You represent ABC Corporation, a New Jersey S-corporation that has 3 shareholder

Question

You represent ABC Corporation, a New Jersey S-corporation that has 3 shareholders, Abbey, Bobby and Charlie. Abbey and Bobby are domiciliaries of New York. Charlie is a domiciliary of New Jersey. Charlie owns an apartment in New York which he purchased as an investment. Charlie spends approximately 200 days in New York per year. ABC Corporation sells sporting goods and sporting good equipment throughout the United States. All purchase orders are processed in New Jersey and shipped from a distribution warehouse located in the State where delivery of goods will occur using independent truck drivers. Each warehouse is owned and managed by an unrelated entity. The corporation does not have any stores, offices or employees in any other State other than New Jersey. However, ABC Corporation does keep its books and records in NYS with its accounting firm. In addition, ABC corporation occasionally sends independent salesman into a particular State, including New York, to market and sell their goods to box-store distributors such as Modells, Footlocker and Footaction. The independent salesman not only attempt to make sales but will occasionally pass product inquires and complaints of the stores to ABC, as well as, assist in displaying the sporting good products in the store.

1. Does ABC Corporation have franchise tax nexus with New York State or New York City?
2. Would your answer to question 1 above change, if you were told that ABC corporation sold its goods to NY stores for an amount exceeding $1 million dollars?
3. Assuming that ABC corporation has nexus with NYS and NYC, to what extent, if any, are Abbey, Bobby and Charlie subject to income tax from the activities of ABC corporation.
4. Assume that ABC Corporation wanted to create a separate company to sell its sporting goods solely to New York customers. The company would be created in New Jersey and could either be (1) an LLC taxed as a partnership, (2) a corporation taxed under subchapter C of the Internal Revenue Code or (3) a corporation taxed under subchapter S of the Internal Revenue Code. The new company will also use the warehouse in New York that is owned by the independent contractor but used by ABC corporation. Assume that the new entity expects to have over $1 million dollars in sales sent into the New York State and City Market. Which entity, LLC, C-corp or S-corp would you advise your clients to use so that they are exposed to the least amount of NYS/NYC tax. You represent ABC Corporation, a New Jersey S-corporation that has 3 shareholders, Abbey, Bobby and Charlie. Abbey and Bobby are domiciliaries of New York. Charlie is a domiciliary of New Jersey. Charlie owns an apartment in New York which he purchased as an investment. Charlie spends approximately 200 days in New York per year. ABC Corporation sells sporting goods and sporting good equipment throughout the United States. All purchase orders are processed in New Jersey and shipped from a distribution warehouse located in the State where delivery of goods will occur using independent truck drivers. Each warehouse is owned and managed by an unrelated entity. The corporation does not have any stores, offices or employees in any other State other than New Jersey. However, ABC Corporation does keep its books and records in NYS with its accounting firm. In addition, ABC corporation occasionally sends independent salesman into a particular State, including New York, to market and sell their goods to box-store distributors such as Modells, Footlocker and Footaction. The independent salesman not only attempt to make sales but will occasionally pass product inquires and complaints of the stores to ABC, as well as, assist in displaying the sporting good products in the store.

1. Does ABC Corporation have franchise tax nexus with New York State or New York City?
2. Would your answer to question 1 above change, if you were told that ABC corporation sold its goods to NY stores for an amount exceeding $1 million dollars?
3. Assuming that ABC corporation has nexus with NYS and NYC, to what extent, if any, are Abbey, Bobby and Charlie subject to income tax from the activities of ABC corporation.
4. Assume that ABC Corporation wanted to create a separate company to sell its sporting goods solely to New York customers. The company would be created in New Jersey and could either be (1) an LLC taxed as a partnership, (2) a corporation taxed under subchapter C of the Internal Revenue Code or (3) a corporation taxed under subchapter S of the Internal Revenue Code. The new company will also use the warehouse in New York that is owned by the independent contractor but used by ABC corporation. Assume that the new entity expects to have over $1 million dollars in sales sent into the New York State and City Market. Which entity, LLC, C-corp or S-corp would you advise your clients to use so that they are exposed to the least amount of NYS/NYC tax. You represent ABC Corporation, a New Jersey S-corporation that has 3 shareholders, Abbey, Bobby and Charlie. Abbey and Bobby are domiciliaries of New York. Charlie is a domiciliary of New Jersey. Charlie owns an apartment in New York which he purchased as an investment. Charlie spends approximately 200 days in New York per year. ABC Corporation sells sporting goods and sporting good equipment throughout the United States. All purchase orders are processed in New Jersey and shipped from a distribution warehouse located in the State where delivery of goods will occur using independent truck drivers. Each warehouse is owned and managed by an unrelated entity. The corporation does not have any stores, offices or employees in any other State other than New Jersey. However, ABC Corporation does keep its books and records in NYS with its accounting firm. In addition, ABC corporation occasionally sends independent salesman into a particular State, including New York, to market and sell their goods to box-store distributors such as Modells, Footlocker and Footaction. The independent salesman not only attempt to make sales but will occasionally pass product inquires and complaints of the stores to ABC, as well as, assist in displaying the sporting good products in the store.

1. Does ABC Corporation have franchise tax nexus with New York State or New York City?
2. Would your answer to question 1 above change, if you were told that ABC corporation sold its goods to NY stores for an amount exceeding $1 million dollars?
3. Assuming that ABC corporation has nexus with NYS and NYC, to what extent, if any, are Abbey, Bobby and Charlie subject to income tax from the activities of ABC corporation.
4. Assume that ABC Corporation wanted to create a separate company to sell its sporting goods solely to New York customers. The company would be created in New Jersey and could either be (1) an LLC taxed as a partnership, (2) a corporation taxed under subchapter C of the Internal Revenue Code or (3) a corporation taxed under subchapter S of the Internal Revenue Code. The new company will also use the warehouse in New York that is owned by the independent contractor but used by ABC corporation. Assume that the new entity expects to have over $1 million dollars in sales sent into the New York State and City Market. Which entity, LLC, C-corp or S-corp would you advise your clients to use so that they are exposed to the least amount of NYS/NYC tax.

Explanation / Answer

Solutions:

1) ABC Corporation does not have a nexus in NYS or NYC as sales are less than 1,000,000

2) Yes, if they have sales of over 1,000,000 in NY, then it establishes ''substantial nexus'

3) Abbey, Bobby and Charlie will be subject to tax proportionately with the percentage of New york based receipts to the total receipts sourced everywhere else.

4) The S corporation's nonresident shareholders pay New York tax on just the percentage of New York sourced receipts to entity's income for the year whereas LLC's nonresident shareholders pay New York tax on their share of entity's full income for the year. Hence, it is beneficial for ABC Corporation to register as S Corp in NY.

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