N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.10

Current through Register Vol. 46, No. 36, September 4, 2024

Section 1-2.10 - Foreign corporations - Public Law 86-272

(a) Pursuant to Public Law 86-272 (15 U.S.C.A. sections 381-384), a foreign corporation is exempt from the tax imposed by article 9-A if its activities are limited to those described in that law. Thus, to be exempt under Public Law 86-272, the activities of the corporation in New York State must be limited to one or more of the following:

(1) the solicitation of orders by employees or representatives in New York State for sales of tangible personal property, if 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;

(2) 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 New York State for approval or rejection and, if approved, are filled by shipment or delivery from a point outside New York State; and

(3) the solicitation of orders via the Internet in New York State for sales of tangible personal property, if 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.

(b) 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.

(c) 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.

(d) In order to be exempt by virtue of Public Law 86-272, the activities in New York State of employees or representatives, or activities engaged in via the Internet, must be limited to the solicitation of orders for the sale of tangible personal property. 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, or that are engaged in via the Internet, that are entirely ancillary to the solicitation of orders include:

(1) the use of free samples and other promotional materials in connection with the solicitation of orders;

(2) passing product inquiries and complaints to the corporation's home office;

(3) using autos furnished by the corporation;

(4) advising customers on the display of the corporation's products and furnishing and setting up display racks;

(5) recruitment, training and evaluation of sales representatives;

(6) use of hotels and homes for sales-related meetings;

(7) intervention in credit disputes;

(8) use of space at the salesperson's home solely for the salesperson's convenience. (However, see subdivision (g) of this section as to loss of immunity for maintaining an office.);

(9) 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 subdivision (g) of this section as to loss of immunity for maintaining an office.)

(e) The exemption under the provisions of Public Law 86-272is limited to the solicitation of orders for the sale of tangible personal property and does not include the solicitation of orders for the sale of services or intangible property.

(f) 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, or to engage in via the Internet, including interacting with customers or potential customers through the corporation's website or computer application. However, a corporation will not be made taxable solely by presenting static text or images on its website. 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 that go beyond the solicitation of orders include:

(1) making repairs to or installing the corporation's products;

(2) making credit investigations;

(3) collecting delinquent accounts;

(4) taking inventory of the corporation's products for customers or prospective customers;

(5) replacing the corporation's stale or damaged products;

(6) giving technical advice on the use of the corporation's products after the products have been delivered to the customer.

(g) 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's house is used for business and meets the criteria to be considered a bona fide employer office for personal income tax purposes. The residence will be treated as an office of the corporation, and the corporation will be taxable.

(h) A corporation (other than a corporation that cannot be included in a combined report under section 210-C(2)(c) and section 6-2.6 of this Subchapter) may be included in a combined report required under section 210-C, even if it is exempt from taxation under article 9-A pursuant to the provisions of Public Law 86-272, as described in this section. In addition, the receipts of such a corporation will be included in determining whether a unitary group is deriving receipts from activity in this state. However, if all the members of such a unitary group are exempt from taxation under article 9-A pursuant to the provisions of Public Law 86-272, as described in this section, then the unitary group would not be required to file a combined report.

(i) Examples.

The following are examples of foreign corporations that either are exempt or not exempt from tax under this section. Each of these examples is for illustration purposes only and is intended to be applicable only to the specific activity identified in each example.

Example 1: A foreign manufacturing corporation has its factory outside New York State. Its only activity in New York State is the solicitation of orders for its products through a sales office located in New York State. The orders are forwarded to its home office outside New York State for acceptance and the merchandise is shipped by common carrier from the factory direct to the purchasers. The corporation is subject to tax.

Example 2: A foreign corporation t h a t operates several retail stores outside New

York State leases an office in New York City for the convenience of its buyers when they come to New York State. Salespeople call at the office to solicit orders. The merchandise is shipped by the sellers directly to the offices of the corporation outside New York State. The corporation is subject to tax.

Example 3: A foreign corporation sends salespeople into New York State to solicit orders. The orders must be accepted at the home office of the corporation located in another state. The corporation displays goods in New York City at a space leased occasionally and for short terms. The corporation is subject to tax.

