New York—Corporate Income Tax: Taxpayer Using Third-Party Fulfillment Services Not Doing Business in New York

The New York Department of Taxation and Finance has issued a corporate tax advisory opinion regarding P.L. 86-272. The department determined that because the taxpayer’s business within New York is limited exclusively to the sale of tangible personal property, and because the taxpayer’s use of third-party fulfillment services located in New York State falls under the exemption in Tax Law §209.2(f), the taxpayer qualifies for the P.L. 86-272 exemption and, therefore, is not subject to New York corporate franchise tax.

The taxpayer sells gifts and awards to companies that wish to honor their employees. Many of the taxpayer’s products are personalized or customized in some way, such as casting, stamping, or laser engraving. The taxpayer has manufacturing facilities and inventory warehousing facilities located in North Carolina. Some of the gifts sold by the taxpayer are manufactured at its North Carolina factory. However, the taxpayer also sells other gifts that it acquires from third-party vendors. Some of these third-party vendors may be located in New York. The taxpayer uses sales representatives throughout the U.S., including some in New York, to solicit sales.

The department opined that it appears that the taxpayer is not employing capital in New York, does not own or lease property in New York, and does not maintain an office in New York. Therefore, issue is whether the taxpayer is doing business in New York.

The department noted that the taxpayer’s business appears to be limited to the sales of tangible personal property. Although some of the taxpayer’s orders may be filled by third-party vendors located within the state, this use of fulfillment services falls under the exemption so long as the taxpayer is not affiliated with any of the third-party vendors. The use of fulfillment services did not constitute doing business in New York.

Therefore, the taxpayer’s activities fall within the scope of P.L. 86-272, and the taxpayer is exempt from New York corporate franchise tax.

TSB-A-11(10)C, New York Commissioner of Taxation and Finance, November 1, 2011