agency created pursuant to article 18-A of the General Municipal Law;
(11) housing development fund companies organized pursuant to the provisions of article 11 of the Private Housing Finance Law;
(12) an entity that is treated for Federal income tax purposes as a real estate mortgage investment conduit (REMIC);
(13) for any taxable year beginning on or after January 1, 1987, an organization described in paragraph (2) or (25) of subdivision (c) of section 501 of the Internal Revenue Code;
(14) redevelopment companies organized pursuant to article 5 of the Private Housing Finance Law;
(15) a qualified subchapter S subsidiary (QSSS) corporation, as defined in section 208(1-B) of the Tax Law, provided it meets the requirements for exemption pursuant to section 208(9)(k) of such article;
(16) a qualified settlement fund under section 468B of the Internal Revenue Code or an entity that is treated as such for Federal purposes or a grantor trust, either of which is used for Nazi reparations.
Imposition of tax; exemptions, Tax Law § 209.
RESEARCH REFERENCES AND PRACTICE AIDS:
15 NY Jur 2d, Business Relationships § 1223.
100 NY Jur 2d, Taxation and Assessment § 1267.
71 Am Jur 2d, State and Local Taxation §§ 266 et seq.
NY Forms, Legal & Business, Business Enterprises: Professional Corporations § 17A:25.
NY Forms, Legal & Business, Business Enterprises: Buying and Selling a Business § 20A:22.
20 CRR-NY 1-3.4
Current through October 31, 2019
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