Example 4: A foreign corporation has $950,000 of receipts from activities in New York State that consist solely of the solicitation of orders by employees in New York State for sale of tangible personal property; all the orders are sent outside New York State for approval or rejection and, if approved, are filled by shipment from a point outside New York State. The corporation also has $100,000 of New York receipts from the sale of services. The corporation is subject to tax. The corporation may not disclaim tax liability in New York State under this section, since its activities in New York State are not limited to those described in this section.

Example 5: Seven foreign corporations each have $200,000 of receipts from activity in New York State and are part of the same unitary group that meets the ownership test under section 210-C and Subpart 6-2 of this Subchapter. Therefore, the seven corporations together exceed the $1 million receipts threshold. Three members of the group have activities in New York State that consist solely of the solicitation of orders by employees in New York State for sales of tangible personal property, which orders are sent outside New York State for approval or rejection and, if approved, are filled by shipment from a point outside New York State. These three corporations are not subject to tax in New York State because their activities are limited to those described in this section; the other four corporations are subject to tax because they are deriving receipts from activity in New York State and their activities are not limited to those described in this section. The seven corporations are required to file in a combined report, which will include the receipts, net income, net gains, net losses, and net deductions of all the corporations, together with their proportionate share of the unitary group's assets and liabilities.

Example 6: A foreign corporation solicits sales of tangible personal property on its website and provides assistance to customers by posting a list of static frequently asked questions ("FAQs") and answers on the corporation's website. Since this activity is de minimis under this section, the corporation is exempt from tax under article 9-A.

Example 7: A foreign corporation regularly provides assistance to its customers after its products have been delivered, either by email or electronic "chat" that customers initiate by clicking on an icon on the corporation's website. For example, the corporation regularly advises customers on how to use products after the products have been delivered. Since this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 8: A foreign corporation solicits and receives online applications for its branded credit card via the corporation's website. The issued cards will generate interest income and fees for the corporation. Since this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 9: A foreign corporation's website invites viewers in New York State to apply for non-sales positions with the corporation. The website enables viewers to fill out and submit an electronic application, as well as to upload a cover letter and resume. Since this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 10: A foreign corporation places Internet "cookies" onto the computers or other electronic devices of is customers. These cookies gather customer search information that will be used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale. Since this activity does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 11: The same facts as example 10 except that the cookies gather customer information that is used only for purposes entirely ancillary to the solicitation of orders for tangible personal property, such as: to remember items that customers have placed in their shopping cart during a current web session, to store personal information customers have provided to avoid the need for the customers to re-input the information when they return to the corporation's website, and to remind customers what products they have considered during previous sessions. The cookies perform no other function, and these are the only types of cookies delivered by the corporation to the computers or other devices of its customers. Since this activity is entirely ancillary to the solicitation of orders for sales of tangible personal property, the corporation, under the facts of this example, is exempt from tax under this section.

Example 12: A foreign corporation remotely fixes or upgrades products previously purchased by its customers by transmitting code or other electronic instructions to those products via the Internet. Since this does not constitute, and is not entirely ancillary to, the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 13: A foreign corporation offers and sells extended warranty plans through its website to New York State customers who purchase the corporation's products. Since this activity involves selling, or offering to sell, a service that is not entirely ancillary to the solicitation of orders for sales of tangible personal property, the corporation is not exempt from tax under this section.

Example 14: A foreign corporation contracts with a marketplace provider that facilitates the sale of the corporation's products on the provider's online marketplace. The marketplace provider maintains inventory, including some of the corporation's products, at fulfillment centers in New York State. Since this activity involves the maintenance of the corporation's products in New York State, the corporation is not exempt from tax under this section.

Example 15: A foreign corporation that sells tangible personal property via the Internet also contracts with New York State customers to stream videos and music to electronic devices for a fee. Since this activity involves streaming, which does not constitute the sale of tangible personal property, the corporation is not exempt from tax under this section.

Example 16: A foreign corporation offers for sale only items of tangible personal property on its website. The website enables customers to search for items, read product descriptions, select items for purchase, choose among delivery options, and pay for the items. The corporation does not engage in any activities in New York State that are not described in this example. Since the corporation engages exclusively in activities in New York State that either constitute solicitation of orders for sales of tangible personal property or are entirely ancillary to solicitation, the corporation is exempt from tax under this section.

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.10

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023